MICROFINANCE LOAN REPAYMENT PERFORMANCE AND ITS DETERMINANTS AMONG RURAL BORROWERS: THE CASE OF OMO MICROFINANCE MALLE BRANCH, SNNPRS ETHIOPIA

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.