Dropouts, defaulters, and continuing borrowers: Client exit from microfinance

Abstract

High dropout rates are a problem faced by many microfinance institutions, with borrowers exiting after a few loans. The curiosity of dropouts is that, unlike defaulters, they repay their loans. To understand this I investigate differences across borrowers using data from Zimbabwe. I find that negative shocks are a significant predictor of dropout, but not of default, and that social networks are the most important correlate of on-time repayment. The results show the importance of social networks in determining credit relationships.