2010 International Conference on Science and Social Research (CSSR 2010), December 5 – 7, 2010, Kuala Lumpur, Malaysia 1369 Demographic Factors and Repayment Performance of NBFI Customers in Kuching Fennee Chong, Fareiny Morni, Rosita Suhaimi Faculty of Business Management, Universiti Teknologi MARA Kota Samarahan, Malaysia fenneechong@sarawak.uitm.edu.my Abstract— The main objective of this paper is to investigate whether demographic factors affect repayment performance of the non-bank financial institution customers in Kuching, Sarawak. Data required for analysis are collected using structured questionnaire from the existing housing loan, personal loan and business loan customers of non-bank financial institutions in Kuching. Findings showed that 55% of the respondents did not pay on time. Meanwhile, 62% of the respondents are male while 38% are female. Majority of the respondents (67%) fall in the age group of 30-39. In terms of education, 70% of the respondents possess a diploma or a degree. Furthermore, 62% of the sample is either working for private companies or self-employed while 38% are government servants. Results of the logistic regression analysis showed that among all the demographic factors tested, only distance has a predictive power over repayment performance. Each one unit increase in distance increased the odds of a respondent not paying his or her loan by 0.867. Keywordsƒdemographic factors; repayment performance I. INTRODUCTION Managing repayment performance is crucial as it is the main cause of non-performing loan (NPL). Under the Classification of Non-Performing Loans [1] set by Bank Negara Malaysia (The Central Bank of Malaysia), overdrafts, term loans, revolving credit facilities, leasing loans, block discounting facilities, hire-purchase loans and other loans that is due and has been unpaid for more than six months are considered to be non-performing. Managing non-performing loan is one of the biggest challenges for financial intermediaries. This is because a high non-performing loan would ultimately leads to the deterioration of the financiers bottom-line and threatens its survival. Malaysia has gone through major non-performing loan (NPL) restructuring after the Asian financial crisis in 1998. Among the measures taken including the formation of Danaharta, the asset management company which completed purchase of NPL worth RM6.4 billion in 1999. Of late, Maybank, Malaysia’s largest bank has sold a portfolio of corporate NPLs, consisting almost 100 borrowers with a face value of RM2.2 billion (US $630 million) [2]. Shortly after that, CIMB has launched its first NPL sale for corporate loans at the beginning of 2008 [3]. It is widely felt that these transactions only represent the tip of the iceberg, more financial institutions are likely follow through. Furthermore, Price Waterhouse and Coopers reported that the NPL level in Malaysia is valued at RM44 billion as at 2008 [3]. Recently, the credit crunch which started at the end of 2008 in the United States has triggered a worldwide recession. For Malaysia, Bank Negara Malaysia has reported a negative growth of -6.2% for the first quarter of 2009. According to Bank Negara Malaysia Report [4] the total NPL outstanding of the whole financial system stands at 4.1% as at December, 2008. On the other hand, the NPL of the non-bank financial intermediaries (NBFI) was reported at 8.8% as at the end of 2007. From the statistics observed, it is obvious that NBFIs are subjected to higher credit risk. The NBFI is an extension of the banking system whereby it complements the banking system providing services that may not be available by the banking system but it is also competing with commercial banks and this enables the banking system to be more efficient and responsive to customer needs [5]. Moreover, NBFI helps to take on the amount of risks that the banking system might be unable to shoulder and without NBFI, these risks might otherwise be borne by the stock market, collective investment schemes or insurance companies [6]. Majority of the NBFI in Malaysia, such as SME Bank, Bank Simpanan National, Bank Rakyat as well as Agrobank are involved in lending to micro businesses and individuals who have potentials but are having difficulties in obtaining loans from the conventional lending institutions. Furthermore, most of the loans are not secured with collaterals. Since NBFIs generally exposed to a higher credit risk, therefore, this group of lenders should manage their default risk actively. Several authors [7] and [8] suggested that among the possible reasons for a loan not being repaid are the unwillingness and /or the inability of the borrowers to repay. On the other hand, [9] highlighted that, apart from the borrowers characteristics, institutional factors also influence loan default rates. Thus far, studies on credit risk management remain popular among the academics and practitioners. II. PROBLEM STATEMENT Loan repayment performance of borrowers is one of the most important elements that determine the resilience of a financial institution. Poor loan repayment leads to high