Determinants of MFIs Group Loan Repayment Performance: A Case of Dedebit Credit and Saving Institution, Mekelle, Ethiopia

Group loan repayment rate of Debub and Semien sub branch of DECSI microfinance institution in the city of Mekelle has decreased considerably from year to year and averaged around 43 percent default rate per year of the total loans dispersed for consecutive five years (2009 to 2013). Therefore, this study is an attempt to identify factors influencing the loan repayment performance of group borrowers.  Primary data was collected from a sample respondents (selected by using simple random sampling technique) through questionnaire and unstructured interview. The study has applied explanatory type of research, i.e., binary logistic regression model to analyze the factors influencing group loan repayment performance. Peer-monitoring, screening, peer-pressure, social ties, loan officer visit to the group, and other sources of credit were found to have statistically significant effect on the group loan repayment performance. Thus, to improve the group loan repayment performance, DECSI should consider those statistically significant explanatory variables and take corrective actions accordingly. Keywords: Binary Logit, DECSI, Determinant Factors, Ethiopia, Group Loan, Mekelle, MFIs, MSEs

Factors Affecting Group Loan Repayment Performance: A Case of Dedebit Credit and Saving Institution (DECSI), Mekelle, Ethiopia

This study was an attempt to analyze the factors influencing the loan repayment performance of group borrowers.  Primary data was collected from sample respondents (selected by using simple random sampling technique) through questionnaire. From the total 87 questionnaires distributed, 83 that are 95% (response rate) were collected. The study has applied explanatory type of research. Chi-square test statistics was employed to test the association of each explanatory variable with group loan repayment performance (dependent variable). 15 explanatory variables were considered in the Chi-square test. Out of which seven variables (loan purpose, group members know the monthly sales of the group members, group members’ regularly visits other group members, group members’ help, group members knew the other group members before the group was formed, group members put pressure on other members to repay, and penalty) were found to have statistically significant association with loan repayment performance.  Thus, to improve the group loan repayment performance, DECSI should consider those statistically significant explanatory variables and take corrective actions accordingly. Keywords: Chi-square, DECSI, Ethiopia, Factors, Group Loan, Mekelle, MFIs, MSEs