Determinants of Credit Default: Microfinance Institutions in Jimma Zone, Jimma Ethiopia

Hamdu Kedir Mohammed

Abstract


Microfinance has emerged as a growing industry to provide financial services to very poor people. Micro Finance institutions (MFIs) help those who have no access to the financial services of formal financial institutions. In addition, they contribute a lot to reduce the negative impact of local money lenders in areas they operate in. However, they are encircled by so many deep-rooted problems. A number of studies on MFIs in many countries have shown that the majority of those MFIs have encountered serious loan recovery problems.

The results of the maximum likelihood estimate of logit model show that the probability for default is influenced by the Age, Sex, Marital status and experience of the borrower, revenue from the project, type of rode accessible to the market place, type of the project, Visiting of the project site before approval by the microfinance institution and visiting of the project sites by the microfinance institution after approval explains the probability of default. Household size, Loan taking frequency, Use of financial records, Availability of utilities in the project area, Accessibility of transportation to the market place, Level of education of borrowers does not explain the probability of default.

Keyword: Micro Finance institutions, financial services, loan recovery problems, default


References


References:

Zellar, Manfred (1996), Determinants of Repayment Performance in Credit Groups: The Role of Program Design, Intra-Group Risk Pooling, and Social Cohesion, International Food Policy Research Institute. No. 384.

Njoku J.E. and Obasi P.C. (1991), Loan Repayment and Its Determinants Under The Agricultural Credit Guarantee Scheme In Imo State Nigeria, African Review of Money, Finance and Banking, No.2.

OkorieAja(1986), Major Determinants of Agricultural Small Holder Loan Repayment In A Developing Economy: Empirical Evidence From Ondo State, Savings and Development, Vol. 10, No.1.

MengistuBediye (1997), Determinants of Micro Enterprises Loan Repayment and Efficacy of Screening Mechanism In Urban Ethiopia: The Case Of Bahir Dar And Awas Towns, M.Sc. Thesis, Department of Economics, A.A.U.

MeronMerkuriaw (2008), Loan Provision, Degree of Collectiblity And Reason For Default: A Case Study In Wise Saving And Credit Cooperatives Union For Women, MSc. Thesis, AAU.

Lawrence J.Gitman (1997) Principles of Managerial Finance, 8th edition, United States, Thompson Steel Production Service.

Ledgerwood J. (1999), Sustainable Banking with the Poor, Microfinance Handbook, The Institutional and Financial Perspective. The World Bank: Washington D.C.

Mayoux, L, (2002), Microfinance and Women’s Empowerment: Rethinking Best Practice, Development Bulletin, no. 57.

Kashuliza, A. (1993), Loan Repayment and Its Determinants In Smallholder Agriculture: A Case study In The Southern Highlands Of Tanzania, East Africa Review, Vol. 9, No.1.

Jonathan Morduch(2005), Banking Low-Income Populations: Perspectives from South Africa, New York University.

Jemal Abafita (2002), Microfinance and Loan Repayment Performance: A Case Study Of The Oromia Credit And Savings Share Company (Ocssco) In Kuyu, Msc. Thesis, AAU.

Hunte C. K. (1996), Controlling Loan Default and Improving The Lending Technology In Credit Institutions, Savings And Development, Vol.20, No.1.

AEMFI, Bi-annual bulletin, microfinance development review Vol. 8 No 1.

A.H Roslan and M.Z AbdKarim (2009), Determinants of Microcredit Repayment in Malaysia: The Case of Agro Bank, Journal of Humanity and Social Science Vol.4 No.1.

Ajayi, C.A. (1992), An Analysis of Default Factors in Residential Mortgages of the Federal Mortgage Bank of Nigeria, African Review of Money, Finance and Banking, No. 2.


پاراگلایدر Full Text: PDF

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

ISSN : 2251-1555