Determinants of Loan Repayment: Evidence from Group Owned Micro and Small Enterprises, Tigray, Northern Ethiopia

Abstract

The study aims to investigate factors affecting loan repayment performance of the group owned MSEs taking borrower characteristics in to consideration. The primary data was collected by distributing semi-structured questionnaire and interviewing 62 group owned MSEs located in Mekelle city, Tigray Regional state of Ethiopia financed by DECSI by using census method, of which 13 group owned MSEs were found to be defaulters and the remaining, 49 MSEs were non-defaulters. An econometrics model (Binary Logistic Regression) was used to analyze the effect of the literature driven variables have on loan repayment (dependent variable). The binary logistic regression result shows among the variables hypothesized to affect loan repayment, initiation and sector have statistically significant effect on loan repayment. Whereas like group composition and group size have statistically insignificant effect on loan repayment.  Therefore, to improve the loan repayment performance of the group owned MSEs and increase the potential contribution of MSEs to the economic growth of the country, all concerned stakeholders must to play their role.

Keywords: Determinant, Loan Repayment, Group Owned, Micro and Small Enterprises, Binary Logistic Regression Logistic, Tigray, Ethiopia.