Drivers of MSME loan defaults using survival analysis: implications for lenders and policy planners
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 22 December 2023
Abstract
Purpose
The authors analyse the determinants of loan defaults in micro, small and medium enterprises (MSME) loans in India from the survival duration perspective to draw inferences that have implications for lenders and policymakers.
Design/methodology/approach
The authors use the Kaplan–Meier survivor function and the Cox Proportional Hazard model to analyse 4.29 lakhs MSME loan account data originated by a large bank having a national presence from 1st January 2016 to 31st December 2020.
Findings
The estimated Kaplan–Meier survival function by various categories of loan and socio-demographic characteristics reflects heterogeneity and identifies the trigger points for actions. The authors identify the key identified default drivers. The authors find that the subsidy amount is more effective at the lower level and its effectiveness diminishes significantly beyond an optimum level. The simulated values show that the effects of rising interest rates on survival rates vary across industries and types of loans.
Practical implications
The identified points of inflection in the default dynamics would help banks to initiate actions to prevent loan defaults. The default drivers identified would foster more nuanced lending decisions. The study estimation of the survival rate based on the simulated values of interest rate and subsidy provides insight for policymakers.
Originality/value
This study is the first to investigate default drivers in MSME loans in India using micro-data. The study findings will act as signposts for the planners to guide the direction of the interest rate to be charged by banks in MSME loans, interest subvention and tailoring subsidy levels to foster sustainable growth.
Keywords
Citation
Saha, A., Hock-Eam, L. and Yeok, S.G. (2023), "Drivers of MSME loan defaults using survival analysis: implications for lenders and policy planners", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-02-2023-0156
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited