Determinants of Loan Repayment Performance of Private Borrowers: A Study on Commercial Bank of Ethiopia Jimma District

Abstract

This study carried out on factors that determine the determinants of loan repayment performance of the borrowers in the case of Commercial Bank of Ethiopia, Jimma District using primary and secondary data collected through structured questionnaire. The secondary data was collected from the individual files of hundred credit borrowers. The study used explanatory design and qualitative research approach with a methodology of stratified and purposive. Hence the sample population was hundred (100), of which 75 (43.8%) were successful financed projects (non-defaulters), whereas the rest 25(14.6%) were non-successful ones (defaulters). The variables used in the study are age, education, past credit experience, house hold size, loan utilization, other source of income, repayment period of the loan, sector, and supervision of the bank and timeliness of loan released. In the study Logit model was used to identify variables which determine successful loan repayment performance. The paper reveals that education, loan utilization, other source of income; supervision and time were statically significant determinant of loan repayment performance of CBE’s Jimma District financed projects. However, the analysis of the educational status of the borrowers is the most important determinant among the ten variables. The policy implications of the study recommends that Commercial Bank of Ethiopia, Jimma District might intensify its project monitoring and follow-up work in order to make well-informed decisions and provide technical assistance for its credit-assisted projects; decrease the loan processing time(disbursement or processing time) give; critically analyze the project implementation period at the time of appraising projects and enhance its project implementation capacity; and improve its efficacy of customer recruitment system by giving special considerations to educational level of borrowers. Finally, the bank might look out for the factors that significantly influence loan repayment before granting loans to the borrowers to reduce loan defaults.