Determinants of Group Loan Repayment Performance of Micro and Small Scale Enterprises: Case Study Oromia Credit and Saving Share Company (EasternWollega Zone Branch)

Amanudaba Waktola

doi:10.7176/jesd/11-19-04

Abstract

The study was intended to analyze the determinants of group loan repayment performance of MSE’s sectors a case of Oromia Credit and Saving Share Company operating in the East Wollega Zone. The survey data was conducted by using the structured questionnaire in order to collect primary data from the purposively selected branches whereas secondary data were collected from published and unpublished documents. Out of 424 total number of groups owned of MSE’s sectors 168 sample size were selected and only 162 of the respondents have filled the questionnaire properly by their respective enterprise’s group leaders. The collected data were analyzed by employing descriptive statistics and ordered logit model by using STATA soft ware version 12. Result of this study shows that out of the predicting variables used in this study, group leaders education level, group leaders experience in similar business, the enterprise’s beginning capital, loan repayment period, loan follow up, Training offered by the loan officers of OCSSCO and access to output market for the enterprises finished products were found to positively influence while the enterprises group size, additional loan they received, problem of information disclosure among members, the problem of financial statement recording experience in the business, loan interest rate, problem of power interruption and shortage of water supply around the enterprise working area have negatively influenced the group loan repayment performance of MSE‘s sectors in the study area. Based on this result, the author recommended that OCSSCO has to focus on the smaller the group size through which the problem of information disclosure would be resolved ,they has to give frequent training about the financial statement recording experience, they have to deal with the concerned body to solve the problem of power interruption as well as about the shortage of water supply around the enterprise’s business area and encouraging them to increase their beginning capital at the enterprise start up that used to build confidence in their loan repayment performance in thestudy area. Keywords : Loan repayment performance, Micro and Small Scale Enterprises, Oromia Credit and Saving Share Company. DOI: 10.7176/JESD/11-19-04 Publication date: June 30th 2020

Highlights

Ethiopia’s micro financing institutions (MFIs) are emerged with unique opportunity to serve poor people who do not have access to provision of micro-credit, savings, and other services to the poor that are excluded by the banks for collateral and other reasons
The effect of Institutional or lender specific factors that determine the group loan repayment performance of micro and smallscale enterprises (MSE’s) Sectors The effect of the variables under the Institutional or lender specific factors was interpreted based on the sign of each variable as before which states that; With the higher follow up activities by the loan officer of OCSSCO in the business, the more likely to be in the lower category of the group loan repayment performance of the MSE sectors which means that the higher follow up activities by the loan officer increases the probability that the MSE sectors to pay their loan timely versus risky and defaulter groups and statistically significant at 1% level of significance
A one unit increase in the problem of financial statement recording experience in the business, it leads to decrease the group loan repayment performance of MSE sectors to be non defaulter by 7% and increases the probability to be defaulter by 10% ceteris paribus.A onetime increase in the follow up by the loan officers of OCSSCO, it leads to increase the group loan repayment performance of MSE sectors to be non defaulter by 18% and decreasing the probability to be defaulter by 30% ceteris paribus

Summary

Introduction

Ethiopia’s micro financing institutions (MFIs) are emerged with unique opportunity to serve poor people who do not have access to provision of micro-credit, savings, and other services to the poor that are excluded by the banks for collateral and other reasons. Oromia Credit and saving Share Company is one of the micro finance institutions among those operating in the country that is found in Oromia regional state which is facing a similar problem of defaulters (Facet, 2013) In this regard, the data overview from OCSSCO of East Wollega Zone by focusing on the loan disbursed, loan paid back and the amount defaulted and the defaulted rate of last five years is summarized as follows: www.iiste.org. Sampling design The targeted populations in this study were categorized in to three strata’s such as; Non-defaulter, Risky and Defaulter groups with their respective MSE’s Sectors i.e. Manufacturing, Construction, Agriculture, Service and Trade sectors a case of East Wollega Zone of Oromia Credit and Saving Share Company operating branches. A total of one hundred sixty eight (168) respondents were selected as sampled respondents, 162 of them filled out the questionnaire properly that was used for analysis regarding the determinants of group loan repayment performance of micro and small scale enterprise’s sectors that are financed by OCSSCO in the study area

Result and Discussions

Goodness of fit test of the model

Findings

The link test in the model