LOAN CHARACTERISTICS & LOAN CREDIT TERMS: DOES IT MATTER IN A MICROFINANCE CONTRACT?

Muhammad Akram; Zahid Iqbal; Muhammad  Mudasir Afzal

doi:10.46662/jass.v10i2.379

Muhammad Akram Associate Professor, Hailey College of Commerce, University of the Punjab, Lahore
Zahid Iqbal Assistant Registrar, University of Okara
Muhammad Mudasir Afzal MS Management Sciences, The Islamia University of Bahawalpur, Bahawalnagar Campus

DOI: https://doi.org/10.46662/jass.v10i2.379

Keywords: Moral Hazard, Client Personal Capacity (CPC), Loan Characteristics (LC), Loan Repayment Performance (LRP), Client Characteristics (CC)

Abstract

This study examined the relationship between loan characteristics and loan credit conditions on loan repayment issues in order to assist Microfinance Institutions (MFIs) in Pakistan in improving their loan payback performance. The study also examines the link between loan credit terms and problems with loan repayment as well as the mediating function of client-business performance in the relationship between loan characteristics and loan repayment concerns. A measurement model and a structural model were both used in this investigation, which used a two-stage structural equation modelling methodology. The measurement model, also known as the outer model, was employed to evaluate the reliability and validity of the data collection technology. PLS-SEM bootstrapping was performed to test the hypothesis using the structural model (inner model). The results are consistent with the assumption that loan terms and conditions have a positive impact on microenterprise loan repayment concerns. The findings of this study also lend credence to the idea that client-business performance functions as a mediator in the relationships between loan characteristics and problems with loan repayment as well as between loan credit terms and problems with loan repayment. There hasn't been much research done in Pakistan to date on how loan characteristics and loan credit terms directly affect the challenges microenterprises face in repaying loans. The business performance of microenterprises is also investigated in relation to loan features, loan credit terms, and loan repayment issues.