Determinants of Microcredit Loans Repayment Problem Among Microfinance Borrowers in Malaysia

How can MFIs in Malaysia handle loan repayment problems among their clients?
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This study empirically analyzes factors that cause loan repayment problems among microfinance borrowers of two MFIs in Malaysia, namely, The Economic Fund for National Entrepreneurs Group (TEKUN) and Yayasan Usaha Maju (YUM). Study results demonstrate that borrower’s characteristics such as age, gender, and type of business, as well as microcredit loan characteristics, such as mode of repayment and repayment amount are among the factors that contribute to loan repayment problems among TEKUN and YUM borrowers in Malaysia. The paper recommends that MFIs in Malaysia should:

  • Recognize weaknesses in their lending systems and modify these in order to reduce the burden on the borrowers in repaying loans;
  • Closely monitor borrowers in certain age groups that have significant repayment problems;
  • Ensure that borrowers have the necessary experience and skills in agriculture before granting them loans;
  • Guide borrowers to choose the most suitable mode of payment, based on their revenue cycle;
  • Offer microinsurance, especially weather insurance;
  • Have flexible loan contracts.