Risk Assessment for Reimbursement of Microfinance Institutions

Abstract

Purpose: Understanding the repayment behavior of the borrower is very important to the lending decisions of financial institutions and thus helps to promote the development of microfinance. This paper examines the factors that affect the repayment default of microfinance in Tunisia. Theoretical framework: Some studies highlight the importance of incorporating macroeconomic conditions for the estimation of borrowers’ credit risk (Bellotti & Crook, 2013). However, IADB (2020) announced that after the start of the Covid-19 pandemic in the region, microfinance institutions had restricted liquidity, which affected the availability of credit. Therefore, for the purpose of the present article, the literature on default in MFIs analyzes the credit risk and factors that influence granted loans Design/Methodology/Approach: We carried out a survey, with a non-stratified sample of 320 microcredit beneficiaries, during 2021 in Enda-inter-Arab agencies located in the region of Sousse- Tunisia. We introduce a binary logistic regression model to predict the values taken by a discrete variable from a series of continuous or binary explanatory variables. Findings: We show that borrowers’ socioeconomic characteristics, total loan, repayment period and past participation in microcredit loans have significant impacts, as special features, on their default rates. Research, Practical & Social implications: This paper has been designed to provide some valuable contributions in improving the repayment performance and can be significant political involvement, derived from the strong relationship between the level of poverty and the success of loan repayments. Indeed, the level of borrowers’ poverty must be given considerable weight before the loan is disbursed. Originality/Value: The results indicate that the qualification and age of the workforce should be considered a basic requirement before the granting of loan. In addition the microfinance institution's credit policy should also consider service projects a priority.