Banks are always faced with different types of risks that may have a potentially negative effect on their business. Risk-taking is an inherent element of banking and, indeed, profits are in part the reward for successful risk taking in business. On the other hand, excessive and poorly managed risk can lead to losses and thus endanger the safety of a bank's depositors. Risks are considered warranted when they are understandable, measurable, controllable and within a bank’s capacity to readily withstand adverse results. Sound risk management systems enable managers of banks to take risks knowingly, reduce risks where appropriate and strive to prepare for a future, which by its nature cannot be predicted.Financial institutions are subject to a number of risks such as Credit risk, Market risk management, Foreign exchange risk, Operational risk, and Liquidity risk. Although credit risk has always been of primary concern to these institutions, its importance became paramount during the recent financial crisis. The crisis exposed the shortcomings of existing risk management systems, and several firms saw significant losses resulting from failure of their counterparties to deliver on contracts. Firms may also be worried about a second recession, which makes credit risk a top priority.
This paper analyses the over-indebtedness of micro-borrowers of Nirdhan Utthan Bank in Birgunj, Nepal. Descriptive analytical research design is attempted to explore the scenario of factor of over-indebtedness and impact of multiple borrowing. The research is primary data based on 150 sample respondents from Birgunj and convenient and structured questionnaire had been used to collect response of the respondents and data was collected through face to face interview with the clients. In this study majority of the clients are involved in multiple borrowing 82 %, it finds that loss of income and multiple borrowing is the major factor that leads to over-indebted. The paper also shows the association between factors of over-indebtedness and multiple borrowing and how frequently micro-borrower repeats them and for this cross tabulation analysis and chi-square test was used to analyze the data. The results show that over-indebtedness is significantly associated with multiple borrowing. The risk of over-indebtedness further increases with the occurrence of multiple borrowing. Results show that small size of loans issued by MFIs and needs of the clients was one of the major reasons for multiple loans contracts. Other reasons for multiple borrowing include family obligation, loan recycling, and relaxed or simple loan procedures, and influence from friends who are taking multiple loans, delayed loan disbursement from the MFIs in which the client first applied.
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