• Multiple Borrowing and Loan Default: Evidence from small and medium scale enterprises in Ghana

    Author(s):

     Samuel Tawiah Baidooa*, Jacob Benson Aidoob, Daniel Sakyic and Hadrat Yusifd 


    samueltawiahbaidoo@yahoo.com
    2024-08-01 05:01:05

    37 Downloads 69 Views

    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.

    Keywords
    Multiple borrowing; Loan default; Financial institutions; Probit regression; Ghana.

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