Factors Affecting Non-Performing Loan Portfolio in Micro-Lending: Evidence from Sri Lanka

This study identified pre-loan and post loan evaluation factors on non-performing loans in micro-lending based on the Gami Pubuduwa loan scheme of Hatton National Bank of Sri Lanka. Microcredit officers and actual non-performing loan clients were the samples of the study. Pre-loan evaluation factors were identified based on the CAMPARI model while the post-loan evaluation factors evaluated through three basic management functions. Data were collected using questionnaires. The CAMPARI model was tested using the binomial sign test. The study found the importance of proper consideration of the ability of the borrower and purpose of the loan in prior loan evaluation to reduce non-performing loans in microlending. Further poor financial management practices of actual non-performing loan clients were identified as a significant post-loan evaluation factor of non-performing loans by both microcredit officers and actual non-performing loan clients. Credit officers were on the opinion that poor operational management practices as a post-loan evaluation factor of non-performing loans. Findings provide implications to micro-lending institutions on the importance of pre-loan evaluation and post-loan evaluation in reducing the non-performing loans.