TITLE:
Predicting Multiple-Borrowing Default among Microfinance Clients
AUTHORS:
Kanish Debnath, Priyanka Roy
KEYWORDS:
Microfinance, Multiple-Borrowing, Credit Default, Regulation
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.10,
June
20,
2018
ABSTRACT: In order to control over-indebtedness that often
leads to capacity failure, the Reserve Bank of India recently issued directives
for Micro Finance Institutions to restrict multiple loans to borrowers. These
institutions are also required to regularly share their current borrowers’ loan
records with a Credit Information Company. We argue here that ex-post loan
record verification is inefficient and inadequate considering the
socio-economic and informational asymmetries in micro-credit markets. Instead,
we reason, household characteristics can predict multiple-borrowing behaviour.
Our empirical analysis shows that this is true to some extent. We dwell on
policy implications and ways to improve our model.