Determinants Of Loan Repayment Performance Of Micro And Small Enterprises: The Case Of Oromia Credit And Saving Share Company Found In West Shoa Zone

Abstract

The study was conducted in west shoa zone Ambo and Dendi branches and aimed to analyze the extent of loan repayment and the determinants of loan repayment performance of MSEs that were financed by oromia credit and saving share company Institution. Microfinance institutions were, therefore, established to fill the gap in the financial services by providing credit services to micro and small scale enterprise. However, repayment problem is an obstacle to microfinance institutions that offer microfinance based lending methodologies to provide loan to micro entrepreneurs. And hence these overarching challenges initiated a research with the objective of examining and identifying factors that influence the loan repayment performance of micro and small scale borrowers in one of the biggest micro finance institutions in Ethiopia named oromia Credit and saving Share Company In order to achieve this objective, primary data were collected from 130 randomly selected clients (58 defaulters and 72 non defaulters) by using questioner. Moreover secondary data were obtained from the record of oromia Credit and saving Share Company. For the data analysis, descriptive statistics including mean, standard deviation, frequency and percentages were used to describe the socio-economic characteristics of the borrowers. Moreover, a multi linear logistic regression model was used to analyze the socio-economic factors that influence loan repayment. A total of six explanatory variables were included in the regression. The result shows that six variables were found to be statistically significant to influence loan repayment. Those are political legal factor, working place factor, marketing factor, technological factor, infrastructural factor and financial factor Lack of good relationship with political legal factor un availability of working place factor, absence of appropriate market factor, inadequacy of infrastructural and un organized financial training for borrowers leads to default. Generally ambo and Dendi woreda credit and saving share company institution regularly support borrowers of micro and small scale enterprise and improve policy of loan, by giving enough information, facilitate technology give awareness on financial training, provide infrastructural for borrowers and encourage special support for borrowers, facilitate marketing facility for borrowers and give awareness on the issue of loan repayment performance of micro and small scale enterprise.