Factors affecting loan repayment performance of borrowers in the case of development bank of Ethiopia, Addis Ababa district
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Date
2018-06
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Publisher
Addis Ababa University
Abstract
The Development Bank of Ethiopia is one of the financial institutions engaged in providing short, medium and long term development credits. To address the main objective of the study, Development Bank of Ethiopia, Addis Ababa District is selected for the study purpose. The study was aimed at identifying and analyzing factors affecting loan repayment performance of borrowers in the case of Development Bank of Ethiopia, Addis Ababa District. The study used Primary and Secondary data collected from borrowers and from the bank’s source. The data used in the study is gathered through survey from 49 borrowers of which 35 (71%) were successful financed projects (non-defaulters), whereas the rest 14(29%) were non-successful ones (defaulters). The variables used in the study are educational level, loan diversion, other source of income, loan processing time, equity debt ratio, project implementation period, number of project follow-up, interest rate, managerial experience of project manager, availability of raw material, and accessibility of market. In the study, probit model was used to identify factors affecting loan repayment performance of borrowers. The findings of the
study reveals that the educational level, equity-to-debt ratio, number of project supervisions/ follow-ups, and managerial experience of project manager were positively and statistically significant and the variable project implementation period is negative and statistically significant factors affecting loan repayment performance of borrowers. Other variables such as loan diversion, other source of income, raw material availability and market access shows positive sign but not statistically significant. Thus, it is recommended that Development Bank of Ethiopia should give special consideration to educational level of borrowers; increase debt to equity ratio of borrowers to make the borrowers more ethically responsible; critically analyze the project implementation period at the time of appraising projects and enhance its project implementation capacity; conduct project follow up and monitoring in order to make well-informed decisions and provide technical assistance; and build strong relationship between managerial experience of project managers and successful loan repayment performance of borrowers.
Description
A research project submitted in partial fulfillment of the requirement for the degree of MBA in financial service
Keywords
Borrowers, Loan repayment, Probit model