FUCULITY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF FACTORS THAT AFFECT LOAN REPAYMENT:(A CASE STUDY

OF AWASH BANK AT ADAMA CITY BOSET BRANCH)

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF ACCOUNTING AND FINANCE FOR THE
PARTIAL FULFILLMENT OF THE REQUIREMENT OF BA DEGREE IN ACCOUNTING AND FINANCE
PREPARED BY:
1.TOLOSA MENGISTU
2. FEYISA GEMESA
3. WEYINISHET ADERU
4. ZINASH BASHA
5.MESKERAM BEHARU
6. DERIBE GERASU
7. BETI MINISHA
8. TOLESA FEYISA

ADVISOR: TALILA SIDA

 Feb.2023
Adama, Ethiopia.

Table of Contents

Contents page
Acknowledgment.................
Abstract…...………………………………………………………………………………
Acronyms…………………………………………………………………………….…....
CHAPTER ONE……………………………………… ……………………………
1. Introduction
1.1. Background of the Study......................
1.2. Statement of the Problems..........................................
1.3.Objective of the Study...........................
1.3.1. General Objective……………………………………………………………...….
1.3.2. Specific Objectives……………………………………………………….………
1.4. Research questions
1.5. Significance of the Study................................................................................................
1.6. Scope of the Study.........................................................................................................
1.7. Limitation of study……………………………………………………………………
1.8. Organization of the Study…………………………………………………………….

CHAPTER TWO .....................................................................................................

LITERATURE REVIEW ....................................................................................

2.1. Theoretical Review.......................................................................................

2.1.1. Definition of Loan Repayment ..................................................................

2.1.2. Definition and role of AwashBank.........................................

2.2 Theoretical arguments on loan default problem .......................................

2.3. Lending methods of AwashBank................................................

2.3.1. Individual Based Lending...........................................................................

2.3.2. Group Based Lending ......................................................................

2.4. Empirical Review................................................................................................

2.4.1 Empirical studies of other countries..................................................................

2.4.2 Empirical studies in Ethiopia ............................................................................

2.5 Knowledge and literature gaps............................................................................

2.6. Conceptual framework......3

CHAPTER THREE.............................................................................................................
3.Research Methodology......................................................................................................
3.1. Study Area.…………...…………………………………………………………...
 3.2. Research Design.........................................................................................................
3.3. Target Population.....................................................................................................
3.4. Data Type and Source.................................................................................................
3.5. Sampling Technique and Sample Size.......................................................................
3.6 Method of Data Collection..........................................................................................
3.7. Method of Data analysis and Presentation……………………………………….
3.8 work plan................................................................
3.8.1 Time Budget...................................................................................
3.8.2 cost buget........................................................................

Acknowledgement

Above all we would like to thank the almighty GOD for helping in our duties have it not be for assistance. We
wish to appreciate the following persons for their contributions for this researches: Second we thank our

Advisor TALILA SIDA for giving the insightful comments, suggestions and guidance of the research. The
researchers wish to acknowledge respondents those gave their time to filling the questionnaire for the study.
Finally, researchers are deeply thanking to Awash Bank for their support during the data collection processes
for the general and unreserve assistance the guidance he gave me and his constant support was invaluable
and also we go to thank all my friends.
 Abstract
The main objective of this study was to assess factors that affect repayment of loan in Awash Bank at Boset
branch.
Loan is many lent at interest and it is a liability for individuals or corporations receiving it but an asset for
bank because it provides income for the bank.
The study was conduct using simple random sampling technique for primary data collection questionnaire are
use to collect necessary information from the customer and interview are use to collect available information
from the manager and loan officer of the bank. For secondary data collection magazines, manuals and
leaflets has been use.

Purpose of this study was to study the types of loan provide loan repayment schedule, repayment condition of
the borrowers, and to identify the factors affecting repayment of loan on the due date. The purpose of this
study was also to analysis the impact of delay and failure of repayment of the loan and studies the follow-up
procedures of its outstanding loan by the bank.
At the end, the result would be interprete suggeste and summarize the finding and finally recommendation
will be forwardfor bankers and customers.
Keywords: Credit, Credit risk, credit risk mgt. Awash bank

Acronyms
AB- Awash Bank
DTS- Domestic Trade Service
FASB-Financial Accounting Standard Board
 CHAPTER ONE

