Factors Influencing Loan Delinquency in Microfinance Institutions: A Literature Review

Microfinance institutions (MFIs)Microfinance institutions (Mfls) 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 delinquencyDelinquency, which is a delay in payment initially and later a loan defaultDefault, 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 MFIsMicrofinance institutions (Mfls). External factorsInternal factors loan delinquency relate to legislative issues, geopolitical and economic situations, while natural factorsNatural factors arise due to weather and climate changeClimate change that affect borrowers’ agricultural products and services, production and supply chains, natural disastersNatural disasters, and the borrowers’ poor health or sudden death. We conduct a comprehensive literature reviewLiterature review that led to causes and factors of loan delinquencyDelinquency.