Social Collateral, Repayment Rates, and the Creation of Capital Among the Clients of Microfinance

The present paper seeks to examine the social collateral model for Malaysia Microfinance Institutions (MFI). This study proposes the social collateral model consists of social capital (trust and network), group pressure and training is used as supporting mechanism to encourage loan repayments and support the borrowers in creating human capital and economic capital. The social collateral model offers guidelines to the MFI in distributing the microfinance loan to the borrowers effectively and assesses the ability of the borrowers in the loan repayments. This would ensure survival of the borrowers in the microfinance program and lead to enhancement of their social and economic growth or lives. A vital social collateral model would contribute to the MFI in term of financial and managerial sustainability of MFI in the microfinance industry.