The default in repayment by a member in a self-help groups pushes up the cost of other members and the wilful default is the most prevalent reason, according to a study by Centre for Microfinance (CMF). The study also says MFIs can possess a 100 per cent on time repayment record by enforcing deadlines and constantly reminding clients about their “joint liability”.

The study was carried under the microfinance researchers alliance programme of the CMF, which is funded by the Ford Foundation. The study titled “Why the clients default” was based on a sample data collected in Loni Ghaziabad district of Uttar Pradesh from April to June 2010. About 48 groups and 199 members were covered with visit to 17 centres.

The objective of the study was to find the actual number of defaulter clients in relation to repayment clients, besides finding the reasons as to why clients default and the costs accruing to group members in the face of such defaults.

The outcome showed that the proportion of defaulter clients to repayment clients is about 22 per cent, with reasons for default being multifold, and among them, willful default being most prevalent.

The study pointed out that the group faces extreme hardships in pooling money of defaulter’s EMI at the cost of welfare of family (reduction in expenses especially food) by poor clients in the group/centre. They also borrow from some one, somewhere to pay up for defaulter’s EMI. The clients adopted tactics such as moving house away from centre or migrating without any information.

“In order to possess a 100 per cent on time repayment record, the centre manager should enforce deadlines and constantly reminding clients about their “joint liability”. Also the processes of loan collection and repayment are well structured with staff incentives included,” Mani Nandhi author of the study said.