1. Introduction

1.1. Background of the study

The provision of loan by this bank has on important services its establishment in 1995. now a day, the need
and its importance was are increasing from time to time because the importance of this service has a dual
benefit both parties i.e the lender and borrower in particular and the economics development of the country
in general Banks create job opportunities to those individuals taking a loan, by providing working capital
(fund) to operate their business activates and receive return as interest for the principal they lend. So,
creating job opportunity increases the individual living standard and this in turn increases the asset of the
individual as well as the bank this also lends to economic development of the country. The history of banking
in Ethiopia goes back to the year 1905 when the bank of Abyssinia was establishe in partnership the national
bank of erupt under the British financial in flense. The promoter of the Bank has been grant a fifty years
franchise (An exclusive right and privilege to conduct banking business trough out the counters) The history
of banking in Ethiopia goes back to the year 1905 when the bank of Abyssinia was establishe in partnership
the national bank of erupt under the British financial in flense. The promoter of the Bank has been grant a
fifty years franchise ( An exclusive right and privilege to conduct banking business trough out the counters) .
The history of banking in Ethiopia goes back to the year 1995 when the bank of Abyssinia was establishe in
partnership the national bank of erupt under the British financial in flense. Awash Bank was establishe by
486 founding shareholders with a paid-up capital of Birr 24.2 million and start banking operations on Feb. 13,
1995. As of end of June 2020 the number of shareholders and its paid-up capital increase to over 4369 and
Birr 5.87 billion, respectively.
The promoter of the Bank has been grant a fifty years franchise ( An exclusive right and privilege to conduct
banking business trough out the counters) .
After fifteen years, the Ethiopia emperor order the purchase of foreign company with they in intention of
recognize the banking and currency of the country under the national control when the state bank of Ethiopia
open its door to the public the stat bank of Ethiopia was originally establishe as a commercial bank of
Ethiopia was originally establishe as a commercial bank of Ethiopian 1995. Awash Bank focuses on delivering
distinctive profitable solutions for its clients in all core areas of commercial banking. To be the core bank to
our clients, deepening and broadening strategic relationship in the market.
1.2. Statement of the problems
Loan repayment is the act of paying back money previously borrowe from a lender. Repayment usually takes
the form of periodic payments that normally include part principal plus interest in each payment. The other
common method of repayment is a lump sum with interest at maturity. Bank makes their profits primarily by
issuing loans. Loan is a liability of individual or corporation receiving it but an asset for banks because it
provides income for the in the form of interest. The firm with a previous borrowers is good credit risk and
insure fewer costs in monitoring the borrower (Mishkin 1997:246)
Loan are typically less1 liquid than other assets because they can not be turne in to cash until the loan
matures. Stock exchange securities include all securities by public and private enterprise, public authorities
and governments. (Shekhar 1998:809.) Loans also have a higher probability of default than other assets,
because of the lack of liquidity and higher default risk. The borrowers experience, income, receive loan size
and collateral value have positive effect while loan interest rate, total application cost and number of
installment implies a negative effect on repayment performance of recipients. Aserious problem of loan
repayment is that the bulk of debt is for unproductive purposes, to meet the expenses or litigation and for
meeting household requirements. The valuation of such securities depends up on a number of factors such
as the nature of to securities the stability of the concern issuing it and easy reliability with out loss (Shekare
1998:809)
As the credit is use for the above unproductive purposes, the borrower is not able to create any asset out of
this credit. thus there is no generation of income and it is not possible for the borrower to repay the loan,
and loan-income ratio negatively influence the loan repayment performance of the borrowers. By
considering this fact loan disbursement, loan follow-up and repayment are assess in this study. Purpose- a
good potation, however, is only a beginning. The bank must be convince for the borrower ability to repay the
loan when due, and the purpose of the loan must be legitimate one that will directly or indirectly generate
the funds for repayment, basically, the bank look for two financial factors that should be present in a sound
loan proposition cash flow and asset projection. (Marland paul f, 1998, : 39)

1.3. Objective of the Study

1.3.1. General Objective

The main objective of this study is to assess the factors that affect loan repayment in Awash Bank Adama
branch.
1.3.2.Specific Objectives
This study aims at addressing the following specific research objectives:
To investigate the bank’s capacity to sufficiently loan its current obligations.
To make feasible recommendations to the problems identifie.
To analyze the impacts of delay and failure in repaying the loan.

1.4 Research Question

Accordingly, the researcher will be try to answer the following basic research questions. .
1. What measurements are taken by the branch if there is a problem during collection of the credit back at
maturity?
2. What method does the institution use to follow up the loan?
3. What are the main reasons for delaying to return the credit taken on time by the customers?
4. How effective the policies and procedure followed by the institution in providing loan?
5. What are credit risks management practices that are most commonly faced by MFIs in Adama town?.

