2.3 Conceptual Framework: Independent Variables Dependent Variable
2.3 Conceptual Framework.
The following conceptual framework will be used for this study:
Independent Variables Dependent Variable
Figure 2.1: Conceptual Framework (Source: Author, 2016)
2.3.1 Credit Information Sharing /Symmetry.
CRBs are a typical response to information asymmetry problems between lenders and borrowers which is usually there between the lender and the borrower about the past repayment behavior and the current level of debt. Ekumah and Essel (2003) described information asymmetry as the condition in which relevant information is not known to all parties involved in an undertaking business. Kallberg and Udell (2003) …show more content…
Chand (2002) pointed out that when there is high intermediation cost due to several reasons like high operating and fixed costs, high transportation cost of funds due to expensive telecommunications, existence of regulatory controls and perceived market risks, etc the situation lead to high interest rate spread where by the borrower may be unable to repay his/her loan owing to the cost of such borrowings. This leads to a high risk of loan default hence non-performance. High transaction cost associated with the capacity to enforce debt contracts, lead the borrowers with no fixed assets (particularly small borrowers) to be perceived as borrowers with high risk and hence are charged retaliatory rates of interest which might lead the borrower unable to repay his/her loan. Espinoza and Prasad (2010), after a comprehensive analysis in their studies, they found that higher interest rates increase non performing loans. Nkusu (2011) supported the idea that hike in interest rates result in deterioration of borrower’s repayment capacity and hence, cause of increase …show more content…
A study by Barron and Staten (2003) showed that lenders could significantly reduce their default rate by including more comprehensive borrower information in their default prediction model. Thus there is a positive relationship between credit information sharing and NPA mitigation. Credit Reference Bureau which use the credit information sharing system, whenever used effectively serve as one among the simple and best ways to reduce loan default rates as borrowers seek to protect their reputation collateral and hence mitigating the NPL. Availability of CRB in Tanzania is expected to enable the pooling of credit information from a borrower’s total number of current loans, repayment history, previous bankruptcies, etc, and avoid information asymmetry problems which can allow lenders to extend greater credit at more favorable interest rates, consequently result in facilitation of borrower’s repayment capacity leading to mitigation of non-performing
The following conceptual framework will be used for this study:
Independent Variables Dependent Variable
Figure 2.1: Conceptual Framework (Source: Author, 2016)
2.3.1 Credit Information Sharing /Symmetry.
CRBs are a typical response to information asymmetry problems between lenders and borrowers which is usually there between the lender and the borrower about the past repayment behavior and the current level of debt. Ekumah and Essel (2003) described information asymmetry as the condition in which relevant information is not known to all parties involved in an undertaking business. Kallberg and Udell (2003) …show more content…
Chand (2002) pointed out that when there is high intermediation cost due to several reasons like high operating and fixed costs, high transportation cost of funds due to expensive telecommunications, existence of regulatory controls and perceived market risks, etc the situation lead to high interest rate spread where by the borrower may be unable to repay his/her loan owing to the cost of such borrowings. This leads to a high risk of loan default hence non-performance. High transaction cost associated with the capacity to enforce debt contracts, lead the borrowers with no fixed assets (particularly small borrowers) to be perceived as borrowers with high risk and hence are charged retaliatory rates of interest which might lead the borrower unable to repay his/her loan. Espinoza and Prasad (2010), after a comprehensive analysis in their studies, they found that higher interest rates increase non performing loans. Nkusu (2011) supported the idea that hike in interest rates result in deterioration of borrower’s repayment capacity and hence, cause of increase …show more content…
A study by Barron and Staten (2003) showed that lenders could significantly reduce their default rate by including more comprehensive borrower information in their default prediction model. Thus there is a positive relationship between credit information sharing and NPA mitigation. Credit Reference Bureau which use the credit information sharing system, whenever used effectively serve as one among the simple and best ways to reduce loan default rates as borrowers seek to protect their reputation collateral and hence mitigating the NPL. Availability of CRB in Tanzania is expected to enable the pooling of credit information from a borrower’s total number of current loans, repayment history, previous bankruptcies, etc, and avoid information asymmetry problems which can allow lenders to extend greater credit at more favorable interest rates, consequently result in facilitation of borrower’s repayment capacity leading to mitigation of non-performing