Working Papers:
The Role of Religiosity in Loan Repayment in Microfinance Institutions, with Rebel Cole and Uliana Filatova.
We examine the role of local religiosity in loan repayment in microfinance institutions (MFIs) using a general measure of religiosity from the World Value Surveys (WVSs) that represents the importance of religion in people’s lives regardless of their religion. We further investigate if MFIs in more religious nations are more ethically oriented and are willing to fight poverty and support the poorest of the poor in the country. We find that MFIs in more religious countries show lower operational self-sufficiency and a higher loan loss rate, write-off ratio, and portfolio at risk over 30 days. Our results are in line with our assumptions that MFIs in more religious nations are more ethically oriented and lend to lower-quality borrowers to support the poorest population of the country. Our findings support Casselman, Sama, and Stefanidis’s (2014) conclusion that religiously affiliated MFIs show better social performance. Consistent with prior studies, female borrowers do not show a significantly different credit loss than male borrowers. However, women have significantly lower portfolio-at-risk ratios, but the results are mitigated in highly religious societies, which also supports the view that MFIs in more religious nations that focus on female borrowers target the lower-quality group that is more in need of financial support.