1.5. Significance of the Study

This Study will be the provision of loan and its repayment has been recognize as an essential element in the
banking services therefore, this study would have the following significance. The information in the study is
helpful to the banker to develop effective collecte on methods of it standing loans. The study may provide
directions to those who want to further study on the problems identifie. The finding may indicate some
solutions for the existing problems.
1.6. Scope of the Study
The scope of the study indicates its range of action or area of influence. The study would give a great
emphasis to loan repayment situations of Awash Bank Boset Branch.

1.7 Limitations of the study

The researcher might face a problem of time to collect all the necessary data from templates of the bank and
customers by a given period of time.
On the side of the bank employees reluctance to provide data for this study another memorable hindrance
was carelessness and reluctances of some staff member to provide require data for the researcher.
Customer ( borrowers) were not sufficient a valuable in the bank during a period of data collection and some
of them were illiterate to read the questionnaire and give responses in their own words so there was difficult
to the researcher to complete an activity by a given period of time.
1.8 Chapterization of the study
Chapter One deals with:introduction,background of the study,background of the organization,statement of
the problem,research question,objective of the study,general objective,specific of objective,significance of
the study,scop of the study,limitation of the study,chapterization of the study
Chapter Two consists:literature review,type of bank loan,mortgages as security for bank advances,stock
exchange securities,valuation of stock exchange security,evaluating the credit status applicants,source of
credit factors,managing credit risk,screening and mentoring,long term customer relationship,credit
rating,loan commitments,collateral and compensating.
Chapter Three deals with:methodology,study area,source of data,method of data collection,method of
sampling,method of data processing,methods of data analysis and presentation.

CHAPTER TWO

2. LITERATURE REVIEW

2.1. Theoretical Review

2.1.1. Definition of Loan Repayment

Loan define as a type of debt instruments, which entails the redistribution of financial assets

over time between the lender and the borrower according their agreement. It is also typically,

the money which is expect to paid back in regular installments or partial repayments

periodically that each installment being of the same amount (Savio, 2017). Additionally, success
of loan repayment define as the ability to repay the loan full as per the loan agreement and loan

defaulting as the inability to repay the loan by either failing to complete the loan as per the loan

agreement or neglect the loan.

2.1.2. Definition and role of Awash Bank

Different authors and organizations have define Awash Bank in different ways.

However, the meaning of the definitions is usually the same. Which means Awash Bank refers

to the provision of financial services; primarily savings and credit to the poor and low-income

households that do not have access to commercial banks service.

2.2 Theoretical arguments on loan default problem

A loan default occurs when a borrower fails to make a payment on time after an agreement

reach between the lender and the borrower. It also occurs when the borrower does not comply

with any other agreement made on the promissory note. Loan default is essential of two basic

types. The first and the most common type occur when the debtor defaults on a payment of

interest or principle. This might be because the debtor is either unable or unwilling to repay the

debt. The second type of default occurs when the debtor violates any of the agreements made on

the promissory note either purposely or unintentionally.

The loan may be either formal or informal one. When we think of small businesses in LDCs, the

major source of finance so far is an informal sector. The probability of default of small-scale

enterprises loan from informal sources is low because informal financial markets are much

closer to their clients and potential clients, and through gossip and daily contact, they are muchmore aware
of their activities than a formal banker is, thus they know the risks they expose. On

the other hand, small-scale credit scheme from formal financial markets has experience a high

rate of default in many developing countries. Non-defaulters are those who repay the loan in

due date and the defaulters are those who do not repay the loan within the due date. The proper

recovery of loan is not only a prerequisite for repay expansion of microfinance service but also a

question of life or death for any credit agency (Abebe, 2012).

Loan default is a tragedy because failing to implement appropriate lending strategies and

credible policies often result in the demise of credit institutions. Default problems destroy

lending capacity as the flow of repayment declines, transforming lenders into welfare, in the

head of viable institutions. Loan defaults deny new applicants access to credit. In the context of

third world lending programs, the cost of defaulting include not only the loss of future credit but

also public embarrassment and the loss of social standing. It is advice that one should pay back

a borrow loan in the shortest time possible, as this will avoid him or her paying a lot of

unnecessary money in the form of interest. One would borrow money in order to make money.

There could be thousands of reasons people borrow money. For consumption, farming activities,

cushioning the jolt of temporary shocks, asset buildings like buying a car, a home, to take a

vacation.

2.3. Lending methods of Awash Bank

Lending methodologies may differ with respect to clients whether loans made to groups and

individuals lending mode. The selection of lending methodology greatly influences product

design, client selection, the way of application or approval process, and loan repayment

monitoring and portfolio management activities of AwashBank. Lending

methodology also effects the institutional structure and staff requirements, including training

and compensation (Wood, 2013).

