IS MULTIPLE BORROWING A BAD SIGN? EVIDENCE FROM MICROFINANCE INSTITUTIONS IN PAKISTAN

Purpose: To improve the loan repayment performance of Microfinance Institutions (MFIs) in Pakistan, this research not only analyses the direct effect of multiple borrowing on loan repayment performance but also determining the indirect impact of multiple borrowing on loan repayment performance through the mediating role of over-indebtedness and moderate role of moral hazard between over-indebtedness and loan repayment performance. Design/methodology/approach: This study is based on a rich dataset comprised of information provided by the employees of MFIs working in Pakistan. The primary data were collected through the structural questionnaire, reliability and validity of construct were established in the light of different techniques including (1) Factor Loading (2) Cronbach’s Alpha (3) Composite Reliability (4) Average Variance Extracted (5) Variance Inflation Factor (6) Fornell-Larcker Criterion and (7) HTMT Ratio. Moreover, structural equation modeling techniques were applied in this study and, hypotheses were tested through bootstrapping by using PLS-SEM. Findings: The results confirm not the only direct impact of multiple borrowing on loan repayment performance and over-indebtedness but also mediating role of over-indebtedness between multiple borrowing and loan repayment performances. Aside from the direct influence of over-indebtedness on loan repayment performance, the moderate role of moral hazard on the association between over-indebtedness and loan payback was also found. Application of the Study: The findings of this study will be communicated with all Microfinance Institutions (MFIs) in the future so that policies may be developed to address the factors that negatively affect the loan repayment performance of Microfinance Institutions (MFIs). Besides this, the outcomes of this study will also enable the MFIs to launch different loaning products that not only fulfill the borrower’s requirements but also ensure the interest of MFIs. Originality/value: Until now, the impact of multiple borrowing on loan repayment performance through mediating role of over-indebtedness and moderating role of moral hazard in the context of Microfinance Institutions (MFIs) of Pakistan have hardly been investigated. This study also enhances the understanding of MFIs regarding multiple borrowing and its subsequent impact on loan repayment performance. Moreover, the findings of this study enable the MFIs of Pakistan to improve their loan repayment performance by formulating the new lending policies in light of the finding of this study with special reference to multiple borrowing.