Determinants of microfinance loan repayment performance: case of omo microfinance (omfi) in Kaffa zone

Abstract

This study was conducted with the aim of analyzing the factors that influence microfinance loan repayment investigating determinants of loan repayment performance of borrowers (beneficiaries) and identify the major factors that face OMFI, by using primary data collected through structured questionnaire. The survey includes a total of 339 respondents, using stratified sampling the population was divided into Urban and rural based on settlement areas. The primary data has been collected by interviewing 167 urban borrowers and 172 rural borrowers’ respondent using a structured questionnaire with the help of trained enumerators. The questionnaire includes both open- and closed- ended questions. In addition, secondary data were gathered from OMFI head office, OMFI branch office and other related relevant publications. A binary logit model was used to analyze the socio-economic factors that influence loan repayment. In related with the regression analysis Multi co- linearity t and various model fitness tests were made for the assumption of Loan repayment by SPSS 20.0 statistical packages. Furthermore, a chi-square(X2) analysis was employed to compare the defaulters and nondefaulters group. A total of twelve explanatory variables were included in the regression. The results of the descriptive statistics and the binary logistic model show that sex, age, education, source of income before loan, method of lending ,loan size ,suitability of installment period and timeliness of loan release were important in influencing loan repayment performance of the borrower. However, family size, distance of borrowers from institution, residence of borrowers, and frequency of collection were found to be insignificant in model. KEY WORDS: Microfinance, Loan Repayment, Defaulters and Non Defaulters.