Assessment of Factors Affecting Loan Repayment Performance of Borrowers: An Empirical Study on Selected Microfinance Institutions in Oromia Region
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Date
2017-01
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Addis Ababa University
Abstract
Microfinance institutions in Ethiopia are playing an important role in poverty reduction
strategies initiated by the government of Ethiopia. These institutions have a mission of creating
and facilitating credit and other financial schemes to enhance self-employment opportunities
and poverty reduction. To address the main objectives of the study, four Microfinances were
selected for the study purpose. The study was aimed at identifying and analyzing the potential
factors that affects repayment performance of micro and small scale enterprises and individual
entrepreneur borrowers using the structured questionnaires, semi-structured interviews and
focus group discussions. Accordingly, in order to achieve this objective 319 sample borrowers
were selected from the total of 2910 borrowers served by those selected MFIs. The descriptive
statistics analysis and probit regression model was employed to estimate the model and analyze
the results of findings. The result shows that ten variables including constant: sex, income from
other sources, monitoring utilizations of other members in a group, credit timeliness, repayment
time suitability, repayment trend on monthly basis and training adequacy are found significant
and positively influence loan repayment performance of borrower. While loan utilization for the
intended purpose, repayment trend on irregular basis and visit & follow-up on irregular basis
was found negatively influence the repayment performance of borrowers. The extensive
involvement and interference of third parties on the decisions of loan approval processing to
lending institute were found as a contribution for high defaulting. Thus, it is recommended that
the lending institutes needs to focus on monitoring loan utilization systems of borrowers and
technical support needs of the target borrowers through delivering better awareness creation to
organize the more viable borrowers, close supervision and follow-ups and strengthening their
internal and external weaknesses though better integration with key partner stakeholders.
Key words: Microfinance, loan repayment, loan utilization, integration, stakeholders
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Keywords
Microfinance; loan repayment; loan utilization; integration; stakeholders