Abstract:
The study was made in Kurfa Chele Woreda of Oromia Regional State Ethiopia. It focuses on the
analysis of the rural borrower’s loan repayment performance for the loan they accessed from a
microfinance institution. The study used descriptive statistics and a binary logit econometric model.
Three stage sampling techniques were also employed to select sample respondents. In the first stage,
Kurfa Chele branch was selected purposely. In the third stage, a total of 335 borrowers, both
defaulters and non-defaulters were selected randomly from the 12 Kebeles based on probability
proportional to their size sampling basis. A cross-sectional research design was used to collect and
analyze the data. Both qualitative and quantitative methods were employed in collecting the data.
Primary and secondary data were also used. The primary data was collected from 335 borrowers by
using a semi structured questionnaire. The interviews were conducted with the household heads of the
samples. Descriptive statistics was employed to show the demographic and socio-economic
characteristics of the sampled borrowers; and to evaluate the loan repayment performance of
borrowers. The binary Logit econometric model was used to examine the factors affecting loan
repayment performance of borrowers and employed to find out the determinant factors that affected
the loan repayment performance. The results of the model indicated that the probability of loan
repayment performance was significantly influenced by ten explanatory variables. Timeliness of loan
release, the loan size, loan supervision, having business experience, annual income and livestock
holding were found to have positive and significant relationship with household probability of loan
repayment performance. Additionally, if the borrower had a very good annual income, a larger
number of livestock will pay the loan on the due date. Furthermore, a loan that is released timely,
large enough to satisfy the borrower’s need, followed up by the lender are more likely to be repaid
within the permitted period. However, sex of the household head, family size, secondary and higher
educational level and distance from the lender office were having negative and significant effect on
the household probability of loan repayment performance. the suggested recommendations were to
deploy strict follow-up mechanisms to male headed, large family sized, experienced in business and
those with large number of livestock. Additionally, timely release of loan by modifying the
bureaucratic processes were recommended.
