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Diversion of loan use: who diverts and why?

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  • Khaleque, Abdul

Abstract

This paper uses 2973 loan profile records of 2810 poor households who have taken these loans from different quasi-formal sources of which about 50 percent of the loan taken is supplied by the Ultra-poor oriented program designed by PKSF. The objective of this program was to create some income source for these Ultra-poor through credit support. But diversion of loan use from the proposed IGA to other non-productive sector, especially to consumption hinders the objects and at the same time causes a threat to the MFIs as some of them become default. We observe that among these Ultra-poor households who have taken loan, about 68 percent of the loan was diverted from the proposed IGA to other activity with different degree of diversion and of these diverted loan, 40 percent was fully diverted. We find that among the non-savers, wage employers, inhabitants of char have higher likelihood of diverting their received loan from the proposed IGA to others and more than 28 percent of each loan on average was used for consumption.

Suggested Citation

  • Khaleque, Abdul, 2010. "Diversion of loan use: who diverts and why?," MPRA Paper 26930, University Library of Munich, Germany, revised 15 Nov 2010.
  • Handle: RePEc:pra:mprapa:26930
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    File URL: https://mpra.ub.uni-muenchen.de/26930/1/MPRA_paper_26930.pdf
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    Keywords

    Credit; Diversion; Default; Fund; IGA; Index; Loan; Microfinance;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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