Microfinance Credit Rationing and Loan Repayment Performance: A Case of Omo Microfinance Konso Sub Branch
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Date
2014-10
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Addis Ababa University
Abstract
This study was conducted with the aim of analyzing the factors that affect microfinance loan
repayment performance, evaluating the loan rationing mechanism and also assessing the impact
of the program on the livelihood of borrowers, using primary data collected through structured
questionnaire from 203 respondents.
The estimation results of the descriptive statistics and the probit model show that education,
income, loan supervision, suitability of repayment period, availability of other credit sources and
livestock are important and significant factors that enhance the loan repayment performance,
while loan diversion and loan size are found to significantly increase loan default. In addition
female borrowers were found better in terms of loan repayment. According to these findings the
institution is recommended to see into these factors with care and design a better lending
strategy.
Regarding the loan rationing, borrowers who are literate, loan diverters, support more
dependents and earn more income, were disfavored; while those who are older, male, apply for
larger loan amounts, own livestock of higher value, perceive supervision as adequate and the
repayment period as suitable were favored.
The credit scheme was also found to have positive impact in improving the income, education,
health and nutritional status of the borrowers as evidenced by the Wilcoxon test that compares
the situations before and after participation in the credit scheme.
Key Words: microfinance, loan repayment performance, loan diversion, loan rationing, impact,
creditworthy
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Keywords
Microfinance, loan diversion, Loan rationing, impact, Loan repayment performance, Impact Creditworthy