MIDLANDS STATE UNIVERSITY
FACULTY OF COMMERCE
DEPARTMENT OF INSURANCE AND RISK
MANAGEMENT
NAME MURENGAMI PANASHE T
REG NUMBER R193863Z
MODULE DISSERTATION
LECTURER GANGATA
MODE OF ENTER CONVENTIONAL
LEVEL 4.2
Topic
Loan defaulters are becoming a worrying factor in the Zimbabwean financial institutions .To
assess the measures that can be used to curb this problem.
Introduction
This chapter gives a background of study which helps trace the origins of the problem statement
to be researched. Afterwards, research questions and objectives, delimitations, Significance of
study, limitations and finally the summary will be presented herein.
Background
Microfinance is a provision of a range of financial services including services, small loans,
insurance, and money transfer services to marginalized member of the population and SMEs that
do not have access to finance from financial instituitions.Microfinance institutions (MFIs) ie
Fundhouse Finance are known for their positive impact on growth and development of nations.
Deribie, Nigussie and Mitiku (2012) says microfinance is a tool for economic development
through its financing of micro projects for the small business owners and individuals. Charles
(2003) says that microfinance institutions were constituted to extend loans to the poor to enable
them to start and grow their businesses. Fundhouse Finance help to improve living standards of
people by offering them loans. The Reserve Bank of Zimbabwe (RBZ) is the one responsible for
monitoring the monetary policy. It also administers the operations of the financial sector and it’s
responsible for ensuring a sound and sustainable financial system. The issue of loan default
among microfinance institutions has been discussed in many public lectures and business
seminars as one of the reasons why commercial banks has not shown much interest in financing
Micro, Small and Medium Enterprises (MSMEs) .Balogun and Alimi (1990) defined a default
as the inability of a borrower to fulfil his or her loan obligation when due. High default rate in
microfinance institutions lending should be a worrying factor to policy makers in developing
countries because of its unintended negative impact on microfinance business. All microfinance
institutions face the problem of loan defualters.Warue (2012) says that the chance that a
microfinance institutions (MFI) may not receive its money back from borrowers (plus interest) is
the common and often the most serious vulnerability in a microfinance institutions. She also said
that since microloans are unsecured, default can quickly spread from a handful of loans to a
significant portion of portfolio .A default is failure to repay the loan.
STATISTICS
A case study of FUNDHOUSE MICROFINANCE
80%
Percentage number of defaulters
70%
60%
50%
40%
30%
20%
10%
0%
2018 2019 2020 2021
Years
Number of defaulters
Research Problem
The study seeks to provide information on high default rates being faced by Fundhouse
Microfinance. The diagram above is showing the statistics on how the default rate is increasing
from 2018 it was 58% followed by 2019 it then went up to 60% .2020 it was on 68% it increased
by 7% from 2019.In 2021 it was on 75%. In the first quarter of 2022 the percentage was still on
75% which means it hasn’t changed yet. The information on the above diagram was obtained
from Fundhouse consolidated reports. It is said that the recommended PAR (Portfolio at risk) of
at most 5%, anything above 5% is worrisome. In this case Fundhouse Finance’s rates are above
5% which then makes it a problem and it needs immediate attention. However Fundhouse
Finance has been facing challenges of high default rate by its clients.
Objectives
i) To analyze the increase of outstanding loans
ii) To establish strategies that can be used to reduce loan defaults
iii) The importance of managing outstanding loans
iv) To draw a conclusion
Research questions
The research study was meant to come up with answers to the following questions:
What are the causes of the loan defaults of Fundhouse Microfinance?
What is the impact of competition on the survival of micro lending businesses?
What strategies can be put in place to prevent the high default rate of Fundhouse
Microfinance?
Significance of the study
a) To the student
The student is carrying out this research to fulfil the requirements and own her Bachelor of
Commerce Honours Degree in Insurance and Risk Management at Midlands State
University. This will also enhance the researcher’s knowledge and understand deeply the
problem she noticed when she was on attachment.
b) To Fundhouse Microfinance Company Pvt Ltd
The researcher is going to provide the company with strategies to solve the problem they
are facing in their company.
c) To the University
Limitations
a) Time
Due to the shortness of the semester the research will be done in a short period of time.
b) Financial constraints
As young as l am, l am still depend to my parents so l cannot afford to carry out a research which
requires a lot of money. Due to that effect the researcher will have to do a research which doesn’t
require a lot of money.
c) Access to information
The information that is required in this research need a lot of approval from the management
body of the company under study. The other issue is some of the information is confidential so
they might not be comfortable to expose it.
Delimitations
The study is limited to one microfinance company which is Fundhouse Finance. The research is
going to be focused on the default rates from 2018 up to 2022 first quarter.
Definition of terms
(SMES) Small and medium Enterprises –
Summary
This is the foundation of the study area which will give the readers the basic understanding of
the research. After defining key terms that are going to be used and providing background of the
study, statement of problem and what we seek to achieve in this research
