1887

n Ghanaian Journal of Economics - Multiple borrowing and loan default : evidence from small and medium scale enterprises in Ghana - research

Volume 7 Number 1
  • ISSN : 2309-8945

Abstract

Financial institutions approve and disburse loans to individuals and firms to generate profit for their sustainability. However, one major challenge financial institutions face is loan default. Multiple borrowing is widely acknowledged as a major factor that contributes to loan default; but there is virtually no empirical evidence in support of this claim especially in the case of sub-Saharan African countries. This study therefore examines the impact of multiple borrowing on loan default with evidence from small and medium enterprises (SMEs). We rely on primary data and employ the binary probit regression for our analysis. The results show that SMEs that have multiple borrowing are more likely to default. The study therefore recommends that loan and credit officers of financial institutions should be more diligent and circumspect in their quality control checks and credit appraisal of prospective borrowers. Again, the study suggests the establishment of more Credit Reference Bureaus under the Credit Reporting Act, 2007 (Act 726) which facilitate information sharing among financial institutions about credit activities of borrowers. These are likely to reduce incidence of loan default because potential defaulters will be exposed and subsequently their loan applications declined.

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/content/journal/10520/EJC-1b2f72f834
2019-12-31
2020-09-26

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