A study on borrower characteristics that lead to loan repayment in the Philippines: are the poor really more likely to default than the rich?
Date
2011-10
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Abstract
There are numerous studies that have shown that repayment of loans is tied to several factors. A lot of these studies suggest that screening of borrowers in terms of their economic standing is a must to eliminate or at least minimize default and delinquencies on loans. However, there has not been a clear and consistent conclusion regarding what factors increase or decrease loan repayment. This study aims to answer the question, "Are the poor really more likely to default than the rich?" The research would like to provide a concrete answer to this question in order to aid microfinance institutions in the country in improving their repayment rates. If these microfinance institutions prosper, more underprivileged persons will be given a chance to avail credit for their livelihood. The study uses the Heckman Probit model to analyze household characteristics from the 2008 Annual Poverty Indicators Survey. Results of the study show that several variables usually attributed to have an effect on repayment rates are insignificant. It is the conclusion of this research that effective screening of applicants by their educational attainment be used to solve the adverse selection problem usually associated with applicants of microfinance loans.
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Keywords
Loan repayment, Microfinance loan, Poor