Abstract:
Microfinance institutions in Ethiopia are playing a great role in the economic development and creating
employment opportunity strategies which have been initiated by the government of Ethiopia. These
institutions have a mission of creating and facilitating credit and other financial access to enhance selfemployment opportunities and poverty reduction. However, repayment problem is an obstacle and have
been challenges in the microfinance institutions’ regarding reducing the high rate of default by their clients
specifically with micro and small enterprise borrowers. These challenge initiated a research with the
objective of examining and identifying factors affecting the loan repayment performance of MSEs financed
by MFIs, in the Case of Oromia Credit and Saving S.C. (OCSSCO) at Jimma Zone selected MFIs. To
address the main objectives of the study, four Wereda offices of OCCSCO were selected for the study
purpose. Accordingly in order to achieve the objective 331 sample borrowers were selected from the total of
MSEs borrowers served by those selected MFIs zonal offices. The data were collected using a structured
questionnaires, and interviews. Data were analyzed by using descriptive statistics in Cross-tab analysis
including, frequency and percentages were used to describe the borrowers related, business related,
technical support related and socio-economic related characteristics. Moreover, a binary-logistic
regression model were employed to estimate the model and analyze with the help of SPSS window 21.0
version. A total of fifteen variables were included under the five explanatory variables in the regression. The
results show the variables were found to be statistically significant to influence loan repayment. Of this,
being woman, increasing of age & other source of income, monitoring each other, business experience, loan
monitoring and supervision, getting adequate training, market demand, technology adoption have
increased the probability of non-default significantly, Whereas price inflation, socio-cultural relationship
have decrease the probability of non-default significantly though the level of significance differs. Therefore,
consideration of these factors is vital as it provides information that would enable to undertake effective
measures with the aim of improving loan repayment performance. So it is recommended that the lending
institutes need 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 through better
training.
