Factors Influencing Loan Delinquency in Microfinance Institutions: A Literature Review

Microfinance institutions (MFIs) constantly face delays in their collections and in many cases, not receiving money or loans that were lent within the stipulated period. Most of these micro lending was arranged without collaterals and thus delinquency, which is a delay in payment initially and later a loan default, has become a propensity in micro financing. This study explores factors that lead to delinquency and categorizes them in internal, external, and natural. Internal factors include business type, interest rate, loan size, inadequate appraisal process, and extent of monitoring and mismanagement of loans by the MFIs. External factors relate to legislative issues, geopolitical and economic situations, while natural factors arise due to weather and climate change that affect borrowers’ agricultural products and services, production and supply chains, natural disasters, and the borrowers’ poor health or sudden death. We conduct a comprehensive literature review that led to causes and factors of loan delinquency.