Determinants of Microfinance Repayment Performance: Evidence from Small Medium Enterprises in Malaysia

Abstract

Microfinance was introduced in Malaysia to provide financing services to the poor and Small Medium Enterprises (SME) to start up business. The borrower may use the facility to finance business activities such as to purchase assets and additional capital to expand their business. Microfinance helps SME that have limited access to get loan from financial institutions. Financial institutions specifically commercial bank refuse to provide microfinance facilities to SME due to the high default rate among the majority of borrowers who obtain loan without collateral. In addition, the percentage of non-performing loan (NPL) of microfinance in Malaysia has been increasing. Therefore, the objective of this research is to analyze the determinants of SMEs loan repayment performance in Malaysia. Results showed that there are four variables with significant relationship towards loan repayment namely educational level, business experience, amount of loan and loan tenure.

The Effects of Credit Collection Policy on Portfolio at Risk of Microfinance Institutions in Tanzania

“…Empirical evidences from the findings by Kar & Swain, (2014); Adongo and Stork, (2000) ;Nyamsogoro, (2010) and Zohair, (2013) reported that interest rates, loan sizes and loan duration influence financial sustainability and portfolio performance of microfinance institutions. This is contrary to the findings by Tundui & Tundui, (2013); Folefack & Teguia, (2016);Onyeagocha, et al, (2012) and Shu-Teng, et al (2015) which indicated that, the factors were positively associated to repayment problems and against quality loan portfolio performance. Despite of essential contributions made on previous empirical studies, much of past research suffers from mixed findings leading to inadequate conclusions.…”

Do remotely-sensed vegetation health indices explain credit risk in agricultural microfinance?

“…Furthermore, we observe statistically significant effects for gender, age and the number of family members. While most of these findings are in line with the literature, the effects of the loan volume and of being a repeat client contradict them (Onyeagocha et al, 2012;Shu-Teng et al, 2015). Shu-Teng et al (2015) find that a higher loan volume corresponds to a higher repayment performance.…”

Affordability Of Islamic Microfinance

“…Shu-Teng et al (2015) have categorized them based on characteristics of borrowers, business, loans, and lenders. They include the following: Small loans (Brehanu & Fufa, 2008;Shu-Teng et al, 2015), and longer period of loans (Roslan & Abd Karim, 2009), shorter period of loans, higher sum of weekly instalments i.e. more than RM200 for low income earners and agricultural loans (Mokhtar et al, 2012) are the reasons for non-repayment.…”

“…Ahmad, (2007), Chaudhary & Ishaq, (2003 identified defaults due to loan for non-productive purpose, and higher interest (Ahmad, 2007). Small business: lower business revenue, less productivity and income (Brehanu & Fufa, 2008;Okorie, 1986), education level (Shu-Teng et al, 2015), youth and less experience (Mokhtar Et al, 2012). Some of these factors are linkable to unaffordability of the loan.…”