REPAYMENT OF LOAN IN EMPLOYEES COOPERATIVE THRIFT AND CREDIT SOCIETIES

NIRD, Hyderabad.

REPAYMENT OF LOAN IN

EMPLOYEES’ COOPERATIVE

THRIFT AND CREDIT SOCIETIES

Cooperatives occupy a place of eminence in the economic activity of the country and have been acting as a catalyst for the socio-economic development. Since Indepen-dence, the cooperative sector has made remarkable progress, which has also resulted in certain weaknesses. Cooperative credit societies are classified as agricultural credit societies and non- agricultural credit societies. Employees’ Cooperative Thrift and Credit Society [ECTCS] is a non-agricultural credit society, started mainly for saving the employ-ees from the hands of moneylenders. Default in repayment of loan is a major problem of ECTCS, which affects the entire financial performance of the societies. So the present study has been carried out to find out the reasons for defaults in recovery of loan amount and to analyse the impact of important factors (reasons) on defaults among the members. Interview schedule was used for collecting primary data from the sample respondents. Proportionate stratified random sampling method was followed for selecting the sample members. Factor analysis, t-test and multiple regression analysis are the tools used for analyses. The present study reports that the environmental factor is the most influencing factor leading to default in repayment of loan. The apex cooperative institution, therefore, should take into consideration the problem of the ECTCS and should come forward for the revival of the societies in order to make them as economically viable societies.

* Reader in Commerce, Research Centre, Department of Commerce, Scott Christian College, Nagercoil – 629003. * * Department of Commerce, S.T. Hindu College, Nagercoil.

Cooperatives occupy a place of eminence in the economic activity of the country and have been acting as a catalyst for the socio-economic development. Since Independence, the cooperative sector has made remarkable progress, which has also resulted in certain weak-nesses. Cooperative credit societies are classi-fied as agricultural credit societies and non-agri-cultural credit societies. Employees’ Cooperative Thrift and Credit Society [ECTCS] is a non-agri-cultural credit society, started mainly for saving the employees from the hands of money lenders. Separate Employees’ Cooperative Thrift and Credit societies have been organised for dif-ferent categories of workers. The objectives of the societies are to encourage thrift and coop-eration among the members, to borrow funds from the members for being utilised as loans to

members and to act as agents for joint purchase of domestic and other requirements of the mem-bers. The successful financial performances of these societies are very essential to the employ-ees to save their money and to escape from the hands of private moneylenders.

Statement of the Problem

The societies are subjected to many prob-lems such as dual control, limited area of operation, lack of marketing view, limited resources, lack of proper support from govern-ment, lack of computerisation and default in repayment of loan. Default in repayment of loan is a major problem, which affects the entire financial performance of the societies. In the competitive environment, the survival and future of the societies depend upon their financial performances.

Objectives of the Study

1. To find out the reasons for defaults in recovery of loan amount.

2. To find out the significant differences in the reasons for defaults in recovery of loan amount between the members of Nagercoil and Thuckalay societies. 3. To analyse the impact of important

factors (reasons) on defaults among the members. .

Sampling Procedure : The ECTCS in Kanyakumari

district are classified as ECTCS of Nagercoil and Thuckalay revenue divisions. There are 26 and 15 ECTCS in Nagercoil and Thuckalay. Out of these societies, only 23 and 13 societies are keep-ing their accountkeep-ing information for the past 10 years. So only the societies which are keeping accounting facts are purposively selected for the study. The above said 23 and 13 societies have 15499 and 12771 members, respectively. The total sample size of members was arbitrarily assigned as 2 per cent of the total population. So the sample size is 564 members. Proportion-ate stratified random sampling method is followed for selecting the sample respondents for the study. After classifying the members as members of Nagercoil and Thuckalay societies, from the selected societies of the two revenue divisions, from each society the respondents are selected on proportionate random sampling method.

Data Collection : The present study is based on

primary data. The primary data were collected from the selected respondents with the help of structured interview schedules designed and finalised after a pilot survey.

Factor analysis, t-test and multiple regres-sion analysis are the tools used for analyses. Reasons for Defaults among the Members

The default in repayment of loans by the members may be due to different reasons. In the present study, the reasons for defaults were confined to higher rate of interest, family prob-lems, no system of penal rate, higher indebted-ness, insufficient loan amount, leniency in

recovery, higher monthly instalment, improper utilisation of loan, education expenditure, unex-pected sickness, influence of co-workers, politi-cal influence, unexpected financial problems, management of debts and expectation for write off accounts. The members were asked to rate the above said 15 reasons at five points scale with option from highly agree to highly disagree. The scores assigned on these scales were 5, 4, 3, 2 and 1, respectively. The mean scores for differ-ent reasons and the ‘t’ statistics revealing the significance of differences among the opinions revealed by the members of the societies at Nagercoil and Thuckalay are given in Table 1.

