Credit Rationing and Repayment Performance in the Case of Ambo Woreda Eshet Microfinance Institution

Abstract

This study investigated with the aim of analyzing the factors that affect microfinance repayment problems, evaluating the loan rationing mechanisms. The study was conducted in Eshet Microfinance institutions, Ambo Woreda West showa zone (Oromia) Regional State, Ethiopia. Data were collected through semi-structured interview schedule that were distributed to members’ through interviews schedule with Eshet Microfinance manager, credit officers and credit committee members. The findings revealed that major factors considered by Eshet Microfinance institutions were credit rationing, loan sizes, loan diversion, family size, business experience and education. The study also found out that among the factors that were used for credit rationing in Microfinance age influenced loan repayment performance. From the findings, it was concluded that Eshet Microfinance’s credit rationing process was weak since it failed to discriminate between credit worthy and non-credit worthy borrowers and thus resulting in poor borrower’s loan repayment performance. Credit rationing system needs to take into account the factors that influence loan repayment performance when rationing loan applicants. Based on the research findings, the study recommends members’ training in proper loan utilization and business management skills so as to invest in profitable business ventures and improve their loan repayment performance. The government should provide sufficient financial and human resources to cooperative institutions so that it can extend its supportive roles to Eshet Microfinance Institutions to improve its service delivery to members. .

Keywords: Credit, rationing, performance, cooperative society