Does Loan Size Matter for Productive Application? Evidence from Nepalese Micro-finance Institutions

Abstract

This paper examines the loan size and its productive application after involvement in micro-finance programme in western development region of Nepal. The paper is based on primary sources of data collected through structured questionnaires. The survey includes 500 clients from four districts of western development region both from government and Private microfinance institutions. The study shows that there is positive association between size of savings and loans, size of savings and loan application, current loan size and ethnicity, loan size and duration of membership, and finally loan size and its application. It has been found that clients who have taken small size of loans, they have mostly spent their loans on domestic purposes and found poor application of loans in micro-business whereas big loan size clients have greater application of loans in productive sectors. Micro-finance institutions should increase loan size (as per the provision of monitory policy) with necessary entrepreneurship skills that will help to enhance productive application of loans however, strict monitoring and supervision is essential. Thus, MFIs should give equal priority for non-financial services such as financial literacy and provision of entrepreneurship skills through government and non-government organizations that ultimately helps to utilize micro-credit into productive sectors.

Repositioning Vol.1(1) 2016: 63-72