Debre Markos University

College of Business and Economics

Department of Accounting and Finance

Determinants of Loan Repayment Performance: the case of Amhara Credit

and Saving Institution in Debre Markos Branch

By

Yismaw Alemayehu Gashu

Advisor

Abebe Birhanu (PhD Candidate)

A Thesis Submitted to Debre Markos University College of Business and

Economics Department of Accounting and Finance in Partial Fulfillment of
the Requirements for the Degree of Master of Science in Accounting and
Finance

February, 2023
Debre Markos, Ethiopia

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DEBRE-MARKOS UNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS,
DEPARTMENT OF ACCOUNTING AND FINANCE

DETERMINANTS OF LOAN REPAYMENT PERFORMANCE: THE CASE OF

AMHARA CREDIT AND SAVING INSTITUTION IN DEBRE MARKOS BRANCH

BY

YISMAW ALEMAYEHU

Approved by Board of Examiners

_______________________ ___ _____________________

Advisor Signature and Date

_______________________ __________________________________
External Examiner Signature and Date

_______________________ ___________________________________
Internal Examiner Signature and Date

_______________________ __________________________________
Chair Person Signature and Date

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 DECLARATION

I declare that this thesis is my genuine work, and that all sources of materials used for this thesis
have been profoundly acknowledged. This thesis has been submitted in partial fulfillment of the
requirements for Master of Science at Debre Markos University and it is deposited at the
University library to be made available for users under the rule of the library. I have carried out
the research work under the guidance and supervision of my advisor Abebe Birhanu (PhD
Candidate) I declared that this thesis is not submitted to any other institution anywhere for the
award of any academic degree, diploma or certificate. All sources of materials used for the thesis
have been duly acknowledged.

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 ACKNOWLEDGEMENT

First and for most, I would like to give my glory and praise to the Almighty GOD for his
invaluable cares and supports throughout the course of my life and helped me since the inception
of my education to its completion and enabled me to achieve my career.

Next, I’m grateful to appreciate my advisor Abebe Birhanu (PhD Candidate) for his patience,
motivation and valuable support while conducted this research. especially his prompt advice
tolerance guidance and useful criticisms throughout the course in preparing the paper. In line
with I would also like to thank all the enumerators for their commitment and dedication in
collecting the data required for the study.

I would deeply thank also goes my families who have provided their help and encouragement at
various occasion that invite whether direct or indirectly in the completion of my paper. I would
also thanks to express my honorable gratitude to my friends, for their unlimited advisory as well
as moral support starting from the beginning up to the end. Finally, I acknowledge all people
involved directly or indirectly for the accomplishment of this paper.

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 TABLE OF CONTENTS
DECLARATION ................................................................................................................................... iii
ACKNOWLEDGEMENT ...................................................................................................................... iv
LIST OF ACRONYMS ............................................................................................................................ i
LIST OF TABLES .................................................................................................................................. 1
LIST OF FIGURES ................................................................................................................................. 2
ABSTRACT............................................................................................................................................ 3
CHAPTER ONE ..................................................................................................................................... 1
INTRODUCTION................................................................................................................................... 1
1.1. Background of the Study ............................................................................................................ 1
1.2. Statement of the Problem ........................................................................................................... 2
1.3. Objective of the Study ................................................................................................................. 4
1.3.1. General objective .................................................................................................................. 4
1.3.2. Specific objectives................................................................................................................. 4
1.4. Basic Research Questions ........................................................................................................... 5
1.5. Research Hypothesis ................................................................................................................... 5
1.6. Significance of the Study ............................................................................................................. 6
1.7. Scope and Limitation of the study .............................................................................................. 7
1.8. Organization of the Study ........................................................................................................... 7
CHAPTER TWO .................................................................................................................................... 8
REVIEW OF RELATED LITERATURE ................................................................................................ 8
2.1. Introduction ................................................................................................................................ 8
2.2. Theoretical Literature ................................................................................................................ 8
2.2.1 Definition and goals of microfinance institutions ................................................................. 8
2.2.2 The Historical foundation of Microfinance Institutions .......................................................... 9
2.2.3. The development of microfinance institutions in Ethiopia ............................................... 10
2.2.4. Credit management policies ............................................................................................... 10
2.3. Empirical Evidences on Loan Repayment Performance of MFIs ........................................... 11
2.4. Conceptual Framework of the Study ....................................................................................... 14
CHAPTER THREE ............................................................................................................................... 16
RESEARCH METHODOLOGY ........................................................................................................... 16

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 3.1. Research Design ........................................................................................................................ 16
3.2. Research Approach ................................................................................................................... 16
3.3. Population of the Study............................................................................................................. 17
3.4. Sampling Techniques ................................................................................................................ 17
3.5. Sample Size ............................................................................................................................... 17
3.6. Data type, Source and Collection Instrument .......................................................................... 18
3.7. Data Analysis Method ............................................................................................................... 18
3.8. Econometric model test ............................................................................................................. 19
3.8.1. Goodness-of-fit test ............................................................................................................. 19
3.8.2. Multicolinearity test ........................................................................................................... 20
CHAPTER FOUR ................................................................................................................................. 21
RESULTS AND DISCUSSION ............................................................................................................ 21
4.1. Descriptive Statistics Result ...................................................................................................... 21
4.1.1. Socio-economic characteristics of the respondents............................................................ 21
4.1.2. Loan specific characteristics .............................................................................................. 25
4.1.3. Business related characteristics .......................................................................................... 31
4.2. Challenges and Difficulties ....................................................................................................... 33
4.3. Econometric Results ................................................................................................................ 35
4.3.1 Multicollinearity test ........................................................................................................... 35
4.3.2. Goodness of fit test of the model ........................................................................................ 37
4.3.3. The summary statistics of the variables in the model ....................................................... 37
CHAPTER FIVE ................................................................................................................................... 42
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ............................................................ 42
5.1. Summary ................................................................................................................................... 42
5.2. Conclusions ............................................................................................................................... 42
5.3. Recommendations ..................................................................................................................... 44
5.4. Future Research Implications .................................................................................................. 45
REFERENCES...................................................................................................................................... 46
APPENDIX ........................................................................................................................................... 50

