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The repayment performance of microfinancing loans funded by donors amounting to hundreds of millions of dollars is an important issue, because it indicates the effectiveness of utilising these funds to alleviate poverty. The purpose of this paper is to develop models to predict the repayment success of microfinancing loans.

Analysing data relating to 1,109 random loan records from Indonesia and Sri Lanka, the study develops models to predict the repayment probability of microfinancing loans using logistic regression.

There are significant differences between the two countries. In Sri Lanka, the time to approve and disburse the loan, loan cycle, gender and age of the borrower, whether a group or individual borrower, the purpose for which the loan is used and visiting frequency by the loan officers were found to be significant when predicting the repayment. Only three factors were significant in Indonesia: time to approve and disburse the loan, interest repayment frequency and gender. Both models have over 70 per cent prediction accuracy.

The models developed can be used in the loan appraisal stage to improve the repayment performance of microfinancing institutions saving hundreds of millions of dollars in bad debt write offs.

To provide a selective review of most recent developments in experimental economics of banking and lending and to summarize and synthesize the experiment designs and results in banking under asymmetric information.

The review includes recently published or working papers (2006–2013) that exclusively employ experimental economics methodology, especially for studying the impact of formal or informal institutions on lending in credit markets.

The results of the reviewed experimental studies provide support for the important role of both informal (e.g., relationship banking and reputation) and formal (e.g., third-party enforcement; collateral) institutions and their impact on credit market performance, as well as the importance of studying the interaction of the two types of institutions.

The number of studies reviewed is fairly small but growing, indicating that this is the area of growing significance.

Controlled economic experiments are better able to address the questions regarding the direction of causality in empirical relationships. Economic experiments are particularly useful in studying complex markets like credit and capital and in eliciting specific effects of institutions on credit market performance. Such well-established empirical relationships will be able to provide guidance for policy making for financial market reform.

This is the first review of laboratory research in banking and lending under asymmetric information that aims to call attention to this area of research and serves as a starting point for an interested researcher and provide future direction.

The purpose of this paper is to measure the antecedents of students' attitude and the impact of students' attitude on the intention to repay study loans.

Primary data from 428 students in universities in Malaysia are collected and six constructs from theory are identified: perceptions that loan repayment will affect the quality of life after graduation; awareness of loan repayment issues created by media; perceptions towards loan agreement; parental influence; students' attitude towards loan repayment; and intention to repay loan. Structural equation modelling approach is adopted to analyze the data.

Constructs of parental influence and perceptions that loan repayment will affect the quality of life after graduation are found to have a direct relationship with students' attitude towards loan repayment; perceptions towards loan agreement is found to influence belief that loan repayment will affect the quality of life after graduation; and awareness of loan repayment issues created by media is found to affect parental influence. The relationship between students' attitude and intention is found to be statistically positive and significant.

The study has been conducted in aggregate form. Future studies could account for ethnic, gender, and regional differences.

The primary users of the results of this study would be the countries that provide education loans, and keen to cut down on student loan defaults.

The study is first of its kind to approach the issue of student loan defaults in a multi‐method manner and develop a comprehensive theoretical model that can be put to empirical test by future researchers.

The purpose of this article is to examine the effects that dynamic incentives and the borrowing histories of clients of informal lending institutions have on loan repayment performance, in particular, the extent to which multiple borrowing and progressive lending affect the repayment of loans.

The paper uses a data set of 835 borrowers drawn from an informal lending institution in Tanzania. Descriptive analysis and econometric models are used to test the developed hypotheses.

Whereas clients with multiple loans are associated with poor loan repayment, progressive lending contributes to positive repayment outcomes. Multiple borrowers face increased debt levels and thereby an increased inability to meet their repayment obligations; in contrast, progressive lending by building up a lender–client relationship helps clients to obtain higher loans with a minimum amount of screening.

This was a cross-sectional study based on a sample of individual clients drawn from a single institution. However, since the majority of clients had also taken out loans with other financial institutions, the sample is considered to be representative.

A client’s past repayment performance and multiple loan history must be assessed so that multiple borrowing can be prevented and credit absorption capacity can be gauged more accurately. The repeated nature of the interactions and the threat to cut off any future lending (if loans are not repaid) can be exploited to overcome any information deficit.

