Determinants of successful loan repayment performance of private borrowers in Development Bank of Ethiopia North Region

Abstract

In this paper, attempts are made to identify borrower’s characteristics, project characteristics and loan characteristics that determine successful loan repayment performance of the borrowers in Development Bank of Ethiopia North Region. To identify the factors behind successful loan repayment performance of the borrowers a probit model is used. The data used in the study is gathered through survey on 100 respondents that are carried out in two branches. The probit model describes that educational level of the borrowers, repayment period of the loan, availability of other source of income, sector, purpose of the loan and type of labour determine successful loan repayment performance of the borrowers positively and significantly. Other variables such as, gender and household size have positive sign, but are not statistically significant. Moreover, variables such as age, loan diversion, other source of credit show negative sign but not statistically significant. The variable experience is statistically significant but show negative sign.