Factor Affecting the Loan repayment performance of Micro and Small Enterprises Borrowers: Case of MSEs borrowers of Ormia Credit and Saving S.C. (OCSSCO) in Jimma zone selected branches

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.