Loan Repayment Performance of Micro and Small Enterprises: Evidence from Somali Region, Ethiopia

Abstract

Viable Micro Finance Institutions (MFIs) that reach large number of poor people who are not served by the formal financial institutions have been a prime element for growth of Ethiopia. To operate successfully MFIs have to make sure that loan they disburse have to be repaid back so as to have financially sustainable and viable operation and contribute its own share in poverty reduction of the country. In light of this, this research study was carried to investigate the factors affecting loan settlement of Micro and Small Enterprises(MSEs) financed by Somali Micro-finance institution taking lender characteristics in to consideration. Both primary and secondary data was employed used. The primary data was collected by distributing questionnaire and through interview. A total of 175 Micro and Small Enterprises (MSEs) were selected using purposive sampling technique. The secondary data was acquired from various issues of annual reports of Somali Micro Finance institution and other concerned institutions. Both descriptive analysis and econometric model (binary logistic regression) was employed to analyze the effect of the literature driven variables on loan repayment (dependent variable) by borrowers. The binary logistic regression result revealed that among the variables hypothesized to affect loan repayment period, grace period, and timeliness of loan release have statistically significant effect on loan repayment by the borrowers Whereas loan size have statistically insignificant effect on loan repayment performance by the borrowers. Keywords: Loan Repayment Performance, MSEs, MFI, Logistic Regression, Somali Microfinance DOI: 10.7176/DCS10-9-01 Publication date: September 30 th 2020