DETERMINANTS OF LOAN REPAYMENT PERFORMANCE IN MICRO FINANCE INSTITUTION (CASE STUDY OROMIA CREDIT AND SAVING SHARE COMPANY, KUYU DISTRICT)

Abstract

Delivering credit services targeting low income people is a crucial agenda but problem plagued undertaking. The main concern is the loan default problem which has a significant effect on the success of credit program both in rural and urban areas. Thus, the main aim of this study was identifying the determinants of LRP in MFIs with particular reference to OCSSCO Kuyu branch. A total of 105 respondents were included in the survey and the main data for the study was collected through structured questionnaire administered by trained enumerators. In addition, secondary data was collected from the branch office records. Probit model was employed to analyze the determinants of loan repayment performance of the branch borrowers. STATA12.0 soft ware was used to analyze data and t-test and chi-squared test was employed to compare non-defaulters and defaulters with respect to significant explanatory variables. A total of nine explanatory variables were included in the model’s equation. The result of probit regression confirmed that six of them; sex of the borrowers, income from activities financed by the loan, family size, loan diversion rate,suitability of repayment peroid and grace period were significantly affect LRP. Hence, taking these factors in to account is vital since it provides information enabling to take effective measures aiming at improving LRP in the study area. Equivalently, it would also help the institution and policy makers by providing information on how to exercise their capacity to reduce loan default.