Factors affecting loan repayment performances: a case study in development bank of Ethiopia, jimma district

Abstract

This study was conducted in Development Bank of Ethiopia Jimma District geographical area. Development bank of Ethiopia is state owned and specialized financial institution with the mandate of providing long, medium and short term loans to feasible and viable projects of commercial agriculture, agro processing and manufacturing sectors following government priority area. This study is conducted on the factors affecting loan repayment; a Case study of Development Bank of Ethiopia, Jimma District. Accordingly, endeavors are made to contribute to the empirical gab regarding factors affecting loan repayment performances specifically in Jimma District. The main objective of this study was to identify and analyze the major factors of loan repayment performances in DBE, Jimma District; more specifically from four different perspectives, borrowers related factors, bank related factors, business/project related factors and factors related to external environments. Both primary and secondary data were used in the study. The primary data was collected from 150 selected borrowers through questionnaires and pre-tested structured interview with staffs and bank managers. To define and select the population of the study, stratified random sampling was used where borrowers were stratified based on their loan status. Both descriptive statistics and econometric analyses particularly logistic regression (binary logit) were employed to present the results and findings of the research. The study was basically conducted from four broad perspectives; factors related to characteristics of borrowers, factors in the side of lender institution, factors related to business/project and the other external factors were analyzed through descriptive statistics such as frequencies, percentages, mean, and standard deviation. A total of twenty one explanatory variables were included in the logistic regression and out of these eight were found to be statistically significant to influence the dependent variables. The results of binary logistic regression revealed that Educational qualification of borrowers, family size of borrowers, credit experience, having other business, proper follow up, duration of service time/time horizon, loan size and loan diversion were found significant and influenced loan repayment performances. Based on the descriptive and econometric results/analysis, the researcher has recommended to the bank to undertake proper screening, disbursing loan at the right time, conduct proper follow-up, provide sufficient amount of loan as per the feasibility study of the project, solve other difficulties as identified in this study and work on all other factors affecting loan repayment performances.