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 LIST OF ACRONYMS

ACSI Amhara Credit and Saving Institution

AEMFI Association of Ethiopian Microfinance Institute

ANRS Amhara National Regional State

LDC Less Developed Countries

LRP Loan Repayment Performance

MFI Micro Finance Institution

MoFED Ministry of Finance and Economic Development

NBE National Bank of Ethiopia

NGO Non-Governmental Organization

ORDA Organization Rehabilitation and Development in

Amhara

RCOS Repayment culture of the society

SBALI Supervisions before and after loan issued

SPSS Statistical package for Social Science

X2 Chi-squire

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 LIST OF TABLES

Table 1: Borrowers characteristics (continuous variables) 21

Table 2: Loan specific characteristics (discrete variables) 26
Table 3: Loan specific characteristics and their loan repayment status 27
Table 4: Summary of continuous variables 29
Table 5: Business related discrete variables and loan repayment status 33
Table 6: Multicollinearity test 36
Table 7: Summary of binary logistic regression result by considering all factors considered in
this study 38

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 LIST OF FIGURES

Figure 1: Conceptual framework of loan repayment determinants of ASCI credit service 15

Figure 2: Age composition of the borrowers 23
Figure 3. Sex composition of the borrowers 23
Figure 4. Marital status of the borrowers 24
Figure 5. Educational status of the borrowers 25
Figure 6: Respondents by purposes of saving before taking loans and accounting record 31
Figure 7: Respondents by types of business borrowers engaged in using loan 32

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 ABSTRACT

Amhara credit and saving institution (ACSI) is a microfinance institution, which is engaged in
development activities in Amhara region, Ethiopia. ACSI mainly provides credit services to
enterprise operators and low income people who are capable to work in income generating
activities. As Ethiopia in general and the study area in particular is a low livelihood of peoples
and most of its people are living in poverty, this institution plays an important role in improving
the livelihood of the low income people. This study was conducted with the objective of
identifying the factors that influence the loan repayment performance of the borrowers of ACSI.
In order to achieve this objective, primary data were collected from 314 randomly selected
clients (135 defaulters and 179 non-defaulters) by using structured questioner. In addition,
secondary data were obtained from the record of ACSI. For the data analysis, descriptive
statistics including mean, frequency and percentages were used to describe the socio-economic
characteristics of the borrowers. Moreover, t-test and chi-square analyses were employed to
compare the defaulters and non-defaulters group for continuous and dummy variables
respectively. A binary logit model was used to analyze the factors that influence loan repayment.
According to this study result, age, training, education level, adequacy of loan, business
experience, loan size and saving habit were positively influence loan repayment performance
while family size and loan interest rate were negatively influenced the loan repayment
performance of ACSI in the study area. Based on the findings, the institution that attained higher
educational level able to pay better than the enterprises that were in lower educational level
therefore, ACSI should be motivated educated people, and also easy to provide training. Also
unreasonable and high interest rates charged by lenders it leads to default, so the loan interest
rate charged by ACSI should be reasonable and affordable for the institution.

Keywords: Loan repayment performance, ASCI, Borrowers, Defaulter, Non-defaulter

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 CHAPTER ONE

INTRODUCTION
1.1. Background of the Study

As Low-income households couldn't offer the required collateral, they are denied access to
institutional credit (Chowdhury, 2009). Conventional banks have often not interested in
delivering credit to the poor. Mainly, these banks have high-profit motives and they use to put
many restrictions to permit loans to the poor. It also indicates that overall the prevailing
operation of the formal financial institution in many low-income countries like Ethiopia is not
poor orient. Even if the banks (both public and private) in Ethiopia decide to give credit to the
poor, their outreach is very limited for a long (Malepati and GowriC, 2011).

According to an earlier study by Malepati and GowriC (2011), in rural Ethiopia as a whole, less
than 1%, of the population has access to formal financial institution’s credit services Because of
this limited access, the majority of the poor get financial services through "informal" sources
mainly the individual money lenders. In this case, borrowers are required to provide guarantors
and the interest rate is extremely high, varying from 50% to 120% per annum (International Fund
for Agricultural Development, 2001).

The experiences of Grameen Bank originated by Mohammed Yunus (who was the 2006 Nobel
Peace prize winner) in Bangladesh and BancoSol in Bolivia, the microfinance sector flourished
in many third world countries including Ethiopia serving the poorest families throughout the
world (Gubert and Roubaud, 2011). Since conventional banks have failed to reach the poorest of
the poor of the country’s population because of their requirements like formal collateral;
microfinance emerges as a potential tool to fill the gap between financial institutions and needs
people by providing financial services to the underserved sections of the society.

Until the year 2021, there were about 41 Microfinance Institutions formally established and
providing microfinance activities in Ethiopia (National Bank of Ethiopia, 2016). Of these,
Amhara Credit and Saving Institution (ACSI) is one that is supposed to provide microfinance
services with the people of the Amhara Regional State. The operation of ACSI is traced back to

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1995 when it is initially initiated by the Organization for the Rehabilitation and Development in
Amhara (ORDA), an indigenous Non-Governmental Organization (NGO) engaged in
development activities in the Amhara region.

