Investigating Determinants of Rural Households’ Choice of Credit Source among Microfinance Clients: Evidence from an Emerging Economy

Abstract

Modern competitive scenarios demand that microfinance institutions (MFIs) must determine and rank the important elements affecting customer choices regarding financial service providers to build superior value and customer loyalty. This research investigates the fundamental aspects that affect the choices of rural customers in Bangladesh for their MFI selection using Principal Component Analysis with descriptive statistics. The study revealed six major dimensions– Institutional and Peer Influence Factors, Safety and Security, Convenience, Service Quality, Loan Policy and Accessibility, and Financial Factors. Contrary to many existing studies, this study finds that decisions about MFI selection demonstrated that non-financial criteria, surpassing interest rates and additional financial factors through institutional reputation, service ease, and peer recommendations. Institutional and Peer Influence Factors earned the most significant weight from customers because social networks and trust play essential roles in their decisions. Customers placed Safety and Security and Convenience among their most vital factors while they prioritized transactional reliability together with physical accessibility. These research findings enable MFIs to develop better strategies by focusing on community participation and simplified lending structures and trained employees to establish loyal relationships with consumers. School of Advanced Studies at SPJIMR. The research supports government officials in implementing financial regulations which support both sustainable monetary stability together with equitable expansion. MFIs will boost their effectiveness in poverty reduction by improving their competition through comprehensive attention to both contractual loan aspects along with good reputation development strategies.

Keywords: Micro Finance, Micro Credit, Microfinance institutions (MFIs), Rural Bangladesh, Selection criteria, Ranking Selection Variables, Principal Component Analysis (PCA)

DOI: 10.7176/JESD/16-3-09

Publication date: May 30th 2025