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Targeted Sensitization as a Strategy to Reducing Loan Default in Microfinance Bank Operations in Yola, Adamawa State, Nigeria

DOI: 10.4236/oalib.1104275, PP. 1-10

Keywords: Microfinance Institutions, Loan Default, Targeted Sensitization, Adamawa State, Nigeria

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Abstract:

Background: In Nigeria and other developing countries, the main reason for poverty and uneven income and wealth distribution is low economic growth performance and low labor returns amongst others. The growing gap between the rich and the poor in the developing countries is alarming hence the need for government and policy makers to focus more toward ensuring a fair distribution of wealth among its populace. Although progress has been made toward poverty reduction in Nigeria, still more needs to be done to narrow this unacceptable gap so as to achieve the needed economic and social growth for society to thrive. In an attempt to address this gap, the central bank of Nigeria came up with the microfinance policy in 2004 and the sole purpose was to give micro, small and medium enterprises access to informal financial services to boost their capacity towards economic growth and development. However, the biggest threat to operations of the microfinance institutions is loan default, a situation where the clients do not fulfill payment of their credit facilities when due. Methods: This mixed method cross-sectional study used a questionnaire to collect responses from eligible persons. The participants in the survey are clients from three randomly selected microfinance institutions in Yola, Adamawa State, Nigeria. The collated data were analyzed using SPSS version 24 and simple Microsoft Excel to look at reasons for defaulting loan repayment and whether targeted sensitization has any significant role in reducing loan default rates. Results: Out of the 150 (100%) questionnaires distributed, 70 (46.7%) were returned and used for the analysis. Reasons for default in repayments revealed short repayment period (40%), multiple loans (11.43%), high-interest rates (2.86%), family obligations (20%) and poor business turnover (25.71). Of the 52.86 percent of the respondents who claim they were contacted by their respective microfinance institutions for sensitization programs, 94.74 percent found the sensitization program helpful. Conclusion: This study has underscored the importance of targeted sensitization as an important strategy in reducing loan defaults in microfinance operations. Similarly, there is the need for further studies to look at the impact of multiple borrowing on loan repayment by the clients.

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