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Determinants of Credit Default: the Case of Micro finance Borrowers in Rural Dire-Dawa

Abstract: 

This study was conducted with the objective of identifying factors that determine repayment performance among microfinance borrowers in rural Dire-Dawa. In order to achieve this objective, primary data was collected through multistage sampling procedure from 170 randomly selected respondents using structured questionnaire. Descriptive statistics was used to describe the demographic and socio-economic attributes of defaulters and non-defaulters and a two-limit Tobit regression was used to identify factors influencing loan repayment performance and intensity of loan recovery. The descriptive statistics result indicates that about 85.3 percent of the sample borrowers were defaulters while only 14.7percent were non-defaulters. The average loan repayment rate was 52 percent in overall with 47 percent for male borrowers and 55 percent for female borrowers. There was significant difference between defaulters and nondefaulters in terms age, educational level, occupation, land size and demographic cycle.

The results of the econometric model have also indicated that educational level, occupation, wealth status, timeliness of loan release, repayment period suitability, loan size, training and agro-ecology significantly and positively influencing loan repayment while family size, loan diversion and credit experience negatively influencing loan repayment performance of borrowers. Based on the findings, continued investment in primary and secondary education, building the capacity of borrowers through a comprehensive package of skill trainings, regular revision of loan size, further designing ways to release loan timely and making repayment schedules more suitable to customers, promoting technologies suitable for moisture stress area were recommended to improve loan repayment performance and sustainability of credit services in the study area

Corporate Author: 
Ethiopian Economics Association (EEA)
Publisher: 
Ethiopian Economics Association (EEA)
ISBN/ISSN: 
978-999-44-54-69-3
Primary Descriptors: 

loan diversion, loan recovery

Secondary Descriptor: 

loan repayment rate; loan repayment period

Geographic Descriptors: 
Dire-Dawa, Ethiopia
Cataloge Date: 
07/10/2019
Broad Subject heading: 
Credit
Call Number: 
330.963 PRO 2018
Serial Key Title: 
PROCEEDINGS OF THE SIXTH ANNUAL CONFERENCE ON THE EASTERN ETHIOPIA ECONOMIC DEVELOPMENT
Publication catagory: 
Content type: 
Publication date: 
2019-04-01 00:00:00
Conference Place: 
Jigjiga
Place of publication: 
Addis Ababa
Type of material: 
Book
Current frequency: 
Annualy
Chapter conference: 
Conference date: 
December 9, 2017