Small loans, big dreams: unpacking the critical role of lending offices in microfinance contracts

Zahid Iqbal, Farrukh Mahfooz and Maqsood Ahmad

Asian Journal of Economics and Banking, 2025, vol. 9, issue 3, 338-363

Abstract: PurposeTo improve the loan-repayment performance of microfinance institutions (MFIs), this study considers the role of the lending officer in the context of procedural deficiencies (PD), malpractices in credit assessment (MPCA), client–business performance (CBP) and loan-repayment problems (LRP).Design/methodology/approachIn this study, a questionnaire was used for the collection of data from 316 middle-level employees of MFIs. Additionally, this study used a two-stage structural equation modeling technique. At the first stage, the outer-model (measurement-model) was applied to ensure the reliability and validity of the data collection instrument. Second, the inner-model (structural-model) was used through the PLS-SEM bootstrapping to test the hypothesis of the study.FindingsThis study found that PD and MPCA not only enhance the LRP but also negatively affect the CBP. This study also validates the mediating role of CBP performance between the MPCA and LRP, but it failed to play a mediating role between the PD and LRP. In addition, this study found a moderating role of professional experience of lending officers on the relationship of PD and LRP but failed to prove the moderating role of professional expertise of lending officers on the relationship of MPCA and LRP.Originality/valueIn light of the study's findings, MFIs might alter their credit rules and lending methods to improve their loan-repayment performance. The findings of this study may be used by MFIs to design a variety of operational assistance and training programs for their staff and consumers to improve loan payback performance.

Keywords: Procedural deficiencies; Malpractices-in credit-assessment; Client–business performance; Professional experience; Loan-repayment problems (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajebpp:ajeb-04-2025-0035

DOI: 10.1108/AJEB-04-2025-0035

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