Understanding micro-entrepreneurs' indebtedness: what drives payment behaviour?

• Main Authors: Redzuan, Nur Harena, Camdzic, Emir
• Format: Article
• Language: English
• Published: Zes Rokman Resources 2024
• Subjects: HG3368 Islamic Banking and Finance
• Online Access: http://irep.iium.edu.my/116227/7/116227_Understanding%20micro-entrepreneurs%27%20indebtedness.pdf; http://irep.iium.edu.my/116227/; https://ijbel.com/wp-content/uploads/2024/11/IJBEL32-ISU1_749.pdf

Understanding the socio-economic factors that influence irregular payment behavior among micro-entrepreneurs is essential, as these factors contribute to rising indebtedness and pose significant challenges for financial institutions in creating sustainable microfinance solutions. This study examines the factors influencing payment behavior among micro-entrepreneurs, focusing on the socio-economic drivers that contribute to high levels of indebtedness. It focuses on how financial leverage affects these dynamics by examining various independent variables, including income, gender, age, race, education level, marital status, number of dependents, types of business, business sector, financing amount, financing tenure, and the year of approved financing. The study analyse the demographic profiles of bank customers among micro-entrepreneurs and the payment behavior among microfinance customers in Malaysia through econometric model. The results show that micro-entrepreneurs with higher incomes tend to make timely payments on their bank financing compared to those with lower incomes. This confirms that a microentrepreneur's ability to make payments on time is linked to their income level. Other factors such as gender, age, race, education level, marital status, number of dependents, types of business, business sector, financing amount, financing tenure, and the year of approved financing do not appear to influence payment behavior among micro-entrepreneurs. While the findings are specific to Malaysia, the implications can be applied to similar contexts in emerging countries. This study offers a comprehensive understanding of the factors that impact payment behavior, providing valuable insights for financial institutions, policymakers, and microentrepreneurs to improve financial management and sustainability in the microenterprise sector.