The Role of Subsidization and Organizational Status on Borrower Repayment Rates in Microfinance Institutions

WWe use multilevel analysis to examine the effect of different types of subsidized funding (private vs. public) on microfinance institutions’ (MFIs) borrower repayment rates. Using information from Mixmarket data on 947 MFIs over a 10-year period (2000-2010) we find that private funding is positively related to MFIs’ abilities to screen borrowers and to monitor borrower repayment rates. We find that MFIs that have higher proportion of private donor funds to public subsidies have lower rates of portfolios at risk, fewer delinquent loans, and that their overall portfolios are less risky. Moreover, we find that regulated MFIs (vs. non-regulated MFIs) have lower rates of borrower delinquency, while for-profit MFIs have higher rates of written-off loans relative to their non-profit counterparts. Our findings promote a greater understanding of different lending practices used within MFIs with different organizational status (regulated vs. non-regulated, profit vs. not-for-profit) and identify strategies for a more efficient allocation of donor funds.