This study was conducted in a context in which the degree of information sharing was low and institutional access to clients’ credit histories was limited. It contributes knowledge on how lenders minimise the risk flowing from the ex ante information gap and moral hazards arising from the ex post information gap.

To enhance the loan repayment performance of microfinance institutions (MFIs) in Pakistan, this study aims to analyze the direct impact of social capital and loan credit terms on loan repayment performance and microenterprises’ business performance while considering the mediating role of microenterprises’ business performance on the relationship between social capital, loan credit terms and loan repayment performance.

The analysis was conducted based on the data gathered via a questionnaire distributed to 316 microenterprises owners. The respondents were selected using the stratified sampling technique by dividing the target population into three influential groups of manufacturing, trading and services microenterprises. The reliability and validity of the constructs were established using (1) factor loading, (2) Cronbach’s alpha, (3) composite reliability, (4) average variance extracted, (5) the variance inflation factor, (6) the Fornell–Larcker criterion and (7) the heterotrait–monotrait ratio. The structural equation modeling technique was then applied, and the hypotheses were tested based on the structure model generated through bootstrapping by using partial least squares structural equation modeling.

The results confirm the direct impact of social capital and loan credit terms on microenterprises’ business performance and loan repayment performance. It also supports the mediating role of microenterprises’ business performance toward the relationship between social capital, loan credit terms and loan repayment performance while considering the direct impact of microenterprises’ business performance on loan repayment performance.

To date, the direct impact of social capital and loan credit terms on microenterprises’ business performance and loan repayment performance has been hardly investigated in the context of Pakistan. This study also examines the mediating role of microenterprises’ business performance toward social capital, loan credit terms and loan repayment performance. The findings will enable both MFIs and microenterprises to improve their business performance and loan repayment performance through enhanced social ties and the development of more flexible credit products that protect the borrowers’ interests and the interest of lenders.

The research aimed at explaining women microcredit repayment delay when loans are not granted on any joint liability group nor any other scheme based on social capital or financial collateral.

Previous research showed that greater female autonomy is associated with bearing fewer children and the former could be correlated to a higher loan repayment rate because of social and financial benefits for the household. Female autonomy proxied through the number of children and its square is regressed on the number of weeks of repayment delay in an OLS model as well as in a multilogit model that identifies borrowers according to their credit status (regular, delayed, and delinquent).

We found that more autonomous women, those bearing less than four children, repay credit more promptly and are less likely to switch into the delinquent credit status.

Economic variables need to be complemented with some specific characteristics of the borrower, as they have a role in explaining women’s repayment delay.

The research provides an alternate explanation about why women repay loans when a microcredit institution does not rely on a lending methodology based on joint liability groups.

The purpose of this paper is to examine whether social and/or cultural obstacles faced by African female farmers diminish their accessibility to lending opportunities provided by a commercial microfinance institution; and affect their repayment performance.

The underlying data set is comprised of information regarding 9,710 farmers from Madagascar and was provided by the AccèsBanque Madagascar. Logit and Tobit models are applied to determine gender effects on loan accessibility and repayment performance, respectively.

Even though female farmers are associated with a lower repayment performance, they have a higher rate of loan application approval compared to male farmers.

The results are limited to Madagascar and other African countries with similar socio-economic conditions.

Commercial microfinance institutions still provide access to credit for disadvantaged groups, such as female farmers.

To the best of the authors’ knowledge, this is the first study investigating gender-specific credit access and repayment performance of rural African farmers using a data set from a commercial microfinance institution without a social mission for females.

In order to improve the assessment of current lending policies for a microfinance institution (MFI) in Azerbaijan, the purpose of this paper is to analyse how lending conditions are adjusted based on knowledge gains during the loan relationship, with particular attention to delays in previous loans. Moreover, the paper examines what a lender can pre-determine from its own collected repayment records of clients. In addition, the repayment performances and lending policies between agricultural and non-agricultural clients are differentiated.

The analyses are based on a rich data set of an Azerbaijani MFI. For determining the influence of previous delays on the volume rationing in the following loan, the authors apply a generalized linear model. Subsequently, the probability of recidivism is analysed by means of a logit model.

The results confirm a positive relationship between delays in previous loans and repayment problems in present loans, which is increased by the severity of the previous delay. With respect to consequences, it is shown that the borrower with previous delays faces an increase in loan volume rationing in the subsequent loan. Moreover, the authors find that the consequences of previous delays do not differ significantly between farmers and other clients.