Table 1 reveals the perceptions on the reasons for default in repayment. The signifi-cant differences among the borrowers’ opinions in two groups of societies were identified with the help of ‘t’ test. In the societies at Nagercoil, the important reasons for default were misman-agement of debts and unexpected financial problem since their respective means were 4.1173 and 4.0633. In societies at Thuckalay, these reasons were unexpected financial prob-lem and higher monthly instalment since the mean scores were 3.9092 and 3.8681, respec-tively. Among the various reasons for defaults, the significant differences between the opin-ions of the members of the societies at Nagercoil and Thuckalay were identified to be the percep-tions on family problems, leniency in recovery, higher monthly instalment, unexpected sickness, mismanagement of debts and expectation to write off since the respective ‘t’ statistics were significant at 5 per cent level.

Narration of the Perception on Various Rea-sons for Defaults

The reasons for default, among the members were narrated with the help of factor analysis. The scores on various reasons for defaults in repayment by the members were included for this analysis. The resulted factors, variables in factors, their factor loading, reliability coefficient and the per cent of varia-tion of the factors are shown in Table 2.

Table 2 : Factors loading of various reasons for defaults

Factors Reasons for Overdue Factor Reliability Per cent of

(Eigen Value) Loading Coefficient Variation

Environmental No penal rate 0.8314 0.8371 26.32

Factor(3.7109) Leniency in recovery 0.7802 Expectation to write off 0.7119

Political influence 0.6306

Influence of co-workers 0.5917

Financial Factor Insufficient loan amount 0.9114 0.7308 21.27 (3.0634) Educational expenditure 0.8606

Unexpected financial problem 0.7263 Higher monthly instalment 0.6508 Higher rate of interest 0.5803

Personal Factor Family problems 0.9332 0.7661 19.08

(2.4173) Improper utilisation of loan 0.8606

Higher indebtedness 0.7343

Unexpected sickness 0.6802

Mismanagement of debts 0.5917

Table 1 : Reasons for defaults among the members

S. No. Reasons for defaults Mean Score in ‘t’-Statistics Societies at Societies at

Nagercoil Thuckalay

1. Higher rate of interest 2.7139 2.5038 0.3086

2. Family problems 3.6814 2.5411 2.7314*

3. No penal rate 3.4046 3.5167 -0.2673

4. Higher indebtedness 2.8187 3.0814 -0.3149

5. Insufficient loan amount 3.0149 3.1718 -0.1983

6. Leniency in recovery 3.6033 2.4144 2.8018*

7. Higher monthly instalment 2.7182 3.8681 -2.9394*

8. Improper utilisation of loan 3.4686 2.9644 0.7867

9. Education expenditure 3.6808 3.5717 0.1023

10. Unexpected sickness 2.4951 3.5109 -2.1766*

11. Influence of co-workers 2.9892 2.6331 0.6891

12. Political influence 3.9091 3.4418 0.5517

13. Unexpected financial problem 4.0633 3.9092 0.3039

14. Mismanagement of debts 4.1173 2.8996 2.8661*

15. Expectation to write off 3.8914 3.0762 2.0411*

* Significant at 5 per cent level.

The factor analysis narrated the fifteen reasons into three important factors, namely ‘Environmental’, ‘Financial’ and ‘Personal’ factors. All these three factors explained the reasons for default by the members to the extent of 66.67

per cent. The most important factor was ‘Envi-ronmental factor’. It consists of five reasons with the reliability coefficient of 0.8371. The Eigen value and the per cent of variation of this factor were 3.7109 and 26.32 per cent, respectively.

The second important factor was the ‘Financial’ factor which consists of five reasons with the reliability coefficient of 0.7308. The Eigen value and the per cent of variation were 3.0634 and 21.27 per cent, respectively. The third important factor was the ‘Personal’ factor, which consists of five reasons with the reliability coefficient of 0.7661. The Eigen value and the per cent of variation were 2.4173 and 19.08 per cent, respectively. The important reasons in the above said three factors were no penal rate, insuffi-cient loan amount and family problems, respec-tively. The factor analysis results in three impor-tant factors (reasons) for default among the members namely, environmental, financial and personal factor. The scores of the above said three factors were drawn from the mean scores of the variables in each factor.

