DETERMINANTS OF MICROFINANCE LOAN REPAYMENT PERFORMANCE: IN THE CASE OF OMO MICROFINANCE INSTITUTIONS IN GAMO GOFA ZONE, ARBAMINCH BRANCH

Abstract

This study was conducted with the aim of examining the determinants of loan repayment performance in Omo Micro finance institutions of Gamo Gofa zone, Arbaminch branch. The study was used both primary and secondary data. The Primary data were collected by using structured and semi structured questionnaires, FGDs and key informants. Secondary data were collected from the annual report of 2011-2016. To collect the primary data by stratified sampling techniques three wereda’s were selected from18 woreda’s by stratifying them as high, medium and low repayment performance. Then, from each woredas three kebeles were selected purposively. Finally 183 sample respondents were randomly selected from both defaulter and non-default borrowers by quota. Descriptive statistics were used to describe the socioeconomic characteristics of the respondents, and the Logit model was used to identify factors determine loan repayment performance of Omo micro finance clients in the study area. Based on the study result, selection method of clients were the main factor that affecting loan repayment in selected sub branches. The result indicated that interest rate, loan size and training were negatively and significantly related to loan repayment performance of Omo microfinance institutions. Follow up and supervision, business type and economic shock were important factors which affected loan repayment performance of the Omo microfinance institutions positively and significantly. Therefore, the study recommends the identified significant variables to be a mechanism for further involvements by financial institutions, stakeholders and rule and regulation makers so as to come with a breakthrough to significantly decrease defaulting problems.