Can loan characteristics cushion the impact of an exogenous shock on subsistence entrepreneurs? Evidence from India

Ashish Desai, Rudra Sensarma and Ashok Thomas

Applied Economics, 2026, vol. 58, issue 3, 451-467

Abstract: We study the effect of an exogenous shock (Covid-19) on microcredit repayment behaviour of subsistence women entrepreneurs. We combine big data (Google mobility, Night-time lights and infection rates) with an original panel dataset of 2345 subsistence women entrepreneurs from rural India. Using random effects and hybrid panel regressions, we show that the COVID-19 shock adversely impacted loan repayments. However, the different loan characteristics moderated the impact. Prior to the COVID-19 shock, the repayment behaviour of entrepreneurs with joint liability group loans with group guarantee was better than of those with overdraft facilities, but was no different from individual loans. However, with rising severity of the pandemic, overdraft facility that offered flexible repayments displayed the highest resilience and outperformed joint liability group loan repayments. These findings underscore the importance of flexible loan product design to build resilience of subsistence entrepreneurs to unexpected shocks. Additionally, we show that loan repayment behaviour is positively associated with youth, financial literacy and usage of digital transactions.

Date: 2026
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DOI: 10.1080/00036846.2025.2453757

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