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

Hamdu Kedir Mohammed


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



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ISSN : 2251-1555