Is There Any Need to Check the Loans Utilization?

People inquired most of time that, Are loan utilization checks necessary? The vibrant reaction should me YES. Because, it's essential to check all the MFI's which are engaged in micro financing amenities. The intention should be scrutiny of the organization but not censure. Most of MFI's in all over the world checks loan utilization as essential, but as per field officers (particularly in conventional MFI's), clients do not usually use loans for the purpose stated in the loan application forms.

They exploit the loan money in their isolated purposes and just pay the loan installments. The intention of MFI's never been to extend the loans in poor communities, but to make the persons or family able to earn as per their essentials and spend their lives in the society with self-honor and respect. Loan utilization checks may seek to prohibit use of loans for "non-business" purposes that may have a higher rate of return than the business purpose - for example, retiring expensive debt or buying medicine for a wage-earner.

There is no doubt that lending is essentially a relationship of trust, but loan utilization checks force the client to lie and cheat in the very first interaction with the MFI after getting the loan. Most MFI's making small loans are helping client's household to diversify sources of income, reduce risks, smooth seasonal troughs in income availability and successful MFI's across the world do not tie their loans to specific types of utilization. It is therefore difficult to understand the rationale behind the continued use of loan utilization checks.

Hence, I can say finally that, loan utilization checks are however necessary for larger, individual and enterprise development loans. These loans are sanctioned on the assessment of credit officer's analysis of the cash flow of that business, on the other hand, most of staff members in Pakistani MFI's are not trained as per requirements and consequentially they can't accomplish their events as per microfinance philosophies and guidelines. So, it is necessary to check and ensure that loans utilize only for the stated purpose in the loan application form and should be used for productive purposes.