Impact of credit on attitude towards risks among micro-enterprise operators: A case of Morogoro in Tanzania

Abstract

Intervention with credit in micro-enterprises is crucial for their establishment and growth. 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. We argue, however, that if the repayment mechanisms are so draconian, the opposite can occur; making micro-enterprise  operators more risk averse. Such operators are likely to maintain the status quo and 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. Those in the rural areas are even more risk averse. We find that this tendency hinder initiatives to go for large amount of  credit in the subsequent rounds and retards the expansion and growth of micro-enterprises. This finding points to the needs for new  repayment mechanisms that reduce the tradeoff between the maximization of the repayment rates and further development of    entrepreneurial spirit.