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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.

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  • 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 - Books, The World Bank Group, number 12272, April.
    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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    1. Lucia Dalla Pellegrina & Giorgio Di Maio & Paolo Landoni & Emanuele Rusinà, 2021. "Money management and entrepreneurial training in microfinance: impact on beneficiaries and institutions," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 38(3), pages 1049-1085, October.
    2. Xu, Yuyun & Liu, Zhengyuan & Zhang, Longyao, 2024. "The spillover effect of bank distress: Evidence from the takeover of Baoshang Bank in China," Finance Research Letters, Elsevier, vol. 59(C).
    3. Jorge Mota & António Carrizo Moreira & Cristóvão Brandão, 2018. "Determinants of microcredit repayment in Portugal: analysis of borrowers, loans and business projects," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 17(3), pages 141-171, November.
    4. Maaitah, Nebal Al, 2018. "Discriminatory Practice In Microfinance: Gender And Glass Ceiling On Loan Size (Case Study From Jordan)," Journal of Central European Green Innovation, Karoly Robert University College, vol. 6(01).
    5. Lucia Dalla Pellegrina & Angela De Michele & Giorgio Di Maio & Paolo Landoni & Susanna Parravicini, 2021. "Group Meeting Frequency and Borrowers’ Repayment Performance in Microfinance: Evidence from a Quasi-natural Experiment in South Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 30(5), pages 447-477.
    6. Pilar López-Sánchez & Elena Urquía-Grande & Cristina Campo & Andrés L. Cancer, 2022. "Delving into the Determinants of Default Risk in Savings Groups: Empirical Evidence from Ecuador," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 34(6), pages 2625-2650, December.
    7. Jeleta Kebede & Vincent Tawiah & Ernest Gyapong, 2023. "The effect of corruption on microfinance loan portfolio: A semiparametric analysis," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 31(1), pages 241-268, January.

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    Keywords

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    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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