Client exit in microfinance: a case study of Christian rural aid network (CRAN), Cape Coast

Abstract

Repeat borrowing is essential for long term financial sustainability of Microfinance Institutions (MFIs). This long term financial sustainability is threatened by high client exit, that is, premature termination of the borrowing relationship. In view of the above, the purpose of this study is to investigate the reasons for clients exit and to determine the factors that influence the length of the MFI-client borrowing relationship. A duration model (semiparametric model) is used to empirically examine the factors that affect the borrowing relationship length. To obtain data for this study, structured questionnaires were prepared and administered on 103 exit clients selected from Christian Rural Aid Network (CRAN) microfinance data base. The results of the study reveal that first; the reasons for client exit are frequency of repayment schedules, high cost of borrowing, obligatory inaccessible savings, dissatisfaction with group leadership, seasonality of business activity, threat of prosecution on default among other things. Second, loan size, age of client, dependency ratio, group repayment problem, household income shock and competition from informal financial service significantly affect the length of the borrowing relationship. It is recommended that CRAN should conduct loan needs assessment and come out with loan sizes that meet the business needs of their clients. It is also recommended that CRAN should design repayment schedule that takes into account the cash flow pattern of its clients.