FACTORS AFFECTING MICROFINANCE CONSUMER LOANS DEFAULT PROBABILITY IN MALAWI: THE CASE OF GREENWING CAPITAL LIMITED

Abstract

This study examines the factors that affect the probability of consumer loans default using data from Greenwing Capital Limited, a Microfinance Institution in Malawi. This study uses a logit regression to analyse factors that cause default. The study investigates the impact of indebtedness, loan amount, loan term, gender and education on the probability of default of the company. Data used in the study were on loan applications made between July 2008 and December 2009. The results show that relative to 6 month-loan term, loans offered on a 24 month-term and 36 month-term are less risky at the one percent level. Education also affects the probability of default at the one percent level. Loans offered to clients with higher education are less risky. Gender affects the probability of default at the 5 percent level. Relative to female clients, male clients are less likely to default. On the other hand 12 month-term, loan amount and indebtedness are not significant. It is therefore recommended that the development of microfinance should not leave out the education sector. Also policy makers should make capital available to microfinance institutions (MFIs) at low interest rates for MFIs to meet the demand for bigger loan amounts.