FACTORS INFLUENCING LOAN REPAYMENT PERFORMANCE AMONG SMALL AND MICRO ENTREPRENEURS IN SELANGOR: EVIDENCE FROM MICROFINANCING RECIPIENTS

Abstract

Microfinancing institutions in Malaysia face a persistent tension between financial inclusion and portfolio quality. TEKUN Nasional's non-performing loan rate of approximately 9 percent, compared to a national banking average below 2 percent, signals that repayment failure in this segment operates through dynamics distinct from conventional credit markets. Yet no recent, state-level study has tested a comprehensive model of repayment determinants for Selangor's micro-entrepreneur population. This study addresses that gap by examining the relative influence of borrower characteristics, business-related factors, and loan-related factors on loan repayment performance among microfinancing recipients in Selangor. Grounded in credit rationing theory (Stiglitz & Weiss, 1981) and agency theory (Jensen & Meckling, 1976), the study adopts a quantitative cross-sectional survey design. Data were collected from 377 micro-entrepreneurs who had received financing from TEKUN Nasional or Bank Simpanan Nasional, drawn through purposive sampling at TEKUN branch offices, market associations, and community entrepreneur networks. Binary logistic regression was applied with repayment performance as the dependent variable. Findings show that 54.6 percent of respondents reported some degree of repayment difficulty. All three hypotheses were supported. Borrower-related factors carried the largest effect, with a one standard deviation increase reducing the odds of problematic repayment by 73 percent (OR = 0.270), followed by loan-related factors (OR = 0.425) and business-related factors (OR = 0.707). The model correctly classified 75.1 percent of cases (Nagelkerke R² = 0.457). These results position borrower financial literacy and institutional monitoring as the two highest-leverage intervention points for reducing repayment default in Malaysia's microfinancing sector.