2.3.1. Individual Based Lending

Individual based lending requires greater honest on analysis of clients and their cash flows it

times physical collateral and frequent close contact with clients during the term of the loan

approvals and amounts. Based on an applicant’s eligibility and debt capacity, which is in turn

are dependents number of factors, including personal and business characteristics, age, gender,

sources, amount of income, age of business, cash flow, and available collateral (Wood, 2013).12

2.3.2. Group Based Lending

Group based lending is one of the approaches of lending small amounts of money to a large

number of clients that organize by group who cannot offer collateral. The size of the group can

vary, but most of the time groups have between 4 to 8 members. The group selection is one of

the factors that influence the member’s loan repayment activities.

According to Nawai (2010) group-based borrowers has to form a group before applying loans

because they are responsible to all of their members. If one member fails to pay the loan, the

others will be responsible to pay the loan otherwise; they would deny access for the next loans.

Group lending is an approach of lending small amount of money to a large number of borrowers

who cannot offer collateral. Group members are jointly accountable for the repayment of each

other loans through peer pressure. The entire group members would disqualify and will not be

eligible for further loans, even if one member of the group becomes a defaulter. The size of the

group can vary, but most groups have between three to eight members, the group self-selects its

members before acquiring a loan.

2.4. Empirical Review

The empirical relate literatures try to review several studies that conduct in Ethiopia and

others country by different researchers on loan repayment performance of clients of Awash Bank and
summarized as follows.

2.4.1. Empirical studies of other countries

Several studies has conduct in different countries regarding determinants that affect loan

repayment performance and some of them can be review and summarize as follows:

Determinants of loan repayment performance of fishermen on Ghana employe multiple

regression analysis in their study. Their results reveal that low level of education, lack of

alternative income generating activity, cumbersome loan processing procedures, they are likely

to have high loan default. The study identified fishing income, amount borrow and size of

loan invest into fishing as significant predictors of loan repayment (Acquah and Addo, 2011).13
Mamun (2011) conduct the study on examining the critical factors affecting the repayment of

microcredit provide by Amanah Ikhtiar Malaysia. The researcher employs a cross sectional

design with stratify random sampling method to examine how common household factors

affect repayment performance. According to the finding household income, number of gainfully

employe members, and number of sources of income significant model fit and negative linear

relationship between repayments.

Munene (2013) in his study of factors influencing loan repayment default in microfinance

Institutions: The experience of Imenti North district, reveal that there was significant

relationship between the type of business, age of the business, number of employees, business

profits and loan repayment default. There is strong link between technical training for loan

beneficiaries and the performance of entrepreneurial businesses among the remote communities.

The study conduct on Microfinance institutions in Kenya to establish the causes of repayment

defaults in Imenti North district, Kenya using a descriptive survey design by incorporating 400

respondents of individual microfinance loan beneficiaries and microfinance institution officials

using census and cluster sampling procedures for micro finance institutions officers and loan

beneficiaries respectively. The data collect use both structure and unstructure

questionnaires and analyze using descriptive and inferential statistics.

Nancy and Mohamed (2014) conduct their study on determinants of loan repayment in smallscale

enterprises in developing countries, Kariobangi division in Nairobi. Based on their finding

result show that the personal characteristics variables higher education level and large family

size, loan characteristics variables large amount of loan apply and longer duration of business

result in increased loan repayment and vice versa. Whereas an increase in age, interest rate and

change in gender leads to more loan default and vice versa.

Mukono (2015) conduct study on the determinants of loan repayment by small and medium

enterprises in Nairobi country, Kenya. He employ logit regression model, descriptive

statistical tools and inferential statistics to analyze the data. The analyze data reveals that firm

characteristics (ownership structure type of firm, firm location, firm size, age of the business,

registration status, profitability, asset ownership, type of business and type of business activity).

Borrower characteristics (age of borrower, gender of the borrower, level of education, business

experience, household size, credit use experience, household income, non- business income,

type of business activity, amount of business investment, borrower’s attitude and family

background) are positively influence loan repayment by small and medium enterprises. Whereas 15

loan characteristics(loan size or amount, loan repayment period ,collateral value ,number of

installments ,loan application costs ,loan type, purpose of loan ,previous loan repayment mode

and length of time before repayment). In addition, lender or firm characteristics (interest rate,

penalty for lateness, credit analysis procedure, lending policies, time lag between loan

application and disbursement, and stringent loan procedures) are negatively influence loan

repayment performance of small micro enterprises.

