Determinants of Loan Repayment Performance of the Borrower Microfinance: In Case former Oromia Credit and Saving Share Company (OCSSCO) Burayu Branch, Oromia; Ethiopia

Abstract

The objective of this study was to determine factors affecting borrower‟s loan repayment performance in OCSSCO Special zone Burayu branch. Microfinance is one of tool an important strategy to alleviate poverty in developing countries .The frame work of this study was built by four factors namely borrowers characteristics, business characteristics, loan characteristics and lenders characteristic. The study used mixed methodology combining between quantitative and qualitative data through survey questionnaires and in depth interview. The main study was conducted based on quantitative method and supported by qualitative data. Data were collected using simple random sampling techniques; accordingly 110 sample respondents were selected from the total population of 680 borrowers. To conduct this study the researcher employed the logit model. Credit repayment performance was dependent variable and explanatory variables of the model include those which were hypothesized to have an association with loan repayment performance. For the purpose of this study the researcher has constructed 14 independent variables assuming that they are best to explain the determinants of loan repayment performance of OCSSCO Burayu branch borrowers. The analysis began with a descriptive analysis followed by binary logit regression analysis. The descriptive model used t-test and chi- square test to compare defaulters and none defaulters based on explanatory variables. The result of econometrics model revealed that out of the fourteen explanatory variables, six were found to be significant. Gender and suitability of repayment period were negatively related with credit repayment performance, whereas loan supervision, availability of other sources of income, house hold size, and adequacy of the loan were positively related with credit repayment performance. This study contributes significantly to the knowledge of microfinance program at large, where it explains that repayment performance plays an important role to ensure that MFIs can continue providing microfinance to the micro entrepreneurs without depending on subsidies. The repayment period should be revised, because to be profitable and repay the loan easily adequate repayment period is required. Hence female borrowers are large in number and more female borrowers were defaulters than male borrowers, especial training should be given to female borrowers.