Loan Repayment, Rationing and Borrowers Screening In Micro-Finance Credit: The Case of the Oromia Credit and Savings Share Co. (Ocssco) In Kuyu, Ethiopia

Course ID
Ethiopian Economics Association (EEA)
Jemal Abafita

Despite the potential benefits of group-lending schemes employed in the delivery of micro-credit, micro financing programmes are increasingly facing default problems. This study was conducted to investigate the factors that influence microfinance loan repayment and evaluate the loan rationing mechanism employed by the lender, using survey data. The results showed that education, income, loan supervision, suitability of repayment period, availability of other credit sources and livestock are important and significant factors that enhance the loan repayment, while loan diversion and loan size are found to significantly increase the probability of loan default. In addition female borrowers were found better in terms of loan repayment. On the other hand, the lender’s rationing mechanism favoured borrowers who are older, male, apply for larger loan amounts, own livestock of higher value, perceive supervision as adequate and the repayment period as suitable, while those who are literate, loan diverters, support more dependents and earn more income, were not favoured. Moreover, the findings suggest that there were flaws in the rationing mechanism employed, as creditworthy borrowers (like literate borrowers) were rationed more while those who significantly contributed to the default problem (like male borrowers and those who applied for larger loan amounts) were rationed less. An important policy implication of these findings is that, a careful examination of the factors related to repayments helps reduce default problems while due attention should be paid to tackle problems associated with the rationing mechanism in designing a better lending strategy.

Corporate Author: Getnet Alemun & Ethiopian Economic Association/Ethiopian Economic Policy Research Institute
Publisher: Ethiopian Economic Association (EEA)
ISBN/ISSN: 978-99944-54-15-0
Primary Descriptors: loan diversion, loan rationing,

Secondary Descriptor: creditworthy, default, group-based credit scheme

Geographic Descriptors: Ethiopia, Kuyu
Cataloge Date: 02/27/2013
Broad Subject heading: Loan repayment performance
Call Number: 330.963 PRO 2010
Serial Key Title: Proceedings of the Seventh International Conference on the Ethiopian Economy
Publication catagory: International Conference
Content type: EEA Publication
Volume: II
Publication date: 2013-05-27 23:10:00
Forum or Discussion date: 2013-02-27 15:02:22
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Author: Jemal Abafita