Productive and unproductive debt spending of microloans taken by urban borrowers (Johannesburg)

Abstract

Edward and Olsen (2006) explored the existence of three paradigms within the microfinance world of India. It was found that microfinance institutions were moving towards the Financial Sustainability paradigm as opposed to Poverty Alleviation and Women Empowerment. Meyer (2002) showed that there are benefits to differential finance products targeted at borrowers from microlenders. This hung primarily on the purpose or usage of the loan. Weller (2007) defined productive spending as money spent on education and home improvement and consumptive spending as money used for purchasing goods, services or cars. The purpose of this research is to identify whether borrowers of microloans within the Johannesburg region of Gauteng, engaged predominantly in productive debt spending or unproductive debt spending. This information would be useful to bankers to redesign financial products for individuals who spend their loans on productive debt. It was found in the sample that loans were used predominantly for productive debt. The dominant elements were business and education spending. It was also found that women engaged in more productive debt spending than men. This was driven by a greater portion of females investing in businesses and education for themselves and their family.