Assessment of the Factors that Affecting Borrower's Ability to Repay Loan (In Case of Oromia Saving and Credit Institution in Bale Robe Town)

Abstract

Loan is an arrangement in which a creditor gives money or property to debtor agrees to return the property or repay the money, usually along with interest, at some future points in time. This study intended to identify the factors that affect borrower’s ability to repay loan in case of Oromia saving and credit institution in Bale Robe. This study used both primary and secondary data. Primary data was collected by using open ended question and closed ended questioner for the institutions employees and customers. Secondary data was gathered from the annual report of institution.. The collected data was analyzed by using descriptive methods, and present it by using like percentage and table form. Finally, this study included suggested and recommended ideas from findings. There are many factors considered before loan is given to the borrower of Oromia saving and credit institution such as, condition of character, capacity, ability to create income and owner of collateral of the asset. The researcher recommended that the proper evaluation of information contained in financial statements is great importance in the credit analysis process. In order to  minimizes default risk , the Oromia saving and credit institution must analyzes everything about the loan applicants to minimizes default risk and also the institution should have to  be used better controlling mechanisms  of  collecting the loans if there are no repayment of loan to attract the customers or the borrowers.

Keywords: Loan repayment, Micro finance institution, Repayment default.

DOI: 10.7176/RJFA/11-9-03

Publication date:May 31^st 2020