Factors Affecting Loan Repayment Performance of Borrowers of Microfinance institutions in Case of Southwest Oromia, Jimma Zone

Abstract

This study was conducted in Jimma zone southwest Oromia regional state, Ethiopia. The objective of this study was to examine the factors affecting borrowers of microfinance institutions loan repayment, examining borrower’s character, the lenders institutions, evaluating loan characters and assessing the effect of the socio economics on borrowers, using primary data collected through structured questionnaire. The study employed explanatory research designed and quantitative approach. Adopted multistage sampling procedure and select Oromia credit saving and share company and Harbu microfinance institution proportionally from three microfinance institutions in Jimma zone then 196 respondents selected from both defaulters and defaulters by non-proportionate stratified sampling. The collected data were analyzed by employing descriptive statistics and binary logistic regression. The results of the model shows education level , loan type, other source of income, follow up, awareness creation, purpose of borrowing and income from activity by loan positively affect loan repayment performance of borrower. Also loan diversions; interest rate, market availability and payback period are negatively affects loan repayment performance of borrower. However, sex, age, marital status, dependent family sizes, amounts of loan extended and lender microfinance institution were founds insignificants in the model. The study recommends that microfinance institutions give special consideration for educational level of borrowers, type of loan, have knowledge about borrower’s other source of income, purpose of borrowing and market availability. Where determining the great covenants payback period, means that is similar with income generated from activity on purpose of borrowing. Also consider chargeable amounts of interest charge on loan and provide awareness creation or training that improve to generate more income from the purpose of borrowing rather than diverted for others purpose and follow-ups with remainders them to pay their loan on due date recommended as probably prevent default rate.