Until now, the consequences of repayment delinquencies in microfinance lending relationships have hardly been investigated. This study enhances the understanding of lending policies in microfinance by focussing on relationship aspects and by simultaneously differentiating between farming and non-farming clients.

The purpose of this paper is to investigate the performance of the revolving fund (RF) regarding the ability of smallholder debtors to retrieve land title deeds, and also to examine the factors influencing the outstanding debts and percentage of outstanding interest of the smallholders in the Central and Northeastern regions of Thailand.

Primary data were collected from 430 debtors in the Central and Northeastern regions of Thailand in order to compare the differences in livelihood assets as well as their opinions on benefits derived from the operation of the RF. Secondary data were also collected from the RF administration, in order to evaluate the effectiveness and efficiency of the fund. Heteroskedasticity-corrected ordinary least squares and Tobit regression models were employed to examine the factors influencing the outstanding debts and percentage of outstanding interest of the smallholders, respectively. Furthermore, the student’s t-test was used to examine the differences in the livelihood assets among debtors in the two regions; and one-way analysis of variance (ANOVA) was used to examine differences in livelihood indicator scores among the three types of debtors.

The empirical results revealed that the RF is effective as the fund could provide loan to smallholders to enable them redeem their land title deeds from their previous creditors. The t-test results reveal significant differences in the livelihood assets among debtors in the two regions. One-way ANOVA indicates differences in livelihood indicator scores among the three types of debtors. The results of the heteroskedasticity-corrected ordinary least squares regression revealed that being married, low frequency of floods and less influence of third parties significantly reduced the outstanding debts. The results of the censored Tobit regression revealed that increased frequency of meeting with the RF administration, less influence of third parties, high land potential and interaction of age and experience significantly decreased the percentage of outstanding interest.

It is imperative to intensify information and education regarding the regulations, payment terms and modalities to clients in order to facilitate repayments of the loans disbursed. The organization of the RF should pay particular attention to the role of the committees involved, information administration and loan repayment monitoring. The RF should increase the frequency of meetings with smallholders, minimize the influence of third parties and give priority to old and experienced smallholders who possess land with high potential for earning incomes to enable them repay the loans.

To the best of the authors’ knowledge, this is the first study that examined the effectiveness of the RF to enable smallholders retrieve their land title deeds.

Small-scale farmers in developing countries are undersupplied with capital. Although microfinance institutions (MFIs) have become well established in developing countries, they have not significantly extended their services to farmers. It is generally believed that this is partly due to the riskiness of lending to farmers. The purpose of this paper is to combine original data from a Madagascan MFI with weather data to estimate the effect of rainfall on the repayment performance of loans granted to farmers.

The basis of the empirical analysis is a unique data set of a commercial MFI in Madagascar and weather data provided by the German Meteorological Service. The repayment performance of loans granted to small-scale farmers is estimated using a two-step estimation approach based on linear probability models (LPMs) and a sequential logit model (SLM).

The results reveal that an excessive amount of rain in the harvest period of rice increases the credit risk of loans granted to small-scale farmers in Madagascar. Furthermore, the results confirm that credit features affect the repayment performance of loans.

Since the returns from weather index-based insurance (at least as a future contract) are perfectly correlated with weather events, the authors can set the effect of weather events on the repayment performance of loans equal to the effect of the returns of weather index-based insurance on the repayment performance of loans. Thus, the results imply that weather index-based insurance might have the potential to mitigate a certain part of the risk in agricultural lending.

The focus and results of the present study are very relevant for MFIs, potential providers of weather index-based insurances as well as for farmers. The results confirm that weather events are a primary reason for the risk perception of lenders in developing countries toward small-scale farmers. Future research should, hence, concentrate on the development of index-based insurances in agricultural lending and consider interventions on different levels, e.g., insurance on the farm and the bank level.

To the knowledge, this is the first study that combines original loan repayment data from a Madagascan MFI with weather data in order to estimate the effect of weather events on the repayment performance of loans granted to farmers. Furthermore, to the knowledge, this is the first study that uses a two-step estimation approach based on LPMs and a SLM to investigate the repayment performance in agricultural lending.