Influential factors on loan repayment performance in microfinance institution : evidence from India

Loan repayment performance is one of the important factors which can ensure the success or failure of microfinance institutions. In this study we focus on five factors which could have influence the duration of a borrowers’ repayment period. Loan size effect, the gap between a borrower’s current loan from the maximum available loan in a microcredit bank, the business in which a borrower uses the loan, number of times a borrower has received loan, and finally the bank a borrower belongs are among the factors which we put under investigation to assess their influence on the loan repayment performance. In our analysis we used Kruskal Wallis test as a preliminary test, and then we applied the multiple regression analysis. Loan size, Cloth Business, and Shop Business were among the categories which had significant contribution to the regression model. Loan size did not have influence on the loan repayment performance. Cloth business had negative influence on the repayment performance. On the other hand shop business had positive influence on the repayment performance. The Other predictors did not have significant contribution to the model. Based on our finding we proposed to change the loan repayment plan of the IIMC institution. The repayment plan for all businesses should not be the same. The repayment plan should be based on the borrowers’ variability of income in different seasons. The income of a borrower is dependent on the business in which he/she is involved in. Therefore, the nature and features of each business should be considered in designing a repayment plan. Finally we proposed that the current repayment plan which considers the same repayment plan for all businesses is not suitable and needs to be changed, and that the new plan should be different for different businesses.