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Borrowers’ credit risk factors, perception towards repayment interventions and moral hazard in loan delinquency: an investigation of Indian microfinance institutions

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  • Sunil Sangwan
  • Narayan Chandra Nayak
  • Harshita
  • Vikas Sangwan

Abstract

The study explores the borrowers’ credit risk factors, perception towards repayment interventions, and the problems of moral hazard affecting delinquency in uncollateralized loans issued by the Microfinance Institutions (MFI). It employs the partial least square structural equation modelling to develop a buyer-side perception-behavioural model for borrowers’ loan delinquency behaviour. The findings indicate that the borrowers’ perception towards MFI loan repayment interventions and group homogeneity significantly reduces the moral hazard problem leading to a lower delinquency rate. The household socio-economics characteristics also seem to have a significant association with the borrowers’ loan delinquency. Identification of borrowers’ credit risk factors and the interlinkage between borrower’s perception towards repayment interventions, group homogeneity, and moral hazard in loan delinquency can provide critical insights that MFIs can consider while disbursing uncollateralized loans to control the default risk.

Suggested Citation

  • Sunil Sangwan & Narayan Chandra Nayak & Harshita & Vikas Sangwan, 2021. "Borrowers’ credit risk factors, perception towards repayment interventions and moral hazard in loan delinquency: an investigation of Indian microfinance institutions," Applied Economics, Taylor & Francis Journals, vol. 53(56), pages 6554-6569, December.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:56:p:6554-6569
    DOI: 10.1080/00036846.2021.1946478
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    Cited by:

    1. Sunil Sangwan & Narayan Chandra Nayak & Sweta Sen & Vikas Sangwan, 2023. "Does firm size affect client targeting? An investigation over the clients of the Indian Microfinance Institutions," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-8, December.

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