Microfinance default rates in Ghana: Evidence from individual-liability credit contracts

In this paper we present evidence on the factors that affect default probabilities in individual-liability credit contracts. The data are drawn from a for-profit microfinance lender in Ghana. Our sample consists of nearly 1,000 randomly selected loans approved between 2002 and 2007, three quarters of which were repaid; as default is relatively rare in microfinance, borrowers who failed to repay their loans were over-sampled. We study the impact of demographic, business and loan characteristics on default odds. We find that repayment is affected mainly by the number of dependents in the household, years in business, use of proceeds, loan status, and frequency of loan monitoring. In contrast to other studies, we find no connection between the borrower’s marital status, gender or their savings’ behavior and the likelihood of default.