Does Client-Specific Factor Matter In A Microfinance Contract?

Purpose – The purpose of this research is to enhance Microfinance Banks' (MFBs) loan payback performance in Pakistan by identifying and addressing the influence of client-specific factors (moral hazard, loan features, client-personal ability, and client characteristics).
Design/methodology/approach – The data for the study came from 150 MFB entry-level employees who filled out a survey. Using the stratified sample method, we were able to select representatives from each of the four key subsets of our target population: agriculture credit officers, enterprise credit officers, gold loan credit officers, and advance salary loan lending officers. Cronbach's Alpha was utilized to evaluate construct validity. It is possible to ascertain the direction of the relationship between the dependent and independent variables by employing multiple correlation analysis techniques simultaneously. We also used the variance inflation factor (VIF) technique to address multicollinearity concerns. Also, multiple regression was used in SPSS version 24 to test the study's hypothesis.
Findings – The findings show that client-specific factors (moral hazard, loan characteristics, clients' personal capacity, and clients' characteristics) have a significant and negative impact on loan repayment performance in Pakistani Microfinance Banks (MFBs).
Originality/value – To date, the direct impact of client-specific factors (moral hazard, loan characteristics, clients-personal capacity, and clients’ characteristics) on loan repayment performance in Microfinance Banks (MFBs) in Pakistan has been hardly investigated. This research provides useful information for Pakistani MFBs to consider while formulating credit rules and building a wide range of loaning programs, with the goal of reducing the negative impact of client-specific features.