Microfinancing in Turkey

Microfinance is a financing method which is designed for the poor population to access financial services. As a form of poverty reduction, microfinance is introduced as an alternative to debt mitigation and grant-based initiatives. Turkey Grameen Microfinance Program (TGMP) was firstly implemented in the Diyarbakir city of Turkey in 2003 and its operations are carried out in a total of 68 provinces as of today. This study is to provide general information about microfinancing and aims to test the development of the microfinance sector in Turkey. To estimate the probability of default on microfinance loans, the data is obtained from TGMP (Turkey Grameen Microfinance Program) are used, these variables are: the seven regions of Turkey, borrower's uninvested loan, established business experiences, outstanding loans of the borrowers, total loan amount, age of the borrowers, marital status, passive status of the borrowers, household size and loan's classifications: Agricultural loan. To form the statistical model, a total of 345 observations were used and Binary Logistic Regression Analysis was implemented to estimate the probability of default. At the end of the study it is found that if a borrower is from the Southeast Anatolia, Eastern Anatolia, Central Anatolia or Marmara region; is having outstanding loans; bigger loan amounts, uninvested loan; has established a business prior taking a loan and is no longer involved in the organization, it is more likely that the loan will default. This thesis is one of the few quantitative microfinance studies in Turkey which may be interesting for Turkish policy makers. This study presents empirical results and policy recommendations on ways to integrate microfinance into the official Turkish banking sector.