The objective of this study is to make an analysis of the determinants of delinquency in Peruvian microfinance institutions (MFIs). The importance of knowing the determinants of delinquency is justified for several reasons. First, MFIs face risks of late payments.
52-debts-in-microfinance-institutions-of-peruTherefore, knowing what determines that risk allows you to be more alert to possible unwanted events. Likewise, promoting the solid development of MFIs through better management of their delinquencies will allow a greater development for small and micro-enterprises, since these MFIs constitute their main source of financing.
The analysis of the determinants of delinquency is approached from two complementary approaches. The first performs an econometric estimation to explain the quality of the MFI's portfolio, considering three different indicators for the quality of loans. As explanatory factors of the latter, three types of variables are included: macroeconomic, microeconomic related to the management of MFIs and, finally, variables related to the local dynamics of the markets where the MFIs carry out their operations.
In the second approximation, two case studies are carried out in which the following are investigated: the credit technologies used by the entities for the treatment of loans in arrears, the economic characteristics of their delinquent and non-delinquent clients, the causes that lead to default on payments and actions taken by clients to overcome this situation.
The study is divided as follows. The first section presents some stylized facts about MFIs in Peru. The second section describes the evolution of delinquency rates in the last four years. The third and fourth sections present the theoretical and conceptual framework of the econometric model and its results, respectively. The fifth section shows
the results of the case studies and the last, the conclusions and recommendations.
Microfinance in Peru
The expansion of credit, as a consequence of the financial reforms in the early 1990s, allowed, in turn, the growth of microcredit. The microfinance system in Peru is made up of the Municipal Savings and Credit Banks (CMAC), the Rural Savings and Credit Banks (CRAC), the small and micro-enterprise development entities (Edpyme), Mibanco, Financiera Solution and the Bank of Work.
This system can be grouped into two categories: banking and financial entities (Mibanco, Financiera Solution, and Banco del Trabajo), which are authorized to carry out multiple operations and operate throughout the country; and non-bank MFIs (CMAC, CRAC, and Edpyme), which run a limited set of operations locally.
Despite the fact that the international financial crisis at the end of 1990 caused a sharp fall in the local financial system, the loans of the microfinance system, unlike those of the total system, grew at a rate of 21.7% per year. This can also be seen in the growing share of MFI loans compared to the total (it went from 2.26% in 1998 to 5.04% in 2001). However, although the credit offer of these institutions is small in amount, compared to that of commercial banks, the number of clients they serve is greater.
Table 1 shows the percentage structure of MFI loans by type of credit. Based on this, it can be noted that most MFIs concentrate their portfolio on three types of loans: SME credit, commercial credit, and consumer credit.
The CRACs, due to their orientation to the rural sector, allocate more than 50% of their loans to financing agricultural activities.
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