What Drives A Long-Term Relationship In Microcredit? Insights from a Cambodian Microfinance Institution
University of Padova, Italy
Tuck School of Business at Dartmouth
Working Paper No. 91 Centre for Accounting, Governance and Taxation Research School of Accounting and Commercial Law Victoria University of Wellington
This article examines the determinants of the nominal value of loans in microcredit and the factors that drive long-term relationship banking. The dataset is drawn from primary data gathered from 216 randomly selected borrowers in a Cambodian microfinance institution. Analysis is performed using an OLS regression model.
The results confirm positive and significant impacts of real estate assets and loan purposes on the amount borrowed and a negative impact of being single as a civil status. Long-term relationships are positively affected by: age of borrower and purpose of loan; and negatively affected by female gender.
Contrary to general belief that microcredit is targeted to the “poorest of the poor”, a new market segment in microcredit was discovered within which MFI might target low-income/asset backed clients, granting loans on a “sustainable” basis, by applying the fundamental criteria of commercial banking: assessing credit worthiness and loss given default.
Keywords: microcredit, collateral, loan size, Relationship banking, Cambodia
JEL Classification: G29, O16, I30
Date posted: April 14, 2012 ; Last revised: January 14, 2016