What Drives a Long-Term Relationship in Microcredit? Insights From a Cambodian Microfinance Institution

This article examines the determinants of the nominal value of loans in microcredit and the factors that drive long-term relationship banking. The dataset is drawn from primary data gathered from 216 randomly selected borrowers in a Cambodian microfinance institution. Analysis is performed using an OLS regression model.

The results confirm positive and significant impacts of real estate assets and loan purposes on the amount borrowed and a negative impact of being single as a civil status. Long-term relationships are positively affected by: age of borrower and purpose of loan; and negatively affected by female gender.

Contrary to general belief that microcredit is targeted to the poorest of the poor, a new market segment in microcredit was discovered within which MFIs might target low-income/asset-backed clients, granting loans on a sustainable basis, by applying the fundamental criteria of commercial banking: assessing credit-worthiness and loss given default.