Determinants of Group Loan Repayment Performance of MSE’s Manufacturing Sector: A Case Study in Dedebit Credit and Saving Institution (DECSI), Ethiopia

Abstract

This study was conducted with the objective of identifying and analyzing the factors that influence group loan repayment performance of the beneficiaries of DECSI operating in the manufacturing sector as group owned MSEs. Primary data was collected from 34 selected group leaders of the group owned MSEs borrowers by using structured questionnaire and depth-interview. A binary logit regression model was used to analyze the group related factors, lender related factors, and socio-economic related factor that influence group loan repayment. Out of the nine explanatory variables, the six explanatory variables, i.e., group composition, group initiation, peer pressure, suitability of repayment period, loan size and external shocks have statistically significant effect on loan repayment of the group borrowers; whereas the three explanatory variables, i.e., internal rule and regulation, loan supervision, and training have statistically insignificant effect on loan repayment of the group borrowers. Therefore, to improve the loan repayment performance of the group borrowers, DECSI, among others,  should consider homogeneity, self-initiation, existence of peer pressure among members, extent of loan size with business plan of group borrowers at the very beginning, and should focus on the repayment challenges which are stated by the borrowers (market linkage and loan supervision), and take corrective actions. Finally, further research on similar area is suggested by considering factors that need solution such as experience of group borrowers in the sector, group size, and lack of land; besides similar study may be conducted in other sectors of the MSEs (i.e., construction, urban agriculture, and service and trade) in order to have a holistic understanding of about the determinants of group loan repayment performance.

Keywords:Chi-square, DECSI, Determinant Factors, Group Loan, Logit, Manufacturing Sector, Mekelle, Microfinance, MSEs.