TREATMENT OF LOAN DEFAULTERS IN MICROCREDIT MARKETS IN IBADAN, OYO STATE

Abstract

Loan default is failure to pay back the money borrowed as and when due. It is an offending behavior which can lead to the collapse of lending institutions or deny other loan seekers the opportunity to access loans in microcredit markets. Treatment of loan defaulters involves a range of sanctions oriented towards deterring or recovering default. In Nigeria, studies have shown that loan defaulters face various degrees of sanctions in credit markets, but there is scant knowledge on how defaulters among small-scale traders are treated in microcredit markets. This study was, therefore, designed to investigate the range of sanctions meted out to loan defaulters, unravel the factors determining the choice of sanctions for defaulters, examine rationale for loan procurement, as well as explore the factors inducing loan default in microcredit markets in Ibadan, Oyo State, Nigeria. The cross-sectional design was employed, while Rational Choice Theory provided the framework. Eight major markets (Agbeni, Aleshinloye, Beere, Bodija, Gbagi Titun, Dugbe, and Ogunpa) in Ibadan were purposively selected due to the preponderance of traders and microcredit providers in these areas. The study engaged 76 participants. Accidental sampling technique was used to select 25 microcredit providers (microfinance banks and microfinance institutions) and 36 defaulters. Purposive sampling technique was used to select state actors (4 police officers, 1Nigeria Security and Civil Defense Corps, 2 officials of the Central Bank of Nigeria, and 1 Judicial officer), while 5 defaulters’ guarantors, and 2 defaulters’ Significant Others were reached through snowballing. An In-Depth Interview guide was used to collect data from defaulters and microcredit providers while a Key-Informant Interview guide was used to elicit data from state actors on their regulatory and mediatory roles; guarantors and Significant Others on their lived experiences. Data were contentanalysed. The participants comprised 57 males and 19 females: 65 Yorubas, 7 Igbos, and 4 others. Defaulters faced monetary penalties (fines, loss of interest waiver, savings forfeiture, and loan denial) which were relatively mild compared to other penalties (loss of confidentiality and humiliation, loss of goods and property, sealing of shops, and arrest and detention), which were non-monetary but severe. These treatment options were determined by loan procurer’s age, gender, health status and credit records, as well as whether the loan providers operated as microfinance banks or microfinance institutions.Traders procured microcredit facilities to raise capital for business start-up and expansion. This aligned with the priority of microcredit providers who, nevertheless, attached conditions such as providing a guarantor who must be held in high esteem by loan applicants before loan disbursement. In spite of these stringent conditions, default occurred due to diversion of loans by loan procurers to non-productive activities such as ceremonies. Default also occurred due to unfavourable social and economic environments in which small-scale traders operated. Loan defaulters suffered mild and severe treatments in microcredit markets. To guide against such treatments, there is the need for loan providers to educate loan seekers on the consequences of default before loan is disbursed.