A1205
Title: Credit risk in microcredit markets
Authors: Andreas Heinen - Universite de Cergy Pontoise (France)
Malika Hamadi - Birmingham Business School (United Kingdom) [presenting]
Jeremie Juste - Universite de Cergy Pontoise (France)
Abstract: The recent microfinance repayment crises and the growing importance of the microfinance sector as a share of GDP in many developing countries raise concerns about its stability. The determinants of systemic credit risk in microcredit markets in 37 countries from 2000 to 2014 are studied by investigating the dependence of the portfolio-at-risk (PAR) of microfinance institutions (MFIs) within a country. To that end, a panel model of equidependent Gaussian copulas is introduced, where the microfinance sector in a given country year is viewed as a portfolio of MFIs, which becomes riskier when the dependence among their PAR increases. Thus, more dependence on nonperforming loans of MFIs in a country is an indicator of systemic risk in the sector. This methodology allows us to control for country-fixed effects to correct the incidental parameter bias that the non-linear model is subject to. It is found that measures of competition, the sector's fast growth, commercialization, and the average interest rate charged by MFIs increase risk, while the proportion of women borrowers in the sector and country-level remittances reduce it. Further, the probability is computed that a proportion of at least 20\% of the MFIs in a country is experiencing serious repayment problems. It is shown that this probability increased prior to the outbreak of a repayment crisis in several countries.
