Abstract

The purpose of this study is to investigate the contribution of borrowers’ characteristics and credit terms on loan repayment performance of MFIs in rural areas of Uganda. This study is cross sectional and correlational. Data were collected through a questionnaire survey of 51 MFIs in Uganda. Results indicate that there is a significant relationship between credit terms and loan repayment performance among clients of MFIs unlike borrowers’ characteristics. This study’s regression model predicts 16% of the variance in loan repayment performance of MFIs in rural Uganda. The study is relevant to persons who borrow money and managers of MFIs and Savings and Credit Cooperatives (SACCOs). Managers may need to flex their credit terms and borrowers may have to identify those MFIs and SACCOs that are ready to discuss credit terms if the microfinance industry in Uganda is to help in reducing poverty. Whereas hitherto both borrowers’ characteristics and credit terms had been viewed as possible explanations of loan repayment performance, this study only confirms credit terms as a significant predictor of loan repayment performance.

Key words: Microfinance institutions (MFIs), borrower characteristics, credit terms, loan repayment.