Determinants of Microcredit Repayment: The Case of Tunisian Microfinance Bank

Repayment of loans in microfinance is a very important subject for study. Microfinance institutions lend to poor and low‐income borrowers and thus the terms of lending should be as easy as possible for more poor people to have access. On the other hand, poor and low‐income borrowers tend to have no collateral and thus would constitute a considerable risk to lenders once they default. Lenders, therefore, have to devise a special system whereby to ensure that loan defaults are as low as possible in order to avoid charging a higher interest rate which will defeat the very purpose of microfinance‐lending. In this paper, using a binary logistic regression model, we undertake to examine the factors that affect default among borrowers. It has been discovered that borrowers' socio‐demographic characteristics, past participation in microcredit loans and past credit history have significant impacts, as special features, on their default rates.