Dropouts, Defaulters, and Continuing Borrowers: Client Exit from Microfinance

Sarah Pearlman

The Developing Economies, 2014, vol. 52, issue 4, 301-321

Abstract: type="main">

High dropout rates are a problem faced by many microfinance institutions, with borrowers exiting after a few loans. The curiosity of dropouts is that, unlike defaulters, they repay their loans. To understand this I investigate differences across borrowers using data from Zimbabwe. I find that negative shocks are a significant predictor of dropout, but not of default, and that social networks are the most important correlate of on-time repayment. The results show the importance of social networks in determining credit relationships.

Date: 2014
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