The primary mission of ACSI’s is to improve the economic situation of low income, productive
poor people in the Amhara- region primarily through increased access to lending and saving
services. ACSI started in 6 of the 140 woredas in the region and now it is operating in 438
branches, and 72 micro banks, 12 zone office and one head office (ACSI annual Megazin, 2021).
Previous research findings reveal that there are many borrowers who fail to repay their loans
though there are borrowers who fully repay their loans as required (Derban et al., 2005; Silwal,
2003; cited in Tenishu, 2014). In addition, the result by Ofgaha (2018), the loan repayment
performance of MSE is influenced both directly and indirectly by various factors such as
individual characteristics, firm characteristics and loan characteristics.

As a result, the researcher were tried to analyze the extent of loan repayment and to identify the
determinants of loan repayment performance of ACSI in the study area. Hence, Debre Markos
Branch of Amhara credit and saving institution is selected for the study because of that it is the
one which has a large coverage and limited study area when compared to others especially for
ACSI that is playing a vital role in reducing unemployment portion of the population in the study
area. Having this in mind, this study seeks to investigate the factors affecting loan repayment
performance of Debre Markos Branch of ACSI.

1.2. Statement of the Problem

Microfinance institutions in developing countries were introduced with the goal to access credit
service for both urban and rural poor (Khandker, 2003). It will be made with the belief that
credit accessibility for the underserved group of people can improve their livelihood and hence
reduce poverty. But this is not a riskless activity. Repayment of loans can seldom be fully
guaranteed and lenders are frighten that borrowers particularly with insufficient collateral to
support their loans, high transaction costs, unstable income, lower literacy and high monitoring
costs may be treated to repay the loans they took (Wollerand Schreiner, 2006 as cited in Sara,
2014).

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The issue of loan repayment will be considered while providing credit services to the poor in
order to release financial constraints and help alleviate poverty. Each MFI tries to maximize its
repayment performance, whether or not it is profit oriented. High repayment rates are largely
associated with benefits both for the MFI and the borrower. Tesfaye et al. (2014) was studied on
the factors that influence group loan repayment performance of borrowers a case of Dedebit
Credit and Saving Institution (DCSI) operating in the manufacturing sector of MSEs by using
logit model. The results indicate that the group initiation, peer pressure, suitability of repayment
period, loan size and external shocks have statistically significant effect on loan repayment of
borrowers; whereas the internal rule and regulation, loan supervision, and training have
statistically insignificant effect on loan repayment of borrowers. However, the researchers
excluded variables like, experience of the group in the business and group size of the borrowers
in the sector.

Similarly, Tesfatsion et al. (2015), studied on the factors influencing MFIs Group loan
repayment performance a case of MSEs service delivering sector that are financed by Dedebit
Credit and Saving Institution by applying descriptive research approach. The result indicate that;
group formation, peer monitoring, loan size, loan term and supervision have significant
association with loan repayment performance of borrowers while the business experience, social
ties, internal rules and regulations, saving size, group size and training have insignificant
association with loan repayment performance of group borrowers. However, the researchers
could not employ any econometric model.

Gobena Geleta (2018), Studied on the determinants of loan repayment performance of micro and
small enterprises the case of Oromia Credit and Saving Share Company branches under Oromia
special zone around Addis Ababa by employing descriptive statistics and logit model. The result
indicates that group leader‟s education level, training offered by the loan officers, loan follow up
or loan supervision, market accessibility and technology advancement were positively influence
loan repayment while loan interest rate, internal rules and regulations, loan accessibility, lack of
experience in business, enterprise size and enterprise formation were negatively influenced the
loan repayment performance of MSEs sectors in the study area. However, the author excluded
variables like, saving habit of enterprises.

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Selam Abera (2016), conducted study on the loan repayment performance of micro and small
enterprises in Dire Dawa Administration which financed by Dire Micro finance by using two
limit Tobit regression model. The result study indicated that sufficient loan size and repayment
periods were negatively related to loan repayment performance of enterprises while Follow up
and supervision, access to market, business experience, and trade and service sector types were
important factors which affected positively loan repayment performance of the enterprises.
However, the researcher fails to include all sectors.

Different researchers were conducted a study both from the inside and outside of the country, at
different time on the factors that influence loan repayment performance of ACSI by dividing
those factors in to different characteristics and they were revealed those positively or negatively
influence loan repayment performance of ACSI. The causes of loan repayment delay by ACSI or
borrowers may differ from area to area and from one MFI to others. Whether loan repayment
delay (default) is random and influenced by irregular behaviors or whether influenced by certain
factors in specific situation, needs an empirical investigation. However, none of the studies
conducted in study area by including external factors that influence loan repayment performance,
by taking ACSI sectors with their loan repayment status. Therefore, this study intended to
analyze the extent and the determinants of loan repayment performance of ACSI in case of
Debre Markos Branch by considering factors such as socio-economic, loan and business related
factors.

1.3. Objective of the Study

1.3.1. General objective

The general objective of this study is to examine factors affecting the loan repayment
performance of borrowers in ACSI Debre Markos Branch.

1.3.2. Specific objectives

This study is also proposed to achieve the following specific objectives.

 To examine major socio-economic factors affecting the loan repayment performance of

borrowers in ACSI, Debre Markos Branch.

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  To examine major business-related factors affecting the loan repayment performance of
borrowers in ACSI Debre Markos Branch.
 Investigate major loan-related factors affecting the loan repayment performance of
borrowers in ACSI Debre Markos Branch.
 Identify major challenges and difficulties of ACSI Debre Markos Branch encounter in
its day-to-day credit scheme activities.

1.4. Basic Research Questions

The research was attempted to answer the following questions:

1. What are the major socio-economic factors affecting the loan repayment performance of
ACSI Debre Markos Branch?
2. What are the major business-related factors affecting the loan repayment performance of
ACSI Debre Markos Branch?
3. What are the major loan-related factors do affecting the loan repayment performance of
ACSI Debre Markos Branch?
4. What are the major challenges and difficulties does ACSI Debre Markos branch face in
its day-to-day credit scheme activities?

