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

Sunil Sangwan, Narayan Chandra Nayak, Harshita and Vikas Sangwan

Applied Economics, 2021, vol. 53, issue 56, 6554-6569

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.

Date: 2021
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DOI: 10.1080/00036846.2021.1946478

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