African Journal of
Marketing Management

  • Abbreviation: Afr. J. Mark. Manage.
  • Language: English
  • ISSN: 2141-2421
  • DOI: 10.5897/AJMM
  • Start Year: 2009
  • Published Articles: 156

Article in Press

DETERMINANTS OF LOAN REPAYMENT PERFORMANCE OF OMO MICROFINANCE INSTITUTION: IN THE CASE OF MIZAN AMAN TOWN, SOUTHWEST ETHIOPIA

Mikir Melese*1 Milkessa Asfaw1

  •  Received: 16 August 2019
  •  Accepted: 28 November 2019
In developing countries like Ethiopia, Microfinance institutions are playing an essential role in poverty reduction; to allow the provision of micro-credit, savings, and other services to the poor who are excluded by the commercial banks for collateral and other reasons. However, there is a loan repayment problem, which discourages rural finance organizations from promoting and extending credit. Therefore, this study focuses on identifying the determinants of loan repayment performance of Omo microfinance borrowers in Mizan Aman town, Bench Sheko Zone, Ethiopia. Both qualitative and quantitative data from both primary and secondary sources were used in this study. Three stage random sampling techniques were used to select 115 sample respondents. Descriptive statistics were employed to summarize and describe the socio-economic, demographic and institutional characteristics of the respondents. Furthermore, t-test and chi-square test were performed to compare defaulters and non-defaulters with the explanatory variables. Also, a binary logit econometric model was used to examine the factors that affect credit repayment performance of the selected sampled household borrows of Omo Microfinance. The study result showed that out of 115 chosen respondents, 66 were defaulters and 49 were non-defaulters. A total of 7 explanatory variables were included in the empirical model and out of the total hypothesized explanatory variables involved in the model educational level, annual income and training were statistically significant and positively influenced loan repayment performance of the borrowers, while loan size was statistically significant and negatively determine loan repayment in the study area. Therefore, the study recommended that the identified significant variables have to be a springboard for further interventions by financial institutions, stakeholders and policymakers to come up with a breakthrough to significantly decrease or even avoid defaulting problems.

Keywords: Defaulters, loan repayment, logit, non-defaulters