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International Journal of Economics & Management Sciences

ISSN: 2162-6359

Open Access

Factor Affecting Loan Repayment Performance of Micro and Small Scale Enterprises in Western Ethiopia: The Case of Oromia Credit and Saving Share Company (Ocssco) Shambu Branch

Abstract

Megersa Adugna*

Loan repayment has a vital importance to have sustainable of financial institutions and the micro finance institution are distribution loan facilities to Micro and Small Enterprises(MSEs) in order to fill the gap of borrowers financial problem and increase productivity. Oromia Credit and Saving Share Company (OCSSCO) were, therefore, established to fill the gap in the financial services by providing credit services to MSEs. However, there is a loan repayment problem of MSEs in the study area, which is an obstacle to microfinance institutions. The objective of the study was identifying factors that influence the loan repayment performance of micro and small scale enterprises in the study area, the primary data were collected from 135 respondents stratified random sampled selected through structured questionnaire and the secondary data were obtained OCSSCO recorded and from different books. For the data analysis, descriptive statistics were used to describe the socio-economic characteristics of the MSEs borrowers and an econometric model recognized as a binary logistic regression model was used to identify factors that affect loan repayment performance of MSEs. From a total of 14 explanatory variables in the regression seven explanatory variables were found to be statistically significant to influence loan repayment performance. As the result of econometric showed that educational status, training of the borrowers, Suitable repayment period, Loan supervision, Income from others Sources, Revenue from business and business experience were affect loan repayment performance positively significant. Therefore, the study suggests the identified significant factors to be considered effective measures and revise policy as to improve loan repayment performance and minimize defaults problem.

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