1.5. Research Hypothesis

Up on reviewing the literature on the issue, the following research hypotheses are formulated and
tested later on.

Hypotheses Related to Socio-Economic Factors

H1: There is a significant relationship between gender and loan repayment performance.
H2: There is a significant relationship between place of residence and loan repayment
performance.
H3: There is a positive and significant relationship between age and loan repayment
performance.
H4: There is a significant relationship between marital status and loan repayment performance.
H5: There is a significant relationship between level of education and loan repayment
performance.

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H6: There is a negative and significant relationship between family size and loan repayment
performance.
H7. There is a significant relationship between borrower’s source of income not financed by loan
and loan repayment performance.
Hypotheses Related to Business
H1: There is a significant relationship between borrowers’ saving experience before taking loans
and loan repayment performance.
H2: There is a significant relationship between use of financial records and loan repayment
performance.
H3: There is a significant relationship between borrowers’ borrowing experience and loan
repayment performance.
H4: There is a significant relationship between availability of business information before
starting business and loan repayment performance.
Hypotheses Related to Loan
H1: There is a significant relationship between suitability of repayment period and loan
repayment performance.
H2: There is a significant relationship between timeliness of loan release and loan repayment
performance.
H3: There is a significant relationship between availability of training before taking loans and
loan repayment performance.
H4: There is a significant relationship between adequacy of the released loan and loan repayment
performance

1.6. Significance of the Study

Providing credit services to the urban and rural poor is an additional instrument in course of
alleviating poverty. MFIs are institutions that are engaged in providing credit to the poor so that
they can generate income and employment for themselves. For these institutions to be able to
render such a service on a permanent basis, they should be viable and sustainable. They should
not depend on donations or subsidies in the long run. This requires efficient loan repayment
performance. Therefore, the study was provided some implications on how loan repayment is
affected by factors that arise from the borrowers and the lender institution itself. The findings of

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the study were used to address problems related to loan repayment performance and to achieve
their intended future objective of the institution. In addition, the studies were add on to the
existing knowledge on loan repayment and ACSI. In addition, prospective researchers may use
the study as part of their empirical studies.

1.7. Scope and Limitation of the study

Geographically the research study was limited to borrowers of ACSI Debre Markos Branch
because of researcher proximity to the area. A wide range of variables are expected to determine
loan repayment performance. Conceptually, the studies were limited to investigate factors affect
loan repayment performance of ACSI Debre Markos Branch. Sustainability of MFIs is
depending up on financial, economic, institutional and borrower viability. However, this study
didn‘t incorporate borrowers of other MFIs because financial constraints. This study focus on
borrower’s viability in terms of repaying the borrowing of loan amounts. Accordingly, the study
focus on factors affecting loan repayment performance based on the data collecting from sample
borrowers. For this purpose, loan record documents from the year 2019 to 2021 were used.

1.8. Organization of the Study

This study was consisting of five chapters. The first part deals with the introductory part of the
study with its sub components which includes background of the study, statement of the
problem, objectives and leading questions of the study, significance of the study, delimitation
and limitation of the study. The second chapter includes the critical reviews of the related
literatures relevant to the issue understand study so as to understand it deeply. The third chapter
deals with the research methodology which includes the research design, population and
sampling techniques, data collection instruments, and data analysis techniques used. Chapter four
includes results and analysis, and the fifth chapter presents the summary, conclusion and
recommendation of the study.

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 CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1. Introduction

The review were consisted three parts; the first part deals with the theoretical and conceptual
issues related with research topic, the second part reviews the relevant empirical studies on
Micro Finance Institutions loan repayment performance determinants. The third section contains
the conceptual framework and conclusions drawn from the review of related literature.

2.2. Theoretical Literature

2.2.1 Definition and goals of microfinance institutions

The definition of microfinance institutions proposed by some authors and organizations are
seemingly different from one another. However the essence of the definition is usually the same,
in which microfinance refer 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 (Arsyad,
2005).

Conroy (2002) states that microfinance is the provision of a broad range of financial services
such as deposits, loans, payment services, money transfers, and insurance to poor and low-
income households and their MEs. The term evolved from the concepts of “microcredit” and
“microenterprise” financing, to include the importance of savings as well as borrowing.
Although the terms are used interchangeably, microfinance represents the field as a whole, while
the other two terms are more technical and refer only to credit provision (Maria, 2004).

Microfinance institutions (MFIs) were established to fill the gap in the financial services sector
by providing funds to the poor and lower income group and thus alleviating poverty and enhance
their business activities. The MFIs provide funds for start-up business or for working capital. In
addition, some MFIs also provide funds for non-business activities such as for education and
emergencies purpose.

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The goals of microfinance institution as development organizations is to service the financial
needs of un-served or underserved markets as a means of meeting development objectives such
as to create employment, reduce poverty, help existing business grow or diversify their activities,
empower women or other disadvantage population groups (poor people or low income people)
and encourage the development of new business. In short, microfinance institutions will be
expects to reduce poverty, which is consider as the most important development objective
(Arsyad, 2005).

2.2.2 The Historical foundation of Microfinance Institutions

In the Beginning of 1970s, the recognition that among the obstacles preventing the working poor
from improving their lives is the lack of access to financial services.

The Grameen Bank, established in Bangladesh in 1976 by Professor Muhammad Yunus,

developed highly effective techniques for lending to the poor. it is based on techniques such as
taking services to the village level, promoting and motivating groups of the poor, use of group
guarantees, compulsory savings mobilization, transparency of credit transactions, intensive
supervision of borrowers, and decentralize and cost effective operations.

