Determinants of repayment in microcredit: Evidence from programs in the United States

Many microcredit programs have been created in the United States in the past decade that replicate design features of their counterparts in the third world. Yet few systematic studies have been carried out to examine what determines these programs' loan repayment performance. We attempt to fill this gap by studying the determinants of loan repayment for four of the oldest group-based microcredit programs in the US. Our findings suggest that these programs are faced with a set of social and institutional environments that are both similar to and different from those faced by their third-world counterparts. On the one hand we find that higher levels of education and proximity to the lending agency increase the. chances of loan repayment. Low transaction costs for accessing loans and high borrower-costs in the event of default also enhance loan repayment performance. On the other hand key variables such as gender and homogeneity of borrowers are not significantly related to loan repayment. We conclude by examining the implications of these findings for program design in the US.