Factors Affecting Default in the Loan Portfolio of Microfinance Institutions in Cameroon

Abstract

The main objective of microfinance is to provide funds to those who are excluded from the banking system. But in order to attain this objective they have to deal with the issue of default in their loan portfolios. The aim of this paper is to analysis the factors that affect the default of borrowers in microfinance institutions. The discriminant analysis reveals that 96.6% of the bad borrowers are correctly classified and 92.1% of the good borrowers are correctly classified and that other debts, age of borrower, borrowers income and number of dependents significantly affect the likelihood of default. We suggest that credit officers in microfinance institutions should be keen on these factors when granting loans.