Analysis of Credit Risk on Microfinance Loans Using Survival Analysis Techniques: A Case Study

Abstract

A study was conducted on 577 people who took loans from microfinance institutions in Bungoma, Kakamega and Vihiga County. The study was conducted in 72 months starting January 2012 and ending December 2017. Survival analysis technique was used to model and analyse the probability of default on loan borrowers. In this study, we were able to find out that age had no significant effect on default rate. Male clients were at a higher risk of defaulting than female. For occupation, farmers had the highest probability of default and nurses had the least probability of default. Loan amount had a small significant effect on default rate. However, it was observed that loans of between 100000 and 300000 had the least default rate and therefore it was safer for microfinance institutions to give out small loans. For counties, Bungoma had the highest default rate and Kakamega had the least.