Determinants of Microenterprise Loan Repayment and Efficacy of Screening Mechanism in Urban Ethiopia : The Case of Bahirdar and Awasa Towns
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Date
1997-06
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A.A.U
Abstract
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.
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Keywords
Determinants of microenterprise, Efficacy of screening mechanism, Ethiopia