Assessment of Factors Affecting Default Risk in Project Finance: A Case of Omo Micro Finance, Hawassa Branch

Abstract

This study assesses factors that Affecting Default Risk in Project Finance: A Case of Omo Micro Finance, Hawassa Branches. Primary data were used in the study. The required data were collected from 338 project finance beneficiaries of Omo Micro Finance institutions and these respondents selected by adopting a simple random sampling technique. Both qualitative and quantitative methods were used. The data collected through questionnaire were analyzed using SPSS software version 20. Descriptive statistics such as frequency and percentage were applied. Furthermore, inferential statistics Chi-square and binary logistic regression were used to identify major factors that affect the default risk.  In addition, the data collected through interview were analyzed qualitatively using narrative for triangulation. The findings of the study show that 57% of borrowers in the study area did not repay the amount of money they borrowed as per credit schedules. The major factors that affect the default risk were sex of the borrower, educational level, family size, advisory visit, time lines of loan, repayment period, borrowing experience and training. The study therefore recommends that the stakeholders in the microfinance sector should ensure that the loan borrowers have access to adequate relevant technical training and follow-up in entrepreneurial microfinance businesses.

Keywords: Default risk, Institution, Loan, Omo Micro Finance, Project Finance,

DOI: 10.7176/RJFA/11-11-02

Publication date:June 30th 2020