The subject of this study is the microcredit market in the USA, more specifically in Florida.
The justification for choosing this specific state is the massive presence of the Hispanic population. This will facilitate a generalization of the obtained results to the microcredit market in Latin American countries.
The United States has been a follower rather than a leader in microfinance. Owing to its international success, microfinance has become popular as a means of combatting issues of poverty and economic development. However, despite efforts to establish microfinance programs, the USA has not been as successful as its international counterparts.
More specifically, microloans and other microfinance products traded in the US market differ from those of other countries: (1) Usually, loans are individual, with very little presence of group loans; and (2) microcredits are characterized by high principals, long terms, and low interest rates with upper limits in most cases.
The methodology used in this study is the multinomial logit regression method with the aim of analyzing the dependent variable Y which identifies three distinct categories. In effect, the dependent variable is divided into three values: 𝑌=1 if there is no problem with repayment, 𝑌=2 if there is delinquency, and 𝑌=3 if there is default. The analysis followed the methodology developed by Agresti and Franklin, Agresti, and Greene (view).
The results of this study have both theoretical and practical implications for the Hispanic Latin minority because they clearly show that a one-unit increase in age, education level, marital status, company proximity, loan principal, and loan purpose implies a higher probability of being “good borrowers” than “bad borrowers”.
In contrast, a one-unit increase in gender, company location, number of workers, revenues, and loan term purpose implies a lower probability of being “good borrowers” than “bad borrowers”.
Most of the coefficients, except the age and loan term, are not statistically significant, but the results obtained in this sample clearly indicate the direction to be followed in further research on this topic.
Conclusions, recommendations, policy implications and future research
Given the interest in exploring the main socioeconomic factors affecting the quality of repayment of microcredits in developed economies, this study aims to identify how these factors influence the profile of microcredit holders, especially in developing markets in the USA. In effect, this study highlights the relevance of the main factors that affect the repayment of microcredits to achieve better performance by employing a multinomial logit regression.
Owing to the nature of the methodology employed, the statistical generalization of the results needs to be considered with caution, especially in terms of socioeconomic factors. In effect, there are different approaches to analyzing the profile of microcredit clients, specifically those of Hispanic ethnicity, which point out the importance of distinguishing the main factors to achieve better results in microcredit policies.
It also aims to offer a dynamic socioeconomic approach to the profile of microcredit holders of the Hispanic minority in the USA to assist lenders in identifying more reliable borrowers by employing the methodology of multinomial logit regression.
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