Determinants of loan repayment performance: case of Oromiya credit and saving Share Company (ocssco) in west Shoa zone

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.