Effects of Clients’ Literacy on Default and Delinquency of Savings and Credit Co-Operative Societies in Tanzania

Abstract

This study examines the influence of economic and financial literacy on the delinquency and default rate of clients of rural Savings and Credit Co-operative Societies (SACCOSs) in Tanzania. The data were collected from a random sample of 200 individual loan beneficiaries drawn from eight SACCOSs, and analysed using regression models. The findings established that the level of economic and financial literacy of rural borrowers is very low. The study also found a negative relationship between economic literacy and financial literacy, on the one hand, and default and delinquency, on the other. This suggests that borrowers’ inability to make prudent borrowing and investment decisions, rather than poor intentions, is the main explanation behind the failure to meet debt obligations. Therefore, conventional microfinance may be penalising those with the least human capital, who happen to be the poorest people. The findings underline the need to invest in enhancing the poor’s human capital to ensure sustainable financial deepening and a positive impact on poverty.