Impact of Important Factors on Defaults Among the Members

The study has made an attempt to analyse the impact of important factors (reasons) on defaults among the members. In order to analyse this impact, the multiple regression analy-sis has been administered. The scores on the

three important factors are taken as the score of the independent variables whereas the total amount of overdue is taken as the score of de-pendent variable. The fitted regression model is

y = a+b₁x₁+b₂x₂+b₃x₃+e

whereas y = Total amount of overdue among the respondents

x₁ = Score on Environmental factor among the respondents

x₂ = Score on Financial factor among the respondents

x₃ = Score on Personal factor among the respondents

b₁,b₂,b₃, = Regression coefficients of in-dependent variables

a = Intercept and e = Error term.

The impact analysis is carried out among defaulters in the societies at Nagercoil, Thuckalay and also with the pooled data separately. The resulted regression coefficients of the indepen-dent variables are presented in Table 3. Table 3 : Impact of the important factors on defaults among the members S. No. Factors Regression Co-efficient

Societies at Societies at Pooled

Nagercoil Thuckalay 1. Environmental Factor 0.1082 0.0897 0.1123 2. Financial Factor 0.5819* 0.3981* 0.4087* 3. Personal Factor 0.3036* 0.2445* 0.2962* Constant 1.4503 1.8089 1.6026 R2 _{0.7302 0.6861 0.7989} F Statistics 11.6261* 9.7076* 12.6803*

* Significant at 5 per cent level.

In the societies at Nagercoil, the signifi-cant factors influencing default are financial and personal factors. A unit increase in the percep-tion on the above two factors results in an in-crease in total default amount by 0.5819 and 0.3036 units, respectively. In the societies at Thuckalay, a unit increase in the perception on

the financial and personal factors results in a significant increase in the default by 0.3981 and 0.2445 units, respectively. The analysis of pooled data also reveals that the increase in the above said two factors results in an increase in the default by 0.4087 and 0.2962 units, respectively. The change in the included independent

variable explains the change in default to the extent of 79.89 per cent.

Findings

In the societies at Nagercoil, the impor-tant reasons for default were mismanagement of debts and unexpected financial problem since their respective means were 4.1173 and 4.0633. In societies at Thuckalay, these reasons were unexpected financial problem and higher monthly instalment since the mean scores were 3.9092 and 3.8681, respectively.

Among the various reasons for defaults, the significant differences between the opin-ions of the members of the societies at Nagercoil and Thuckalay were identified to be the percep-tions on family problems, leniency in recovery, higher monthly instalment, unexpected sickness, mismanagement of debts and expectation on write off since the respective ‘t’ statistics were significant at 5 per cent level.

The important reasons for defaults were no charges of penal rate, insufficient loan amount and family problems, respectively. The factor analysis results in three important factors (rea-sons) for default among the members namely, environmental, financial and personal factor.

In the societies at Nagercoil, the signifi-cant factors influencing default are financial and personal factors. A unit increase in the percep-tion on the above two factors results in an in-crease in total default amount by 0.5819 and 0.3036 units, respectively. In the societies at Thuckalay, a unit increase in the perception on the financial and personal factors results in a sig-nificant increase in the default by 0.3981 and 0.2445 units, respectively.

The analysis of pooled data also reveals that the increase in the above said two factors results in an increase in the default by 0.4087 and 0.2962 units respectively. The change in the included independent variable explains the change in default to the extent of 79.89 per cent.

Suggestions

Based on the findings of the study, the following suggestions are to be carried out to strengthen the ECTCS.

The main weakness of ECTCS is the lack of professionalism due to which in many cases the Board cannot make efficient use of funds. The National and State level apex bodies should take initiatives to introduce professionalism in their member societies by providing training so that the societies can use their funds effectively in this competitive age.

Outside interference, especially political interference should not be entertained while sanctioning loan.

Societies should ensure adequate and continuous supervision and follow up- action after the loan is disbursed.

Suitable enactments empowering the societies to enforce recovery of loans from the borrowers should be made.

As far as possible, the Governments [Cen-tral and State] should avoid the programme like ‘Waiving of loans’ which has adversely affected the psychology of the borrowers and encour-ages them to delay the payment of loans and resulting in default in repayment of loans.

An advisory body may be formed with professional persons either from the Board of Directors or from outside. For example, an ac-countant, a lawyer or a financial expert may be included in this body.

The present study concludes that the environmental factor is the most influencing fac-tor leading to default in repayment of loans. The apex cooperative institution, therefore, should take into consideration the problem of the ECTCS and should come forward for rectifying it by implementing appropriate policies in order to make them as economically viable societies.

References

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