Determinant of Repayment Problems of Microfinance Clients-A Case Study

Microfinance clients manage to repay their loans on time because they go through unacceptably high personal sacrifices. Instead of delaying or stopping repayments when idiosyncratic shocks hit and debt service becomes unmanageable, borrowers absorb these shocks with personal suffering. In this case, what looks as a success from a risk management point of view is a serious concern from a social point of view.

This paper investigates the determinants of loan repayment problems of microfinance clients in the research area. By using logistic regression model, this paper finds that the clients' socio-economic characteristic (education, housing index, annual household income), loan characteristics (average loan outstanding, group size, repeated borrowing) and business characteristics (mismatch of cash flow pattern and repayment frequency) are the factors contributing to micro-credit loan repayment problems among microfinance clients.