Microfinance providers in Peru carry a combined outstanding loan portfolio equivalent to USD 12.7 billion, serving 5 million borrowers. Dr Lopez-Sancheza and Dr Urquia-Grande conducted a qualitative analysis of these loans based on: (1) a literature review; and (2) interviews with microfinance customers and representatives of microfinance institutions (MFIs) and MFI associations.
Among the findings of the study are that: (1) microfinance customers in Peru are at high risk for overindebtedness, spending an average of 35 percent of their monthly income on debt repayment, with 16 percent behind schedule on their loan payments; (2) MFIs have a “low” rate of customer retention, with an average of 20 percent of customers remaining with the same MFI for more than two years; and (3) rural residents are resistant to opening financial accounts due to lack of trust in the financial system.
All of those interviewed agreed that education is the primary tool for improving the impact value of microfinance. The authors suggest developing different financial education and product options for customers experiencing various degrees of poverty. They also recommend that: (1) to increase their financial sustainability, MFIs invest in more training and retention efforts for banking agents and loan officers; and (2) the industry increase its focus on entrepreneurs whose businesses have the potential to generate sustainable growth and job creation.
This is a summary of a paper by Pilar Lopez-Sancheza and Elena Urquia-Grande, published by Spanish Accounting Review, January 2023, 19 pages, available at https://revistas.um.es/rcsar/article/view/432671/335511.
By Vaughn Rajah, Research Associate
Additional Resources
Spanish Accounting Review webpage
https://revistas.um.es/rcsar
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