Samwel and Kevin (2016) had conduct stud on the factors affecting clients on loan repayment

for microfinance institutions: a case study of pride Arusha Tanzania, based on analysis the

factors that affect clients on loan repayment for microfinance institutions by applying both

quantitative and qualitative techniques to investigate factors affecting loan repayment

performances. They use primary and secondary data and use randomly sampling techniques

to select from a total population of clients and staffs. According to their findings, results from

clients’ characteristics age, household size, gender and level of education variables, from nature

of business characteristics business type, business stability and income level variables and loan

characteristics repayment period, repayment mode, and repayment amount variables were

among the factors that influenced borrowers in repaying their loans. In additionally Lack of
business, knowledge and borrowers age of 40 years and above are another factor mention by

clients. In addition, the institution use reasonable and acceptable lending policies and

procedures. It also good loan application procedures, loan approval system, loan disbursement,

and collection techniques.

Wafula (2016) conducte study on determinants of loan repayment by borrowers from microfinancial
institutions in Nakuru Country Kenya. The researcher employe a descriptive analysis

and linear multiple regression model to analyze the data. His results reveal that low education

levels and yet they are associate with loan repayment better than those educate counterparts

and as income level increases loan repayment decreases (Lower income borrowers repay loans

than higher income borrowers). It also younger is associate with loan repayment than their old

counterparts. This study identify the education level, income level and age have negative

coefficient but significant determinants of loan repayment.

Yogendrarajah and Semasinghe (2016) had study on the empirical analysis of micro

credit repayment in Northern Sri Lanka. According to the researchers the all variables such as

Amount of Loan, Loan interest, Decision making, control over assets and Loan management

were positively influence on repayment of credit. The researchers had employe Linear 16

multiple regression model to estimate the equation of loan repayment and they analyze and

present the results of the study by using the SSPS software 16 versions. In addition, they were

used multi-stage stratified random sampling technique to select the sample from population of

self-employable women who have experience more than two years and collect the data

through structure questionnaire.

Benjamin (2017) examine the Awash Bank Loan Repayment Default among Small Scale

Enterprises in the Upper West Region of Ghana by Applying the Tobit and the double hurdle

models. The results show that enterprise size, interest rate, loan duration, level of profit and

loan amount are the simultaneous determinants of probability and rate of default. However, the
age and educational attainment of the enterprise owner, number of dependents and loan

repayment schedule influence the probability of default but not the rate of default. The result

shows more educate clients are 26.6 percent less likely to default entrepreneurs with more

dependents are 59.6 percent more likely to default, Enterprises that have operate for relatively

longer years record smaller default rates as compare to young enterprises. Enterprises that

secure loans with higher interest rates are more probable of defaulting, enterprises that make

large profits are 7.1 percent less likely to default in loan repayment and amount of loan is a

positive determinant of probability of loan repayment default. This means that enterprises that

secure larger loan amounts are 6.1 percent more likely to default.

Ssekiziyivu (2017) conduct study on analysis the borrowers’ characteristics, credit terms and

loan repayment performance among clients of microfinance institutions in rural areas of

Uganda. The researcher employs a cross sectional and co relational design with applying the

ordinary least squares (OLS) and multiple regression models. Accordingly the finding results

credit terms (interest rates, loan period, collateral requirements) significantly contributes to loan

repayment performance of Awash Bank in Uganda and borrowers characteristics(demographic, ability

to pay and assets owne) no significant relationship between borrower's characteristics and loan
17repayment.

2.4.2. Empirical studies in Ethiopia

Different researchers carry out some empirical studies at different time on the factors that

influence the loan repayment performance of Awash bank borrowers throughout the country reviewed as
flows.

Fikirte (2011) examine the determinants of loan repayment performance of Addis credit and

saving institution borrowers in the Addis Ababa, Ethiopia. Accordingly, the study reveal that

out of eleven explanatory variables, eight variables were found to be significant factor for the

probability of being defaulter, that is age and all five business types ( baltina and petty market,

kiosk and shop, services providing, weaving and tailoring, and urban agriculture) were
important in influencing loan repayment performance of the borrower. In addition, sex and

business experience of the borrowers were founds to be significant determinants of loan

repayment rate. However, the remaining explanatory variables namely, education level, family

size, and dependency ratio had no significant effect on the probability of being defaulter. She

used a binary logit model and descriptive statistics to estimate the equations and analysis the result.18

Meshesha(2014) has examine Awash Bank credit rationing and loan repayment performance

and conclude that education, income, loan supervision, suitability of repayment period,

availability of other credit sources and livestock are important and significant factors that

enhance the loan repayment performance, while loan diversion and loan size are founds to

significantly increase loan default. In addition, female borrowers were founds better in terms of

loan repayment.

