Social Collateral and Repayment Performance: Evidence from Islamic Micro Finance

Rafay, A., Farid, S., Yasser, F. & Safdar, S. (2020). Social Collateral and Repayment Performance: Evidence from Islamic Micro Finance. Iranian Economic Review, 24(1), 41-74.

34 Pages Posted: 6 Feb 2020

See all articles by Abdul Rafay

Abdul Rafay

University of Management & Technology (UMT), Pakistan

Saqib Farid

University of Management and Technology (UMT), Pakistan

Farah Yasser

University of Management and Technology (UMT), Pakistan

Shahid Safdar

affiliation not provided to SSRN

Date Written: January 14, 2020

Abstract

A superior knowledge of determinants of repayment performance can contribute significantly to the development of microfinance in Pakistan. In this study we designed to test the remarkable repayment performance of Akhuwat; most successful Islamic Microfinance Institution (IMFI) in Pakistan. Akhuwat offers interest free loans in order to improve the quality of life and alleviate poverty in Pakistan. The model of Akhuwat is based on Muakhaat (brotherhood) and Qard-e-Hasan (offering financial assistance to somebody in need without interest). The primary objective of this study was to investigate the determinants of microfinance repayment performance. The study examined the borrowers’ characteristics, loan attributes, lender/institutional characteristics and the social collateral characteristics related to the Akhuwat. In order to verify these relationships, data is obtained from microfinance programs carried out on continuous basis by Akhuwat. Data of 387 borrowers was collected and logistic regression was used for data analysis. The findings depicted that among the socio-demographic factors like gender, marital status, number of dependents and number of previous loans are significantly and positively associated with loan repayment performance. However, previous loan default and religion are significantly and inversely associated with the loan repayment performance. Further, institutional characteristics e.g. branch location and amount of processing fees are significantly and positively associated with repayment performance. On the other hand, late fees penalty is significantly and inversely related to the loan repayment performance. Loan related characteristics like amount of loan and ease in repayment are significantly and positively related to the repayment performance. The findings of the study supported the role of social ties in improving repayment performance and hold key insights and directions about microfinance policy making in Pakistan.

Keywords: Islamic microfinance; Repayments; Pakistan; Social Collateral

JEL Classification: G20, G21, G29

Suggested Citation

Rafay, Abdul and Farid, Saqib and Yasser, Farah and Safdar, Shahid, Social Collateral and Repayment Performance: Evidence from Islamic Micro Finance (January 14, 2020). Rafay, A., Farid, S., Yasser, F. & Safdar, S. (2020). Social Collateral and Repayment Performance: Evidence from Islamic Micro Finance. Iranian Economic Review, 24(1), 41-74.. Available at SSRN: https://ssrn.com/abstract=3518952

Abdul Rafay (Contact Author)

University of Management & Technology (UMT), Pakistan ( email )

C-II
Johar Town
Lahore, Punjab 54770
Pakistan
924235212801-10 (Phone)

HOME PAGE: http://www.umt.edu.pk

Saqib Farid

University of Management and Technology (UMT), Pakistan ( email )

C-II
Lahore, Punjab 54770
Pakistan

Farah Yasser

University of Management and Technology (UMT), Pakistan ( email )

Johar Town - Phase 1
Lahore, Punjab 54770
Pakistan

Shahid Safdar

affiliation not provided to SSRN

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