REPAYMENT OF LOAN IN EMPLOYEES COOPERATIVE THRIFT AND CREDIT SOCIETIES

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1 Journal of Rural Development, Vol. 28, No. (4), pp NIRD, Hyderabad. REPAYMENT OF LOAN IN EMPLOYEES COOPERATIVE THRIFT AND CREDIT SOCIETIES M. Edwin Gnanadhas* and P. Geetha** ABSTRACT 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 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 employees 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. 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 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 employees from the hands of money lenders. Separate Employees Cooperative Thrift and Credit societies have been organised for different categories of workers. The objectives of the societies are to encourage thrift and cooperation 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 members. The successful financial performances of these societies are very essential to the employees to save their money and to escape from the hands of private moneylenders. Statement of the Problem The societies are subjected to many problems such as dual control, limited area of operation, lack of marketing view, limited resources, lack of proper support from government, 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. * Reader in Commerce, Research Centre, Department of Commerce, Scott Christian College, Nagercoil ** Department of Commerce, S.T. Hindu College, Nagercoil.

2 486 M. Edwin Gnanadhas and P. Geetha 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 keeping their accounting 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 and 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. Proportionate 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 regression 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 problems, no system of penal rate, higher indebtedness, insufficient loan amount, leniency in recovery, higher monthly instalment, improper utilisation of loan, education expenditure, unexpected sickness, influence of co-workers, political 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 different 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 significant 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 mismanagement of debts and unexpected financial problem since their respective means were and In societies at Thuckalay, these reasons were unexpected financial problem and higher monthly instalment since the mean scores were and , respectively. Among the various reasons for defaults, the significant differences between the opinions of the members of the societies at Nagercoil and Thuckalay were identified to be the perceptions 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 Reasons 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 variation of the factors are shown in Table 2.

3 Repayment of Loan in Employees Cooperative Thrift and Credit Societies 487 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 Family problems * 3. No penal rate Higher indebtedness Insufficient loan amount Leniency in recovery * 7. Higher monthly instalment * 8. Improper utilisation of loan Education expenditure Unexpected sickness * 11. Influence of co-workers Political influence Unexpected financial problem Mismanagement of debts * 15. Expectation to write off * * Significant at 5 per cent level. 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 Factor(3.7109) Leniency in recovery Expectation to write off Political influence Influence of co-workers Financial Factor Insufficient loan amount (3.0634) Educational expenditure Unexpected financial problem Higher monthly instalment Higher rate of interest Personal Factor Family problems (2.4173) Improper utilisation of loan Higher indebtedness Unexpected sickness Mismanagement of debts 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 per cent. The most important factor was Environmental factor. It consists of five reasons with the reliability coefficient of The Eigen value and the per cent of variation of this factor were and per cent, respectively.

4 488 M. Edwin Gnanadhas and P. Geetha The second important factor was the Financial factor which consists of five reasons with the reliability coefficient of The Eigen value and the per cent of variation were and per cent, respectively. The third important factor was the Personal factor, which consists of five reasons with the reliability coefficient of The Eigen value and the per cent of variation were and per cent, respectively. The important reasons in the above said three factors were no penal rate, insufficient loan amount and family problems, respectively. The factor analysis results in three important 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 analysis 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 dependent variable. The fitted regression model is y = a+b 1 x 1 +b 2 x 2 +b 3 x 3 +e whereas y = Total amount of overdue among the respondents x 1 = Score on Environmental factor among the respondents x 2 = Score on Financial factor among the respondents x 3 = Score on Personal factor among the respondents b 1,b 2,b 3, = Regression coefficients of independent 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 independent 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 Financial Factor * * * 3. Personal Factor * * * Constant R F Statistics * * * * Significant at 5 per cent level. In the societies at Nagercoil, the significant factors influencing default are financial and personal factors. A unit increase in the perception on the above two factors results in an increase in total default amount by and 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 and 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 and units, respectively. The change in the included independent

5 Repayment of Loan in Employees Cooperative Thrift and Credit Societies 489 variable explains the change in default to the extent of per cent. Findings In the societies at Nagercoil, the important reasons for default were mismanagement of debts and unexpected financial problem since their respective means were and In societies at Thuckalay, these reasons were unexpected financial problem and higher monthly instalment since the mean scores were and , respectively. Among the various reasons for defaults, the significant differences between the opinions of the members of the societies at Nagercoil and Thuckalay were identified to be the perceptions 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 (reasons) for default among the members namely, environmental, financial and personal factor. In the societies at Nagercoil, the significant factors influencing default are financial and personal factors. A unit increase in the perception on the above two factors results in an increase in total default amount by and 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 and 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 and units respectively. The change in the included independent variable explains the change in default to the extent of 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 [Central and State] should avoid the programme like Waiving of loans which has adversely affected the psychology of the borrowers and encourages 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 accountant, a lawyer or a financial expert may be included in this body. The present study concludes that the environmental factor is the most influencing factor 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.

6 490 M. Edwin Gnanadhas and P. Geetha References Avinash V. Raikan, Performance, Problems and Prospects of the Urban Co-operative Banks in Goa, Indian Co-operative Review, 42(2), October Chidambaram, K., and Ganesan, S., Overdues in Primary Agricultural Cooperative Banks in Madurai District: A Study, Cooperative Perspective, 37(3), October-December Latoria, S.K., Janlkar, A.M., and Sush, V.N., Repayment Performance of Agricultural Credit Users in Gwaliar District (M.P), Land Bank Journal, 25(1), Mishra, R.K., and Pattanaik, S., Repayment Performance of Borrowers with Respect to Agricultural Loans on Khruda Block of Khunda District, Orissa, Indian Co-operative Review, 43(1), July Palanisamy, A., and Arunachalam, Utilisation and Repayment of Cooperative Crop Loan, Indian Cooperative Review, 29(2), Subbiah, A., Deposits, Loans Issued on Recovery Performance of Central Cooperative Banks in India, Tamil Nadu Journal of Cooperation, 91(6), September 1999.