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Lending Relationship in the Traditional Credit Market — Implications for Credit Risk Management Strategy in Micro Credit Institutions

Lending Relationship in the Traditional Credit Market — Implications for Credit Risk Management... Asymmetric information increases the credit rationing of micro-enterprises. Lender–borrower relationships help to provide this information, thereby increasing the availability of loans. This study aims to investigate the relationship between micro-lenders and micro clients. It is accomplished by describing how such relationships are developed, and analyzing these relationships’ impact on the availability and credit term using multivariate regression. The results showed that the strength of lender–borrower relationships positively impacted credit access, but it did not significantly impact the credit term. Furthermore, the amount of income and loan purpose, as the proxies of business characteristics, negatively impacted credit access. These results highlight the critical role of the lender–borrower relationship and business characteristics in the risk management strategy and the sustainability of microfinance institutions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of International Commerce, Economics and Policy World Scientific Publishing Company

Lending Relationship in the Traditional Credit Market — Implications for Credit Risk Management Strategy in Micro Credit Institutions

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Publisher
World Scientific Publishing Company
ISSN
1793-9933
eISSN
1793-9941
DOI
10.1142/S1793993321500125
Publisher site
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Abstract

Asymmetric information increases the credit rationing of micro-enterprises. Lender–borrower relationships help to provide this information, thereby increasing the availability of loans. This study aims to investigate the relationship between micro-lenders and micro clients. It is accomplished by describing how such relationships are developed, and analyzing these relationships’ impact on the availability and credit term using multivariate regression. The results showed that the strength of lender–borrower relationships positively impacted credit access, but it did not significantly impact the credit term. Furthermore, the amount of income and loan purpose, as the proxies of business characteristics, negatively impacted credit access. These results highlight the critical role of the lender–borrower relationship and business characteristics in the risk management strategy and the sustainability of microfinance institutions.

Journal

Journal of International Commerce, Economics and Policy – World Scientific Publishing Company

Published: Oct 26, 2021

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