In the 1990s, however, microfinance is capture the imagination of governments, donor agencies,
and other opinion leaders in both industrial and developing countries. Microfinance have move
from the margins of the development debate to center stage. It is see as much more than simply
the provision of financial services to poor households, but as a key strategy for poverty reduction
in its own right (McGuire and Conroy, 2000).

McGuire and Conroy (2000) identified three basic characteristics that make MFIs similar in their
operation: First, MFIs know their market. The poor are willing to pay for access and
convenience. Interest rates are market orients, but lending outlets are located near the client,
application procedures are simple, and loans are disbursement quickly.

Second, they use special techniques to slash administrative costs. Simple procedures are use and
approvals are decentralized. Borrower groups often handle much of the loan-processing burden.

9
Third, they use special techniques to motivate repayments. MFIs have develop a range of
techniques to ensure high repayment rates, including the use of self- select groups in which
members guarantee each other’s loans.

2.2.3. The development of microfinance institutions in Ethiopia

Development of microfinance in Ethiopia to be viewed as (a) an identification of considerable

levels of unrealized demand and potential market growth for financial services and (b) a shift by
the NGO sector and government from relief assistance to sustainable development which
intersects at the point of institutionalization of microfinance provision. The establishment of
sustainable microfinance institutions that reach a large number of rural and urban poor who are
not served by the conventional financial institutions, such as the Commercial Banks, a prime
component of the new development strategy of Ethiopia (AEMFI, 2000).

According to Degefa (2009:3) in Ethiopia microfinance services is introduce after the demise of
the derg regime following the policy of economic liberalization. It is taking as a shift from
government and NGO subsidize credit programs to financial services run by specialize financial
institutions.

According to Seifu (2002), the microfinance business in Ethiopia Formally starts in 1994-95.
Seifu further discusses that, the licensing and supervision of Institution proclamation of the
government encouraging the Spread of Institutions (MFIs) in both rural and Urban areas as it
authorized them among other things, to legally accept deposits from the general public (hence
diversify sources of funds), to draw and accept drafts, and to manage funds for the Micro
financing business

2.2.4. Credit management policies

The major advances in theoretical understanding of the workings of credit markets. These
advances have evolved from a paradigm that emphasis the problems of imperfect information
and imperfect enforcement (Hoff and Stiglitz, 1990). They point out that borrowers and lenders
may have differential access to information concerning a projects risk, Lending institutions are
face with four major problems in the course of undertaking credit activity:

 To ascertain what kind of risk the potential borrower have (adverse selection),

10
  To make sure the borrower will utilize the loan properly once made, so that he will be
able to repay it (moral hazard).
 To learn how the project really does in case the borrower declares his inability to repay
and
 To find methods to force the borrower to repay the loan if the borrower is reluctant to do
so (enforcement) (Ghatak and Guinnane, 1999).

These problems of imperfect information and enforcement leads to inefficiency of credit market
which in turn to default. Thorough credit assessment that takes into account the borrowers`
character, collateral, capacity, capital and condition (what is normally referred to in the banking
circles as the 5C`s) will be conduct to minimize credit risk.

Credit risk evaluation is a complex process, which implies a careful analysis of information
regarding the borrower in order to estimate the probability that the loan will be regularly repaid.
The probability of regular repayment depends on objective factors related to the borrower’s
operating environment, the borrower’s personal attitude towards loan obligation, and the bank’s
ability to evaluate these two aspects through the information it have and to control credit risk
specific contractual conditions.

2.3. Empirical Evidences on Loan Repayment Performance of MFIs

Von Pischke (1980) identifies two problems as major causes of poor loan recovery performance:
credit project design problems and credit project implementation problems.

Credit project design problems include debt vs. equity, expects value vs. dispersion (detailed
consideration of the variety of results which occur in the field), book keeping convenience vs.
borrower cash flow patterns, collection mechanism, institutional scope or range of services
offered, interest rates.

Credit project implementation problems include low service levels, coordination, access (i.e.
information problem and lack of decision making experience in lending to specific target groups)
and financial recording.

A descriptive analysis made by Adeyemo (1984) on loan delinquency in multipurpose

cooperative union in Kwara state, Nigeria, based on 1020 borrowers (80% of the population)

11
revealed that natural calamities, crop failure due to pest, poor storage facilities, lack of adequate
transport facilities, sales income, farm income, farm size, education, tenure status of the
borrowers are factors associated with loan delinquency. A study made on loan repayment
determinants under the Social Emergency Loan Scheme (SEALS) in Nigeria by Njoku and Odii
(1991) employing multiple regression model based on 300 sample beneficiaries (9.3% of the
total population) indicated that poor loan repayment performance is due to late release of loan
funds, cumbersome loan application and disbursement procedures and emphasis on political
considerations in loan approvals.

Vigano (1993) employing credit scoring model for development bank based on 118 sample
borrowers in the development bank of Burkina Faso. He found out that being women, married,
aged, more business experience, value of assets, timeliness of loan release, small periodical
repayments, project diversification and being a pre-existing depositor are positively related to
loan repayment performance.

Kashuliza (1993) used a linear regression model to analyze determinants of loan repayment in
smallholder agriculture in the southern highlands of Tanzania. His study show that level of
education, attitude towards repayment; farm income and off-farm income positively affect loan
repayment with farm income being significant, while age, household expenditure and household
size have negative influence on loan repayment performance with household expenditure being
significant.

In Ethiopian context, there are also empirical evidences that depict how loan repayment
performance of MFIs is affects by different factors. For example, Bekele et.al (2003) employed a
logistic regression model to analyze the factors influencing loan repayment performance of
smallholders in Ethiopia. The authors used data on 309 borrowers of input loans in the Oromia
and Amhara National Regional States and found out that individuals who took larger loans have
better repayment performances than those who took smaller loans.

