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Intervention with credit in micro-enterprises is crucial for the establishment
and growth of micro-enterprises. Intervention of this sort, however,
induces changes in the behavior and attitude towards risks depending on
the repayment mechanisms in place. From the entrepreneurial spirit, after
accessing the loan, the borrowing agents are likely to make decisions that
are associated with higher risks than would have been otherwise. However,
if the repayment mechanisms are so draconian, the opposite can occur;
making micro-enterprise operators more risk averse, who like to maintain
the status quo, and who only strive to be able to service the loan in terms of
meeting the repayment requirements. Using a case study of Morogoro
region in Tanzania, the study finds that the repayment motive outweigh the
entrepreneurial acumen induced by credit, making operators who have
borrowed more risk averse than the potential borrowers. We argue that this
tendency hinder initiatives to go for large amount of credit in the
subsequent rounds and retards the expansion and growth of microenterprises.
This finding points to the needs for new repayment
mechanisms that reduce the tradeoff between the maximization of the
repayment rates and the further development of entrepreneurial spirit. |
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