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Does Borrower’s Personality Affects the Repayment of the Loan? A Study of Banking Sector of Pakistan

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  • Shahzadah Fahed Qureshi
  • Rashid Ahmad
  • Muhammad Saim Hashmi

Abstract

The continuing global increase in economic activities is increasing the importance of the banking sector as the hub of such activities. The banking sector issue loans to individuals, firms, and government. Various factors influence the repayment of these loans. In this study, we argue that the personality of the borrower affects the repayment of the loan. We have selected a sample of 500 borrowers of five major banks in Pakistan by using a cluster sampling technique. We selected 250 (50%) regular borrower and 250 (50%) defaulters. We measured borrower personality through a 44-items big five inventory (BFI) questionnaire similar to John Srivastava (1999). We analyzed data using one-way ANOVA and regression. The results show considerable significant differences between the personality of regular borrowers and defaulters on all five traits of personality, which reveals that the borrower’s personality affects the repayment of the loan. The defaulters were high on extroversion and neuroticism dimensions, while regular borrowers were high on agreeableness, conscientiousness, and openness to experience. The results also depict the strong effect of demographic characteristics such as income, education, and family size on loan repayment. The study suggests banks consider the personality traits of the borrower at the time of issuing of loan.

Suggested Citation

  • Shahzadah Fahed Qureshi & Rashid Ahmad & Muhammad Saim Hashmi, 2020. "Does Borrower’s Personality Affects the Repayment of the Loan? A Study of Banking Sector of Pakistan," Journal of Accounting and Finance in Emerging Economies, CSRC Publishing, Center for Sustainability Research and Consultancy Pakistan, vol. 6(1), pages 107-116, March.
    • Handle: RePEc:src:jafeec:v:6:y:2020:i:1:p:107-116
    DOI: http://doi.org/10.26710/jafee.v6i1.1053
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