Analysing social attributes of loan default among small Indian dairy farms: A discriminant approach

Abstract

The study examines the socio-economic factors discriminating defaulters and non-defaulters of credit repayment. Multi-stage sampling design was adopted for selection of farm respondents. The data were collected through structured questionnaire by personal interview method. A linear discriminant function considered to examine the relative importance of different factors in discriminating between non-defaulters and defaulters. The result revealed that per capita income from crop and milk production, expenditure to total income, earning adults and off-farm income explained major share in discriminating the non-defaulters from defaulters. The mean discriminant score for the non-defaulters (Z1) and defaulter (Z2) were found to be 0.316 and -1.322, respectively. The critical mean discriminant score (Z) for the two groups was found to be -0.503. The high value of Z corresponds to non-defaulter and low value to defaulter. Later the derived classification analysis was observed that 50 out of 83 defaulters and 32 out of 37 non-defaulters were rightly classified in Z function. Thus, grouped cases classified correctly as 68.33% as factors of default. Hence, the model is found to be valid to predict whether an unknown borrower is likely to be defaulter or non-defaulter more precisely.