Ababiya (2015) study the performance of Awash bank and small enterprises and its determinants

in Hadiya zone, Ethiopia. The result reveal that age of enterprises, age of operators, education

level, number of employees, amount of initial capital, entrepreneurial skill, experience of

manager, access to training and access to market were statistically significant at less than one

percent significance level and had positive relationship with the performance of enterprises.

They employe descriptive analyses and multiple linear regression models to estimate the

equation and analysis the result. According to his study, result shows indicate that three major

select Awash Bank progressing in terms of its breadth and depth of outreach. From the financial

sustainability point of view, those Awash Bank have been go up the ladder of

sustainability measures over those five consecutive years. The institution also manages its loan 18

portfolio as shown by the ratio of portfolio at risk, which is greater than 30 days that decline

throughout the years.

Haile (2015) conduct study on investigate the determinants of loan repayment performance

in Harari AwashBank. he reveal that saving habit of borrowers ,loan size

,perception of borrowers on repayment period ,source of income ,availability of training

,business experience ,business type ,family size ,and the purpose of saving have been found as

significant factors of loan repayment performance of borrowers at one ,five and ten percent

significance level. He identify that the probability of default increase as the family size

increases, when the borrowers has negative perception on repayment period, less training, low

business experience ,poor saving habit and only single source of income. He has employe

descriptive statistics and logistic regression (binary logit) model to estimate the equations and

analysis the result of finding.

Tesfatsion.et.al (2015) conduct study on the factors influencing Awash Bank group loan repayment

performance a case of Awash Bank service delivering sector that are finance by Dedebit credit and

saving institution by applying explanatory (descriptive) research approach and employing

square test to examine the association of the independent variables with the loan repayment

performance of clients. In this study eleven explanatory variables were include which results in

group formation (screening), peer monitoring, loan size, loan term and supervision have

significant association with loan repayment performance of borrowers while the rest six

variables Business experience, social ties, internal rules and regulations, saving size, group size

and training have insignificant association with loan repayment performance of group

borrowers.

Yilkal (2015) study on the factors affecting women’s effectiveness in use of Awash Bank

credit’s services; Jimma zone, southwest Ethiopia. The researcher found that family size

of the household, health status of the respondent, loan diversion, time of loan application and

distance from credit source variables are statistically significant and negatively affect the loan

repayment performance of borrowers. While, the age of the borrower, education level of the

respondent, experience of the borrower, celebrating of social ceremony, monthly expenditure,

application of machinery, installment period and loan size variables are statistically insignificant
in affecting the loan repayment performance of borrowers however, their sign was positive. He

recommend that awash Bank should give due attention on the family size of the

respondents, distance from the credit source and health status of the respondents before applying 20

the disbursement of the loan. The examiner has been use Logit model to estimate the

equations.

Haile (2016) analyze the credit rationing and repayment performance in the Ambo woreda

Eshet Awash Bank using binary logit model. The findings reveal that major

factors consider Eshet awash Bank. were credit rationing, loan sizes, loan

diversion, family size, business experience and education. The study also found out that among

the factors that used for credit rationing in Awash Bank age influence loan repayment

performance. Credit rationing system needs to take into account the factors that influence loan

repayment performance when rationing loan applicants. The study reveal that the overall

repayment performance of the borrowers and the screening technique, which the institution

follows to ration loan to its clients, found to be sound. Similarly, it found that the credit scheme

has contribute positively in terms of improving the incomes, access to education, access to

health facilities and nutritional status of the borrowers. Specifically, loan diversion was found to

be one of the important and significant factors influencing loan repayment performance

negatively, i.e., it increases default risk significantly. On the other hand, evidences in this study

show that female borrowers have performe better in terms of loan repayment than their male

counterparts.

Kebede.et.al (2016) hence, education level and time laps between loan application and

disbursements were positively and significantly influence borrower’s loan repayment

performance at one and five percent significance level. Whereas age of respondents, loan size,

loan diversion, repayment period, number of dependents within and out household, training, and

supervision and advisory visits had influence negatively and significantly the borrowers‟ loan
repayment performance at one percent significance level. The researcher employe binary

logistic regression model to estimate and analyze the result.

Abraham (2017) in the study to assess factors affecting loan repayment performance of

borrowers also found sex, income from other sources, monitoring utilization of other members

in a group, credit timeliness, repayment time suitability, repayment trend on a monthly basis and

training adequacy are significant and positively influence loan repayment performance of the

borrower. While loan utilization for the intend purpose, repayment trend on an irregular basis

and visit and follow-up on irregular basis found negatively, influence the repayment

performance of borrowers. The extensive involvement and interference of third parties on the 21

decisions of loan approval processing to the lending institute found as a contribution for high

defaulting.

