Loan repayment performance of microcredit programs : evidence from India

Microfinance Institutions select loan repayment schedule in order to fill the needs of the poor but it is important to evaluate how this program design affect the client’s performance in the repayment. In the research the two microfinance programs developed by an Indian MFI, IIMC (Institute for Indian Mother and Child, Kolkata) are compared: one is called Microcredit Program and it is developed in the area near Kolkata, providing microfinance services to groups of women through weekly meeting. The second, Mother’s Bank, is dedicated to the mothers of children sponsored in the IIMC educational program: they also have access to microfinance services but not in group and through monthly visit of IIMC headquarter. Consequently the factors considered in this work are the installment frequency and the respect of the policy in terms of loan installments amount. Indeed the analysis is based on the cash flows of both loan installments and savings deposits, considering the performance in terms of repayment period for completing the loan reimbursement. The results suggest an overall better performance of the weekly frequency schedule with individual lending but weekly group meetings. On the other hand the comparison performance model demonstrates that the last part of the loan is repaid faster by the other microfinance program the one dedicated to the mothers of children sponsored in the IIMC education program. In this last case the loan installments are monthly and the borrowers come to the headquarter individually. We deduce that a regular repayment schedule with frequent group meeting for installments collection secures higher repayment rate thanks to the involvement of the client in the programs. In addition the strictly respect of the policy in terms of variance in loan installments does not necessarily lower down the overall repayment period. In addition, by analyzing the cash flows, we find that the savings of the client have low significant effect on the repayment