Philippine E-Journals

What Drives Households to Divert Loans? A Village Level Study

Tanmoyee Banerjee | Malabika Roy | Ajitava Raychaudhuri | Chandralekha Ghosh

 

Abstract:

This paper is based on a study on the phenomenon of loan diversion. Based on a primary survey carried out in two districts of West Bengal, India, it identifies association between the socio-economic and demographic characteristics of the borrowers to the incidences of loan diversion (that is a permanent shifting of loans for purposes other than the stated one); and the extent of such loan diversion.The descriptive analysis reveals that loans mostly from microfinance institutions are diverted. Econometric analysis shows that probability of loan diversion is high for groups who openly reveal support for political parties, apparently pointing towards some nexus between the borrower and politics. This adds an interesting political economy dimension to our findings. Also, it is found that the higher the size of the total loan, the higher is the proportion of loan diversion and the proportion of loan diversion is lower in large families.