Berhanu (1999) and Teferri (2000) made an attempt employing a binomial probity model on
determinants of loan repayment performance of micro enterprises with particular reference to
project office for the creation of small scale business opportunities in Addis Ababa and Dedebit
credit and saving institution in Tigray, respectively. Birhanu found that loan diversion, loan size

12
and monthly income were undermining factors while beneficiaries’ age, perceived cost of default
and suitability of repayment period is enhancing factors of loan repayment. The study of Tenishu
(2014) held in Omo Microfinance Konso sub branch on its part depicted that loan diversion and
loan size decrease the probability of loan repayment while education, loan size, loan diversion,
availability of other credit sources, loan supervision, suitability of loan repayment period,
income and value of livestock increase the probability of credit repayment.

Tesfaye (2018) studied on the factors influencing loan repayment performance of micro and
small enterprise financed by Oromia credit and saving. The result shows that eight variables
including constant: monitoring utilization of other members in a enterprises, loan disbursement
timeliness, repayment schedule suitability, repayment trend on monthly basis, repayment trend in
irregular basis supervision on monthly basis and training adequacy are found significantly
influence loan repayment performance of borrowers. The study revealed that the proportion of
female and male defaulters were found as male borrowers are relatively higher defaulters than
that of female borrowers, which is consistent with Abafita (2003), Abreham (2016), Dula (2016),
and other finding. Borrower’s ages with the age category of 30 and above had less likely to be
defaulters than that of youngsters (less than 29) which is significant at 10%. It is also consistent
with Fikirte (2011), Abafita (2003) and Abreham (2016) study results. The data were collected
using a structured questionnaires, and interviews. The descriptive statistics analysis and probit
regression model were employed to estimate the model and analyze the results of findings.

Balamurugan (2017) assessed the credit default risk in Oromia credit and saving share company
(OCSSCO). His finding outcomes revealed that the OCSSCO default rate increased over the
review period. The major causes of default were 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 caused
credit default and in addition natural disaster, poor infrastructure, poor management and presence
of negligent staffs were identified 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 used stratified sampling
method and collected the primary data by using structured and unstructured questionnaires. The

13
researcher employed Descriptive statistics and SPSS version 20 software to analysis the collected
data.

Mesele et al, (2016) conducted a study on the Factors Affecting Loan Repayment Performance
of Small Scale Enterprises Financed by Micro Finance Institutions on Private borrowers around
Wolaita and Dawuro Zone .They were revealed that out of total of 15 explanatory variables
considered in the econometric model six variables were found to be significant. These were age,
education level, number of dependents within and out household, Tropical livestock unit, value
of equipment, repayment suitability. The coefficients of these all-significant variables were
negative and positive. They used a two-limit Tobit model to analysis the result.

Selam (2016) conducted study on the determinants of loan repayment performance of micro and
small enterprises in Dire Dawa Administration and two limits Tobit regression model used to
identify factors that affect loan repayment performance. The result indicated that sufficient loan
size and repayment periods were related significantly and negatively to loan repayment
performance of enterprises. Follow up or supervision, access to market, business experience, and
trade and service sector types were important factors that affected loan repayment performance
of the enterprises positively and significantly.

2.4. Conceptual Framework of the Study

According to Jonker & Pennink (2010), conceptual model can be helpful in structuring the
problem, identifying relevant factors and then providing the connections that make it easier to
map and frame the problem. The conceptual model of this study is to examine the determinants
of loan repayments performance of ACSI in Debre Markos Branch. From literature review,
various empirical studies reviewed by the authors cite probable factors that influence loan
repayments. The following model was estimated to depict the relationship between dependent
and independent variable to solve the factors affecting loan repayment performance

14
Figure 1: Conceptual framework of loan repayment determinants of ASCI credit service.

Socio Economic related

(Independent variables)

 Age
 Education
 Gender
 Family size
 Sources of Income
 Place of residence
 Marital status
Dependent variable:

 Loan repayment
Business related (Independent variables) performance as
measured by on
 Use of financial records time repayment
 Saving Experience and delayed
 Borrowing Experience
 Business information

Loan related activities

(Independent Variables)

 Adequacy of the released Loan

 Suitability of repayment period
 Timeliness of loan release Loan experience
 Availability of training before taking loan

15
 CHAPTER THREE

RESEARCH METHODOLOGY

Introduction

This section discusses the research methodology to be applied for the study, specifically,
research design; data type, source and collection instrument; population sample and sampling
techniques, method of data analysis, model specification and measuring variables.

3.1. Research Design

This study was based on descriptive study; the purpose of descriptive research was to describe an
accurate profile of persons, events or situations. In addition, it used quantitative approach.
Quantitative researches use any data collection technique (such as a questionnaire) or data
analysis procedure (such as graphs or statistics) that generates or uses numerical data (Saunders
et al, 2009). The study was conducted in survey research approach. Surveys are information-
collecting method use to describe, compare, or explain individual and societal knowledge,
feelings, values, preferences, and behavior (Fink, 2009). This study was conducted in ACSI
Debre Markos Branch. The researcher selected this institution because it is the main institutions
that provide ACSI Debre Markos Branch.

3.2. Research Approach

In order to examine the determinants of Loan repayment performance by taking ACSI Debre
Markos Branch case in point, the researcher adopt both quantitative and qualitative research
approach. The essential goal of this mixed research approach is to tackle a given research
question from any relevant angle, making use where appropriate of previous research and/or
more than one type of investigative perspective. The rationale of using such a mixed approach in
this study is to gather data that cannot be obtaining by adopting a single method.

16
3.3. Population of the Study

Loan clients of ACSI Debre Markos Branch in the year 2021 and branch management bodies and
loan officers were the population of this study. As branch management bodies and loan officers
were manageable they were taken comprehensively during data collection. The researcher can be
drawn samples by applying Taro Yamane sample size determination formula.

