Abstract:
Microfinance institutions play a key role in eradicating poverty by delivering various
financial services for the rural poor that have been unable to get credit offered by formal
bank institutions in developing countries like Ethiopia. The major objective of the present
study was to analyze microfinance loan repayment performance and its determinants
among rural borrowers of OMO microfinance in the Malle woreda. The data that was
used for this study were collected from both primary and secondary data source. Both
descriptive and inferential statistics and econometric models were used to analyze the
data. The results of the descriptive analysis revealed a significant mean difference
between the defaulter and non-defaulter borrowers in terms of age of the respondents,
family size, farmland size, loan size, sex, educational level, loan diversion, suitability of
repayment period, methods of lending, loan supervision and animal disease and crop
failure had a statistical significant relationship with loan repayment. Two-limit tobit
model result indicated that out of 13 explanatory variables, eight (8) explanatory
variables were significantly determining the loan repayment performance of the
borrowers of Omo microfinance in the study area. Among significant explanatory
variables age of the respondents, educational level of the respondent, farmland size,
suitability of repayment period and loan supervision were found to be significant
variables contributing to loan repayment performance of the borrowers positively. On the
other hand, sex of the respondent, family size and loan diversion were found to be
significant variables contributing to loan repayment performance of the borrower’s
negatively. Hence, it is suggested that giving consideration these negatively significant
variables is paramount important improvement on repayment performance and
coordinated efforts of concerned bodies (OMO microfinance institution, government and
others) will significantly decrease loan defaulting problem in the study area.
