DETERMINANT OF LOAN REPAYMENT RATE ON SMALL SCALE ENTERPRISES. THE CASE OF EZHA WOREDA IN GURAGE ZONE

Abstract

This study was conducted with the aim of determinants of loan repayment rate on small scale enterprises this study primary data was collected from borrowers176 respondents. In addition, secondary data were collected from relevant organizations and pertinent documents. For the data analysis, descriptive statistics such as mean, standard deviation, frequency distribution and percentages were used to describe loan and demographic characteristics of the respondents. In addition, the t and Chi-square tests were employed to compare non-defaulters and defaulters group, with respect to some explanatory variables. A binary probit model was used to analyze factors affecting loan repayment performance of small scale enterprises. A total of fifteen explanatory variables were included in the empirical model and out of these, eight were found to be statistically significant. Variance inflation factor and coefficient of contingency were calculated to detect multicollinearity and association among the continuous and discrete variables, respectively. Gender of borrowers, age, education level, annual income ,loan diversion, suitability of loan repayment period, loan repayment period and loan size were highly important in influencing loan repayment performance as evidenced by the model statistic. Therefore, consideration of factors affecting loan repayment rate is energetic because it provides information that would enable to undertake effective measures with the aim of investigating loan repayment rate and financial determinants on small scale enterprises’ performance. It would also enable lenders such as microfinance and policy makers to have knowledge as to where and how to channel efforts in order to minimize loan default