Balamurugan (2017) assesse the credit default risk in Awash Bank credit and saving Share

Company. His finding outcomes reveal that the Oromia credit saving and share company

default rate increase over the review period. The major causes of default found to be poor

business performance, in terms of low profitability or business losses. Besides, credit diversion

to unprofitable uses, poor timing, inadequate supervision to borrowers, inadequate loan size,

unfair screening mechanism, non-flexibility of the nature of repayment period, not quick

process were other factors that cause credit default and in addition natural disaster, poor

infrastructure, poor management and presence of negligent staffs were identify and taken as

causes for credit default risk. Further, the inference results of the descriptive statistics show that

awareness creation is important and significant factors that enhance the credit repayment

performance. He use stratify sampling method and collect the primary data by using

structure and unstructure questionnaires. The researcher employe descriptive statistics and

SPSS version 20 software to analysis the collect data.

Garomsa (2017) conducte a study on the assessment of factors affecting loan repayment

performance of borrowers on selected awash Bank in Oromia region. He employe

the descriptive statistics analysis and probit regression model to analyze the results of findings.

It also use.multistage sampling methods and he has collect the primary data by using the

structured questionnaires, semi-structured interviews and focus group discussions. According to

the study that income from other sources, monitoring utilizations of other members in a group,

credit timeliness, repayment time suitability, repayment trend on monthly basis and training

adequacy are found significant and positively influence loan repayment performance of

borrower. While loan utilization for the intend purpose, repayment trend on irregular basis

and visit and follow-up on irregular basis found negatively, influence the repayment

performance of borrowers. In addition, he reveal that male borrowers in a given enterprise

found to be more defaulters than females although they have relatively higher utilization rate of

the loan for the intend purpose as compared to that of females.

Savio.et. al (2017) carry a study on the loan repayment performance of micro small enterprises

in Wolaita Sodo and concluded that variables relating to smell micro enterprises loan repayment

form the most dominant group of determinants of bad loans, accounting about 82.7 percent of

the variability. The variables are beneficiary size of the enterprises, business related experience, 22

loan size, loan supervision, loan initiation and suitability of repayment situation. Also that the

evidence of both descriptive analysis and multiple regression show that business relate

experience is found to be one of the major determinants adversely affecting the loan repayment

performance having the value of 64.2 percent by taking the variable while others are constant.

This indicates that in the study area, micro small enterprises did not have enough business

relate experience to manage their own activities properly and as the results, they fail to repay

the loan they receive. Another important point to rise is loan size and that decreasing the loan

size increases the loan default rate. Stratify Random sampling method was use and data
collect by structure questionnaire. Regression model (multiple regression models) and

descriptive statistical tools was employe to estimate the equations and analysis the results.

Alemu (2018) conducte study on the determinants of loan repayment of Awash bank and small

enterprises in Jimma town, Ethiopia by using binary logistic regression model. He result of

explanatory variables sex and experience positive and significantly affect loan repayment. The

inconvenience of loan payback period, lack of financial skill and planning negatively and

significantly affect loan repayment of enterprises. Lack of marketing skills, follow up and

supervision positively and significantly influence loan repayment of Awash Bank enterprises.

Geleta (2018) conduct study on the determinants of loan repayment performance of awash Bank

enterprises the case of Oromia credit and saving Share Company branches under Oromia

special zone around Addis Aababa by using binary logistic regression model. The results of

explanatory’s variable group leader, education level, training, and loan follow up or loan

supervision, market accessibility and technology loan positive and significantly affect loan

repayment. Also the results of interest rate, internal rules and regulations, loan accessibility,

lack of group leaders experiencing in business, enterprise size and enterprise group formation

were negatively influence the loan repayment performance of awash Bank and small enterprises23

sector in the study area.

2.5 Knowledge and literature gaps

As mention above in the various empirical relate literatures review different authors

conduct study in Ethiopia and others country on the factors of loan repayment performance of

Awash Bank borrowers by use that different factors in characteristics and they reveal those

positively or negatively affecting loan repayment performance of Awash Bank

borrowers. Majority of the study conduct focus on loan repayment relate with rural
borrowers, but few study indicate loan repayment performance of urban borrowers. However,

the present research focuses on the determinants of loan repayment performance of both rural

and urban microfinance beneficiaries. They also conduct only on separate one microfinance

institution there are not examining institutional factors by comparing difference microfinance

institution no anyone of researcher conduct a study on factory affecting loan repayment

performance among borrowers compares the delay rate of load from rural and urban customers

of AwashBank. So researcher motivate to conducting further empirical study by

include all borrowers sectors of both rural and urban by including different Awash Bank

and additional variables to examine the factors affecting loan repayment performance

borrowers of Awash Bank on study area. The researcher divide as socio-economic

factory, borrower’s character factors, loan character and institutional character factors that

significantly affect the loan repayment performance among clients are the concern of study area.