3.4. Sampling Techniques

According to ACSI Debre Markos Branch 2021G.C year-end report, in the year 2021 G.C the
branch has 1459 loan clients. As this number were manageable, all defaulters were taken as
respondent of the study from this stratum. Parallel to the number of defaulters, from non-
defaulter stratum, sample was selected using simple random sampling, making the total
respondents of the study 314 loan clients. In using simple random sampling, list of loan clients
will be obtained from the records of the ACSI Debre Markos Branch.

3.5. Sample Size

Sample size is one of the most efficient method of achieving estimates that are provides precise
and reliable result for research. According to June 30, 2021 report there are 1459 clients are
using credit service at a selected branch. The total sample size for this research is determined by
Taro Yamane’s (1967) sample size determination formula i.e.

n= N/1+N (e) ²
 Where n= sample size
 N= population
 e= sample error, assume 95% level of confidence
n= 1459/1+1459 (0.05) ² = 314
Therefore, according to Yamane’s formula the sample size were 314 Samples and interviews with
branch management bodies and loan officers of the selected branch. All borrowers of the saving
and credit institution that have repaid their loans when the due date were classified as non-
defaulters while those who did not repay their loan three months after the due date were
classified as defaulters.

17
3.6. Data type, Source and Collection Instrument

Both qualitative and quantitative data type was collected from primary and secondary data
sources in this study. ACSI Debre Markos Branch credit beneficiaries and branch management
bodies and officers are the primary sources of data. And loan record documents from the year
2019 to 2021 are secondary sources of data for the sake of gathering status of loan and number of
clients. The following two data collection instruments were used to collect necessary data (both
quantitative and qualitative).

A. Questionnaire

To obtain data regarding determinant factors affecting loan repayment performance of ACSI
Debre Markos Branch, questionnaire (both open and closed ended format) were distributed. The
questionnaire is adapted from previous studies (Fikirte, 2011:Tenishu, 2014).and
literatures(Adeyemo, R. 1984: Arene C.J 1992) by the researcher.

B. Document Review

Substantial data like list of borrowers and loan repayment performance status was collect from
documents.

3.7. Data Analysis Method

The study was used both qualitative and quantitative data analysis methods. Narrative
description was used for qualitative data. In quantitative data analysis, descriptive statistics like
mean, percentage, T-test and Chi-square test were used. In order to analyze the loan repayment
performance difference between defaulters and non-defaulters the researcher were employed t-
test and chi-square test.

Logit Model

In addition to the above mentioned descriptive statistics, an econometric regression model called
binary logistic regression analysis/Logit model were applied for analyzing the quantitative data.
Loan repayment is a dependent variable, while different socio-economic, business related and
loan related factors are considered as independent variables. In this case the value of this

18
dependent variable is 0 and 1, which stands for 0 if the borrower is defaulter and 1 if the
borrower is non-defaulter. Therefore, loan repayment treats as dichotomous dependent variable.

To examine the factors affecting the loan repayment, discrete choice model were used. Thus, the
most widely used and appropriate qualitative response models are the logit and probit models
(Verbeek, 2008).

 Assume that there exists a latent (unobserved) variable such that:

 𝑦𝑖 ∗ = 𝛽𝑥𝑖 + 𝜀𝑖
1 𝑖𝑓 𝑦𝑖 > 0
 {
0 𝑖𝑓 𝑦𝑖 ≤ 0
Where;
 yi * = a vector of the latent variable that is not observed for values less than zero and greater
than one,
 𝑦𝑖 = the observed variable, representing the proportion of loan repayment,
 𝛽 = the unknown parameters that reflecting the impact of change in variable X
 𝑥𝑖 = explanatory variables that determine the dependent variable,
 𝜀𝑖 = error terms that is distributed normally with mean 0 and variance σ2,
 𝑖 =1, 2, 3….n, represents the number of observations.

3.8. Econometric model test

3.8.1. Goodness-of-fit test

A goodness-of-fit test, in general, refers to measuring how well do the observed data correspond
to the fitted (assumed) model. The measure of goodness-of-fit test used in the logit regression
model was the pseudo R2, Chi-square and p- value of the model output. In such away, pseudo R2
is a measure that at least lies in the [0, 1] interval (Windmeijer, 1995). Usually the value found in
range 0.1 up to 1 is normal in logit regression model (Pindyck & Rubinfeld, 1998). The most
common measure is the Model Chi-square, which can be tested for statistical significance. This
is an omnibus test of all of the variables in the model. Note that the chi-square statistic is not a
measure of effect size, but rather a test of statistical significance. Larger data sets will generally

19
give larger chi-square statistics and more highly statistically significant findings than smaller
data sets from the same population.

3.8.2. Multicolinearity test

Before running a model, in our case the logit, explanatory variables will be checked for
Multicollinearity (Verbeek, 2008). When the independent variables are correlated, it is regarded
as a problem in the model and this problem is called Multicollinearity. Since, Multicollinearity is
a problem when the explanatory variables logit model is highly correlated and provides
redundancy information about the response. The existence of Multicollinearity in the model may
cause large variance, large T-value and misleading results (Hosmer & Lemeshow, 1980). as the
common rule of Verbeek indicates that if VIF is 10 or greater than 10 and a TOL of 0.10 or less
it may indicate the presence of Multicollinearity otherwise free from the problem.

20
 CHAPTER FOUR
RESULTS AND DISCUSSION

4.1. Descriptive Statistics Result

Descriptive statistics analysis is made use of tools such as mean, percentage, standard deviation
and frequency distribution. In addition, T-test and Chi-square test statistics were employed to
compare defaulter and non-defaulter group in terms of each explanatory variables.

