The Impact of Financial Management Practices and Competitive Advantage on the Loan Performance : The Mediatory Role of Intellectual Capital (Human, Relational and Social)

In Pakistan microfinance institutions have since been diversifying their product-offering by exploring new areas which include enterprise loans, housing finance, personal loans and deposits, leasing, insurance, and remittance services. In this paper, we investigated the effect of financial management practice and intellectual capital on loan performance in Pakistan’s microfinance institutions. We also examined the direct and indirect effect of competitive advantages on the loan performance of MFIs. In this paper, we include three dimensions of intellectual capital which are human capital, structural capital, and relational capital. The target population for this survey was employees of microfinance institutions MFIs in Pakistan, who are working at a different level. A total of 349 questionnaire papers were distributed. A PLS Smart methodology was employed to test the hypotheses and descriptive statistics were used to explore data characteristics. We have found that financial management practice is positively but insignificantly impacting loan performance. However, financial management practice is positively and significantly impacting on competitive advantages. Similarly, financial management practice has a positive and significant impact on all three dimensions of intellectual capital. Regarding intellectual capital, human and Relational capital is positively and significantly impact loan performance. Whereas structural and relational capital both are a positive and insignificantly impact on loan performance. Structural capital and relational capital both are positively and significantly impact competitive advantage, but human capital is positively and significantly impacts competitive advantage. Similarly, competitive advantage is also positively and significantly impact loan performance. We suggested that the management of MFIs must apply sound financial management practices for the focal MFI to remain competitive in the industry. It can create a cost-benefit and also enable differentiation