Lending risk in MFIs: the extreme bounds of microeconomic and macroeconomic factors

Using 1,234 microfinance firms in 106 countries, this study investigates the determinants of default on the microcredit debt obligation of borrowers. Using the variant of extreme bounds analysis that systematically tests the fragility of coefficient estimates, we examine the importance of 42 variables in explaining default risk. At the micro level, the results from the modeling of model uncertainty reveal that regulation, cost per loan/cost per borrower, loan balance, borrower per loan officer, and the number of loan officers are robust factors. From the macroeconomic context, the time required to start a business and human capital are the determinants of default on debt obligations.