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What drives the repayment of agricultural micro loans? Evidence from Nicaragua

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  • Dorfleitner, G.
  • Just-Marx, S.
  • Priberny, C.

Abstract

We analyze the drivers of the probability of default (PD) and the loss given default (LGD) of a unique dataset consisting of individual agricultural micro loans granted by a Nicaraguan microfinance institution which does not charge interest rates from borrowers according to their creditworthiness. The research method accounts for the clustered structure of the data (loans are clustered by borrowers, loan agents and regions) with crossed random effects. The results show that being married or being of a lower age increases the PD significantly, as do high interest rates. Moreover, the micro loans’ economic objective influences the PD. Building an irrigation system appears to be more risky than livestock farming or planting vegetables. The age of the borrower and the duration of the relation with the MFI have a negative influence on the LGD. Furthermore, we do not find any significant gender effect.

Suggested Citation

  • Dorfleitner, G. & Just-Marx, S. & Priberny, C., 2017. "What drives the repayment of agricultural micro loans? Evidence from Nicaragua," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 89-100.
    • Handle: RePEc:eee:quaeco:v:63:y:2017:i:c:p:89-100
    DOI: 10.1016/j.qref.2016.02.009
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    Cited by:

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    2. Bilau, José & St-Pierre, Josée, 2018. "Microcredit repayment in a European context: evidence from Portugal," The Quarterly Review of Economics and Finance, Elsevier, vol. 68(C), pages 85-96.
    3. Medina-Olivares, Victor & Calabrese, Raffaella & Dong, Yizhe & Shi, Baofeng, 2022. "Spatial dependence in microfinance credit default," International Journal of Forecasting, Elsevier, vol. 38(3), pages 1071-1085.
    4. Michael Adusei & Ngozi Adeleye & Anthony Okafor, 2021. "Drivers of credit union penetration: An international analysis," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(3), pages 710-723, April.
    5. Mohamed, Toka S. & Elgammal, Mohammed M., 2023. "Credit risk in Islamic microfinance institutions: The role of women, groups, and rural borrowers," Emerging Markets Review, Elsevier, vol. 54(C).
    6. Bátiz-Zuk Enrique & González-Holden Alexa, 2023. "Identifying Gender Disparities on the Time to Repay Microfinance Group Loans: Evidence from Mexico," Working Papers 2023-07, Banco de México.
    7. Dorfleitner, Gregor & Oswald, Eva-Maria & Röhe, Michaela, 2020. "The access of microfinance institutions to financing via the worldwide crowd," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 133-146.

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    More about this item

    Keywords

    Microfinance; Agricultural micro loans; Default; LGD; Crossed random effects;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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