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.
Cite this paper
Jalaludeen, S. , Che, F. and Jalal-Eddeen, F. (2018). Targeted Sensitization as a Strategy to Reducing Loan Default in Microfinance Bank Operations in Yola, Adamawa State, Nigeria. Open Access Library Journal, 5, e4275. doi: http://dx.doi.org/10.4236/oalib.1104275.
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