This study utilises a novel data set from a commercial bank in India to explore the associations between borrower, loan and macroeconomic characteristics and the likelihood of default in micro, small and medium enterprises (MSMEs). We analyse how borrower attributes, such as gender, age and religion, and loan characteristics, such as relationship lending, interest rates, guarantees and collateral, relate to default probabilities. The results indicate that MSME loans in urban and metropolitan areas are associated with a higher probability of default. Both cash credit and term loans covered under the credit guarantee fund exhibit a greater likelihood of default. The analysis also suggests an inverse association between default probability and macroeconomic stability, measured by state-wise gross domestic product. Moreover, differences emerge in the factors linked to default across cash credit and term loans. Interest subsidies appear to be associated with a lower default probability for term loans, whereas larger term loans tend to have a higher likelihood of default. These findings highlight the importance of refining lending practices and optimising credit guarantee mechanisms to foster the sustainable growth of MSMEs.
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