2.6. Conceptual framework

The conceptual frameworks of this study derived from the above literature review on the

hypothesis and the theories adopt. The conceptual framework of this study propose that

affects borrower of Awash Bank Adama zone on loan repayment performance. 24

CHAPTER THREE
Research Methodolog

3.1. Description of Study Area

The study area was the Awash Bank at Adama Branch which is found in Adama City, a
particular area called Electric Power or Mabrat Hail. Adama city has 56km distance from the
Capital city of Ethiopia, Addis Ababa. This bank was establishe in 1995 E.C, and it has 40
permanent employees and about ten thousand customers. The mission of the bank is to create
money savers and to promote the savers to be investors.

3.2. Research Design

Research the purpose of this study is to give the readers better understanding of the structure of the and
description of the way in which the study will proceedwith the study. It also gives idea of how and why
researcher formulates and identifies questions and choice of the specific case studies which illustrate the
topic. The study will first start with describing material and method and research strategy. Then discuss
qualatitative of the methods. Finally, there searchers would explain how the researcher chose and collect
quantitative data and analyze it.

3.3. Target Population

The population of the study will be all employees of the Awash Bank in, Adama Branch which has many
employees. The study is appropriate for non-probability sampling because the bank and its employees are
select purposively. Since the study will use has been primary data sources and secondary data sources, the
employees of the bank never impact on the study.

3.4. Data Type and Source

The data was collect through, interviews, and questionnaires. This gives specific responses to the research
questions. piramery data is recognize as data is gather for a specific research in response to a particular
problem through interviews and questionnaires. Additional secondary data was obtained by examining
various documents, including, banks annual reports on relate information, local and international newspaper
will use secondary data. The secondary data such as: books, annual report of Awash Bank of the branches,
journals, articles, magazines, previous study and electronic data, in addition to financial statement and
balance sheet. The data will be analyze using liquidity ratio, financial ratio, profitability ratio, loan-to-deposit
ratio, loan to total asset ratio, current ration, equity multiple ratio, debt to equity ratio and duration of asset
and liability ratio.

3.5. Sampling Technique and Sample Size

The sampling technique use in this study simple random sampling technique. It is easy to select among
customers of the bank (borrowers) to distribute questionnaires and collect the necessary information. This
sampling method is so simple and accurate in collection of data according to the objectives of study. The
rational behind selection of this simple random sampling is its simplicity. Each element in the population has
an equal chance of being include in the sample. The sampling process is simple because it requires only one
stage of sample selection. The sample units are not selectbased on the discretion of the researcher. The total
number of borrowers of AB, Adama branch 3000, but the study was cover 2% were select randomly and use
as a sample to conduct the study.

3.6. Method of Data Collection

The study was conduct based on primary and secondary data. for primary data questionnaire are develop
based on the research problem identifie and distribute to customers of the bank to collect necessary
information. Structure interview was also develop to collect necessary information from the manger and loan
officer of the bank. The questionnaire that use by the researcher are both open –end and close end. The
secondary data are collect from magazines manuals and leaflets and internet.
3.7. Method of Data Analysis and Presentation
The data are process the next After stage was analyzing and presenting the data by suing descriptive
methods. The researcher use descriptive method of data analysis, chart and tabular methods would be use to
summarize the obtain data in addition to percentage analysis.
Descriptive analysis- it refers to the transformation of the raw data in to a form that make them easy to
understand and interpret.
3.8. Work Plan

3.8.1.Time budget

month

No Activities Jan Feb Mar

1 Specifying area of the study XX

2 Title selection XX

3 Literature review XX XX

4 Preparing the proposal XX

5 Data collection XX

6 Data editing XX

7 Data analysis XX

8 Conclusion of the finding XX

9 Recommendation XX

10 Submission and presentation XX

 3.8.2. Cost Budget

To accomplish this study the cost should be allocated. Therefore, in order to complete it, cost will be
allocated as follows:

No Material requirement and activities Unit cost (inNumber of unitTotal cost

birr) required

1 Pen and pencil 10 and 5 10 and 5 125.00

2 Flash/ memory (16GB) 200.00 1 200.00

3 Paper 3.00 30 90.00

4 Cellphone expense 25 7 175.00

5 Questionnaires duplication 1.00 1

6 Transportation cost 60 4 240.00

7 Printing 4 30 120

8 Internet service 1.00/min 140 min 140

9 Other cost spent during data gathering - - 500

10 Total 1590

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