Microfinance Credit Rationing and Loan Repayment Performance: A Case of Omo Microfinance Konso Sub Branch

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Addis Ababa University


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



Microfinance, loan diversion, Loan rationing, impact, Loan repayment performance, Impact Creditworthy