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Determinants of loan repayment performance among borrowers of microfinance institutions: Evidence from India

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  • Mirpourian, Seyedmehrdad
  • Caragliu, Andrea
  • Di Maio, Giorgio
  • Landoni, Paolo
  • Rusinà, Emanuele

Abstract

A better understanding of loan repayment behavior of borrowers can contribute to the development of microfinance. This paper investigates the repayment performance of borrowers of a nonprofit Indian microfinance institution, the Indian Institute for Mother and Child – IIMC, using a novel data set. We collected raw data on more than 1600 borrowers, covering a period of more than three years. The data collection focused on the installments of those borrowers who at first received a loan lower than the loan limit, but then reached the loan limit within the time span considered. The final sample for the empirical analyses is homogeneous in terms of borrowers’ characteristics and includes the installments of 373 loans. We focus on a relatively neglected issue in the microcredit literature, viz. the motivation of the borrower for receiving future loans. In addition to borrowers’ characteristics, we analyze the motivational issues that may influence the probability that the loan is fully or partially repaid, and the time horizon over which it is repaid. Empirical results show that the repayment rate improves as borrowers get closer to the loan limit, which is the maximum available loan. In other words, motivation for reaching the maximum loan level is positively associated to the repayment performance.

Suggested Citation

  • Mirpourian, Seyedmehrdad & Caragliu, Andrea & Di Maio, Giorgio & Landoni, Paolo & Rusinà, Emanuele, 2016. "Determinants of loan repayment performance among borrowers of microfinance institutions: Evidence from India," World Development Perspectives, Elsevier, vol. 1(C), pages 49-52.
  • Handle: RePEc:eee:wodepe:v:1:y:2016:i:c:p:49-52
    DOI: 10.1016/j.wdp.2016.06.002
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    References listed on IDEAS

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    1. Czura, Kristina, 2015. "Pay, peek, punish? Repayment, information acquisition and punishment in a microcredit lab-in-the-field experiment," Journal of Development Economics, Elsevier, vol. 117(C), pages 119-133.
    2. Joanna Ledgerwood, 2013. "The New Microfinance Handbook : A Financial Market System Perspective," World Bank Publications, The World Bank, number 12272, November.
    3. Erica Field & Rohini Pande, 2008. "Repayment Frequency and Default in Microfinance: Evidence From India," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 501-509, 04-05.
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    Cited by:

    1. Lucia, Dalla Pellegrina & Angela, De Michele & Giorgio, Di Maio & Paolo, Landoni & Susanna, Parravicini, 2017. "Group meeting frequency and borrowers’ repayment performance in microfinance: Evidence from a quasi-natural experiment in South Africa," Working Papers 374, University of Milano-Bicocca, Department of Economics, revised 30 Nov 2017.

    More about this item

    Keywords

    Microfinance; Loan repayment; Loan limit; Loan size; India;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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