A Critical Study on Determinants of Loan Defaults in Some Selected Credit Unions in Kumasi Metropolis of Ghana

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A Critical Study on Determinants of Loan Defaults in Some Selected Credit Unions in Kumasi Metropolis of Ghana

March 1, 2021 Economics and Management 0

In Ghana’s microfinance industry, credit unions play a critical role. They are not only well-established in financial intermediation, but they also give their members better terms and conditions on financial products and services than banks and other financial institutions. Credit unions give their members the ability to access loan facilities at a lower interest rate and with more favourable terms and conditions, such as flexible repayment terms, than banks and other financial institutions. The prevalence of loan defaults or non-performing loans has put Credit Unions’ long-term stability in jeopardy. In Credit Unions, diagnosing the causes of loan defaults has become crucial to successful credit risk management practises. The analysis was focused on primary data. 244 Credit Union participants were selected using a targeted sampling methodology. Data was obtained using questionnaires, and a logistic regression model was used. For data analysis, the research used Statistical Product and Service Solution (SPSS v. 20) and Stata (v.14) as statistical methods. Education, loan diversion, surveillance, marital status, and income are all significant factors that affect loan default, according to the findings. There was no evidence of a correlation between loan default and age, gender, or household size. As a result, credit education should be improved, and successful loan monitoring should be followed actively. Loan assessment systems should also be comprehensive, with the application and implementation of credit scoring systems that take into account key loan default variables.

Author (s) Details

Edward Yeboah
Department of Accounting and Finance, KNUST School of Business, Kwame Nkrumah University of Science and Technology (KNUST), Kumasi, Ghana.

Ms. Irene Mirekuah Oduro
St Peter’s Cooperative Credit Union, Kumasi, Ghana.

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