Abstract:
Microfinance involves the provision of micro-credit, saving and other services to poor people
that are excluded by the commercial bank for collateral and other reasons. OCSSCO is one of
the microfinance institutions to serve needy people in the region. This study aims at identifying
the major socio-economic factors and loan related factors that determine loan repayment
performance of borrowers in OCSSCO. In fact, identifying and analysing such determining
factors of loan repayment rate is vital in the achievement of profitability and sustainability of
MFIs. The survey includes a total of 422 respondents, using stratified sampling the population
was divided into Urban and rural based on settlement areas. In this connection, the researcher
collected data from primary and secondary sources. The primary data has been collected by
interviewing 422 of urban and rural borrowers’ respondent using a structured questionnaire
with the help of trained enumerators. The questionnaire includes both open- and closed- ended
questions. In addition, secondary data were gathered from OCSSCO branch office and other
related relevant publications. Descriptive statistics with the help of Pie charts, graphs, table,
Percentages were used in analyzing the collected data. In addition to this econometric model by
employing SPSS 16.0 version were used to analyse the collected data. Furthermore, a chisquare(X2
) test of independence was employed to compare the relationship of dependent variable
with independent variables. A total of fifteen explanatory variables were included in the
regression and the result of the model show that sex, age, group size, business experience,
timelines of loan release, suitability of loan repayment period, other sources of credit, market
study were found important in influencing loan repayment performance of the borrowers.
However, educational level, training, loan size, frequency of collection and loan diversion were
found to be statistically insignificant. Based on the findings of the study, some recommendations
were made to improve loan repayment performance in the study area. OCSSCO should set
business and income based suitability of repayment period and recruit business experienced
borrowers.
