Effect of Household Factors on Repayment Ability among Islamic Microfinance Borrowers in Bangladesh

Abstract

The paper aims to discuss the effect of household factors on repayment ability among borrowers of Islamic microfinance in Bangladesh. Cross-sectional survey was used on borrowers who have been involved for more than two years in rural development scheme. Data was collected from 507 households through a close-ended questionnaire. The survey found that household income increased significantly after access to the Islamic microfinance program. The structural equation model analysis shows that household income has a significant positive effect on repayment ability. Household savings and consumption were also found to have a significant positive relationship with household income. Household savings also has a significant positive relationship with repayment ability when it is negative with the household consumption. Unlike conventional studies, this study found that borrowers involved in farm activities have a better repayment ability. The emerging result contributes to the research regarding repayment problems and the findings demonstrate that the adoption of Islamic microfinance could be a better solution. It is also anticipated that the empirical result will contribute to the furtherance of literature on Islamic microfinance.