Abstract:
This study was conducted with the aim of analyzing the factors that influence loan repayment
performance of rural fund beneficiary youth groups in the case of Arba Minch zuria woreda.
Primarily data was collected from respondents through structured questionnaire and
secondary data was collected from different literature sources. A multi-stage sampling
technique was employed to draw district, kebeles and loan borrowers. At first stage, the
woreda was purposively selected. At second stage, three rural kebeles were selected
randomly. At third stage, rural youth groups were stratified into loan defaulter and non-loan
defaulter in the sampled kebeles. Finally, a total of 101 rural youth groups were selected
from each stratum by a simple random sampling technique. This study was used a cross
sectional survey method of research design and it applied both descriptive and correlation or
explanatory research approaches for the data collected through questionnaire. Both
descriptive and econometric model were used to analyze the collected data. Descriptive
statistics were used to summarize and describe the socio-economic, institutional &
demographic characteristics of the respondents. Moreover, Pearson correlation coefficient
analysis was used to analyze there is a significant relationship between two variables (the
strength of independent variable with loan repayment performance). The result of two limit
Tobit model indicated that out of 13 explanatory variables, Saving habit, Team sprite, group
formation process and Business experience of the group members were statistically
significant at 1% significant level and Loan size, Suitability of repayment period, Loan
supervision & follow up were statistically significant at 5% significance level were found to
be the most significant variables to contributing loan repayment performance of rural youth
groups positively. Loan diversion influence loan repayment performance of youth groups
significantly and negatively. A rural youth group has a number of challenges like high
interest rate and monthly penalty, lack of market linkage, increase in the price of
manufactured goods and improper interference of third party in the decision of loan
approval. Therefore, this study recommends that MFI better to revise the loan repayment
period and scheduled the time to collect the loan that would be suitable for selling the output
of their products, so a flexible repayment period should be designed in order to improve the
existing probability of repayment.
