LOAN REPAYMENT PERFORMANCE OF BORROWERS OF OROMIA CREDIT AND SAVING SHARE COMPANY: THE CASE OF KURFA CHELE DISTRICT, OROMIA, ETHIOPIA

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.