Skip to main content

Loan Repayment Performance in Community Development Finance Institutions in the UK

Abstract.

This paper identifies the key institutional factors that influence loan loss rates in Community Development Finance Institutions in the UK. Traditional bank credit assessment puts the blame of poor loan performance largely on the borrower. This is the first study of its kind to examine institutional characteristics of 16 CDFIs in the UK and assess their influence on the loan loss rates. The results show that 8 out of the 13 institutional characteristics examined significantly influence loan repayment performance. Although a vast body of literature supports the view that borrower characteristics are highly influential, our results provide strong evidence to show that institutional characteristics are equally important and both factors need to be taken into account if loan repayment performance is to be improved.

This is a preview of subscription content, access via your institution.

References

  1. Avery, R. B., Bostic, W. Raphael and Canner B. Glenn, 2000, CRA Special Lending Programmes’. Federal Reserve Bulletin.

  2. J. Ashe (2000) ArticleTitleMicrofinance in the United States: The Working Capital Experience Ten Years of Lending and Learning’ Journal of Microfinance. 2 IssueID2 22–60

    Google Scholar 

  3. Association of Social Advancement, 1997, Causes of Default in Micro Credit’, Alternative Finance website, ITDG Publishing, London. Bank of England, 2000, The Financing of Small Businesses in Deprived Communities’ Domestic Finance Division.

  4. N. Bhatt Y. Tang S. (2002) ArticleTitleDeterminants of Repayment in Microcredit: Evidence from Programs in the United States International Journal of Urban and Regional Research. 26 IssueID6 360–376

    Google Scholar 

  5. British Bankers Association, 2000, Promoting Financial Inclusion: The Work of the Banking Industry’.

  6. Collin, S., T. Fisher, E. Mayo, A. Mullinuex, and D. Satter, 2001, The State of Community Development Finance, 2001’. New Economics Foundation.

  7. Coleshaw, J. 1989, Credit Analysis: How to Measure and Manage Credit Risk’, Woodhead-Faulkner Press Ltd.

  8. Copisarow, R., 2000, The Application of Micro Credit Technology to the UK: Key Commercial and Policy Issues’, Journal of Micro Credit, 1(1).

  9. B. Coyle (2000) Framework for Credit Risk Management CIB Publishing UK

    Google Scholar 

  10. Deakins, D and G. Hussain, 1993, Overcoming the Adverse Selection Problem: Evidence and Policy Implications from a Study of Bank Managers on the Importance of Different Criteria Used in Making a Lending Decision’, Small Firms: Recession and Recovery, ISBA, London.

  11. Doran A M. Hoyle (1986) Lending to Small Firms: A study of Appraisal and Monitoring Methods, reported by Economist Advisory Group NEDC London

    Google Scholar 

  12. Evers J, Jack S., Loeff A, Siewertsen H., 1999 Reducing Cost and Managing Risk in Lending to Micro Enterprises, Institute fur Finanzdienstleistungen (IFF) e.V Hamburg.

  13. How Bank Managers Make Lending Decisions to Small Firms’ Small Firms: Contribution to Economic Regeneration

  14. M. Ghatak (2000) Screening by the Company you Keep: Joint Liability Lending and the Peer Selection Effect, The Economic Journal, 110, 465 601–631

    Google Scholar 

  15. Greenbaum S. I , Thakor A. V.,1995. Contemporary Financial Intermediation, The Dryden Press.

  16. Gujarati, D. N., 1995, Basic Econometrics’. Chapter 10, pp 319-346. 3rd Edition. McGraw-Hill, New York.

  17. Harper, M., 1998, Profit for the Poor’, ITC publications. http://www.grameen-info.org

  18. Hoque M. Z., 2000, Loan loss: The Case of Commercial Banks in Oman’. Sultan Quaboos University.

  19. Hulme, D. and P. Mosely, 1996, Finance Against Poverty’, Vol. 2. London, UK.

  20. R. Martin R. Carter Hill (2000) ArticleTitleLoan Performance and Race’ Economic Inquiry. 38 IssueID1 139–150 Occurrence Handle10.1093/ei/38.1.136

    Article  Google Scholar 

  21. Mondar, R., D. Smallbone and D. Deakins, 2002, Ethnic Minority Businesses in the UK: access to finance and business support’. British Bankers Association.

  22. S Parkhouse T. Drury (1994) Big Business and Small Firms’ Rushmere Wyne UK

    Google Scholar 

  23. Phelan K , C. Alexander(1999). Different Strokes’, Risk Magazine, Risk Publications.

  24. N. Rouse (1991) Bankers’ Lending Techniques’ The Chartered Institute of Bankers. London UK

    Google Scholar 

  25. M. Sharma M. Zeller (1997) ArticleTitleRepayment Performance in Group Based Credit Programmes in Bangladesh’ World Development. 25 IssueID10 1731–1742 Occurrence Handle10.1016/S0305-750X(97)00063-6

    Article  Google Scholar 

  26. Social Exclusion Unit, 2000, National Strategy for Neighbourhood Renewal: A Framework for Consultation.

  27. Stearns, K., 1995, The Hidden Beast: Delinquency in Micro enterprise Credit Programme’, ACCION Discussion Thesis Document No. 6.

  28. J. Stiglitz A. Weiss (1981) ArticleTitleCredit Rationing in Markets With Imperfect Information’ American Economic Review. 71 393–410

    Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Jane M. Binner.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Derban, W.K., Binner, J.M. & Mullineux, A. Loan Repayment Performance in Community Development Finance Institutions in the UK. Small Bus Econ 25, 319–332 (2005). https://doi.org/10.1007/s11187-004-6483-y

Download citation

Keywords

  • Strong Evidence
  • Finance Institution
  • Industrial Organization
  • Community Development
  • Development Finance