Determinants of Microenterprise Loan Repayment and Efficacy of Screening Mechanism in Urban Ethiopia : The Case of Bahirdar and Awasa Towns

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The objective of this study is to investigate the determinants of microenterprise loan repayment and efficacy of screening (lending) techniques in Ethiopia using data collected from two towns, Awasa and Bahirdar, which are among the many towns in the country hosting borrowers that benefitted from a credit program initiated by the Government of Ethiopia and the International Development Association in early 1989. According to the findings, number of workers employed, age and weekly repayment period are found to be positively related to repaying loall in fuli in a loan period of one year in Awasa. Loan diversion has a negative relation. The predicted probability of full loan repayment is 53% for the town. Bahir Dar gives evidence that expectation of getting another loan and number of workers employed are positively related to full loan repayment while loan diversion and availability of other sources of credit are negatively related. The predicted probability of full loan repayment is 78 %. As regards efficacy of screening techniques, there is the problem of separating creditworthy borrowers from non-creditworthy borrowers in both towns. There are problems of incorrect rationing of creditworthy borrowers, and incorrect financing of non-creditworthy borrowers. There is no gainsaying that there are some good techniques of correctly identifying creditworthy and non-creditworthy borrowers in both towns. However, the problems seem more serious in the case of Awasa than in the case of Bahir Dar.



Determinants of microenterprise, Efficacy of screening mechanism, Ethiopia