Loan Repayment Performance of Oromia Credit and Saving Share Company Borrowers and Its Determinants in Ada’A Barga District, Oromia National Regional State, Ethiopia

Abstract

In developing countries like Ethiopia Microfinance institutions are playing an essential role in poverty reduction; to provide the provision of micro-credit, savings, and other services to the poor that are excluded by the commercial banks for collateral and other reasons. However, there is a loan repayment problem, which discourages rural finance organizations from promoting and extending credit. Therefore, this study focuses on identifying the factors affecting the loan repayment performance of OCSSC borrowers in Ada’a Barga district, Oromia National Regional State, Ethiopia. Purposive and random sampling technique was used to select 139 sampled respondents.  Both primary and secondary data sources were used for this study. Descriptive statistics and t-test and chi-square test analyses were employed to compare defaulters and non-defaulters with the explanatory variables. Also, binary logit econometric model was used to examine the factors that affect credit repayment performance of the selected sampled household borrows of OCSSC. The result showed that out of 139 chosen respondents, 56 were defaulters and 83 were non-defaulters. A total of twelve explanatory variables were included in the empirical model and out of the total hypothesized explanatory variables involved in the model, age, educational level, celebration of social ceremony and participation in off/non-farm activities were positively and statistically significantly affected loan repayment performance at 1% significance level. Moreover, livestock ownership positively affected loan repayment at 5% 1% significance level. On the contrary purpose of borrowing and family size was negatively and significantly affected loan repayment performance at 5% and 10% significance level.  Therefore, the study recommended that the identified significant variables have to be a springboard for further interventions by financial institutions, stakeholders and policymakers to come with a breakthrough to significantly decrease or even avoid defaulting problems.,

Keywords: Binary logit; defaulters; loan repayment; non-defaulters; OCSSC

DOI: 10.7176/RJFA/12-9-05

Publication date:May 31^st 2021