4.1.1. Socio-economic characteristics of the respondents

Table 1: Borrowers characteristics (continuous variables)

Variables Defaulter (135) Non-defaulter (179) Total sample (314) t-value

Mean Std.dev. Mean Std.dev. Mean Std.dev.
Age 35.7 11.8 40.2 13.2 37.94 12.5 2.15**
Dependent households 1.43 0.33 2.05 0.66 1.72 0.15 2.03

Education level 4.7 3.1 7.1 3.4 5.8 3.3 4.9***

Family size 8.1 2.5 6.8 2.2 7.3 2.4 3.5***

Business experience 9.1 5.3 13.5 6.7 11.4 5.7 4.8***

** Significant at 5% level
Sources: Survey result, 2022

Age compositions

As shown in Table 1, the average age of the borrowers was 35.7 years. Moreover, the mean ages
of non-defaulters are 40.2 years. Moreover; from the table, the mean difference between the two
groups was statistically significant therefore there was more defaulters around age mean value.
So that, this revealed that relationship between age and defaulters the younger borrowers are
more probability of defaulters.

21
Education Level

Education is expected to have a positive impact on loan repayment performance. A more

educated client is expected to use the loan effectively as compared to a less educated one. Based
on table 1 above, the study result has shown that the mean education level of respondents were
4.75 and 7.5 defaulters and non-defaulters with standard deviation of 3.1 and 3.4 respectively.
The sampled respondent revealed that borrowers were perceived that money borrowed from
government might be repaid and they used it out of their business plan as result business fall into
at risk. Therefore, lack of awareness on general view of ACSI rule and regulations was the main
factor. In addition, clients more emphasis was given to borrow money from institution rather
than fulfill they minimum requirement of credit in the study area.

Family Size

When the respondents have more family size, they need more income in order to cover the
expense of their household members. So, the borrower may use the loan directly for their daily
consumption and other expense. As the results indicated in table 1 above, the range of family
size respondents with its mean family sizes of defaulters and non-defaulters were 8.1 and 6.8
with standard deviations of 2.5 and 2.2 respectively. Although, the t-test result indicated that
there was mean difference between family size and loan repayment in the study areas.

Business Experience

Business run by an experienced person has an effect on the loan repayment performance. The
risk of failure is less, when the business operated by experienced person than those who have just
started (beginner). According to this study result in table 1 above, indicate that the range
experience of respondents in business has the mean of business experience were 9.1 defaulters
and 13.5 non-defaulters were respectively. Besides, t-test result showed that there was mean
difference between experience of business and loan repayment in the study areas.

22
Figure 2: Age composition of the borrowers

Defaulter
35.7
40.2 Non-defaulter

Source: Survey result, 2022

Sex of Borrowers

The survey results revealed that 33.3% of the total borrowers were males and the remaining
66.7% were females. From the total - defaulters, 37.5% and 41.3% of them were males and
females respectively. In addition, 62.5% and 58.7% of the total non-defaulters were males and
females respectively. The difference between the two groups was statistically Significant. So that
female borrowers were more likely default than males.

Figure 3. Sex composition of the borrowers

Defaulters Non-defaulters

37.5% 58.7%
41.3% Male 62.5% Male
Female Female

Figure 3.1.Sex composition of defaulters. Figure3.2. Sex composition of non-

defaulters
Source: Survey result, 2022

23
Marital Status

As indicated in the following chart (Figure 4.1 and 4.2), the percentage of married respondents
were high in non-defaulters group than defaulters group. Non-defaulters were significantly more
likely to be married.

Figure 4. Marital status of the borrowers

Figure 4.1 Marital Status of defaulters. Figure 4.2 Marital Status of non-defaulters
Source: Survey result, 2022

Education Status

The survey result showed that 83% and 71% of the sample respondents were literate with
defaulter and non-defaulter respectively. This indicates that the level of education and loan
repayment performance has direct relationship. It has positive implication on loan usage and
managing the business or using loan for income generating activities.

24
Figure 5. Educational status of the borrowers

25% 24% 29%

25% 30% 25%
20% 17% 15% 25%
20% 17%
15% 15%
11%
15%
10% 7%
5% 10% 5%
5% 3% 2%
5%
0% 0%

Figure 5.1 Education Status of defaulters. Figure 5.2 Education Status of non-defaulters
Source: Survey result, 202
4.1.2. Loan specific characteristics

About 60% of defaulters were involved in the group lending, while the rest were individual
borrowers. The reverse happened in the case of non-defaulters (Table 2). The finding indicates
that there are more defaulters in the group borrowers than in individual borrowers. Besley and
Coate (1995) agreed on the positive and negative effect of group lending on the repayment rate.
In this institution group lenders have better opportunity to get loan easily. Without collateral and
personal guarantee they can get loan from the institution, with joint liability used as collateral.

Table 2 shows that the sample respondents were borrowing money for the purpose of either
expanding already existing business or doing new business. More than half of non-defaulters
were borrowing for the purpose of expanding existing business. Norell (2001) stated that if the
business existed for at least one year on the owner’s equity, the loan from microfinance should
be a lower risk than if the business is a start-up, because businesses are most likely to fail within
the first year of operation. This apparently indicates that borrowing for the purpose of running
the existing business is relatively better loan repayment performance. Borrowers who didn’t
divert the loan had a better loan repayment performance than the loan diverter (Table 5). The
difference between the values of the two groups was statistically significant therefore; defaulters

25
who was utilized the loan for business less defaulters than who was not used for their own
business purpose.

Table 2: Loan specific characteristics (discrete variables)

Variables Defaulter Non-defaulter Total sample X2-value

No. %
Loan scheme 86 74 160 51 0.00
Group lending
Reason for involving in group 67 56 123 39 23.31***
Easy to get loan
Group member relationship 78 63 141 45 15**
Neighbors
Purpose of loan 64 88 152 48 0.83
Expanding existing business
Loan usage 94 71 165 53 35.82***
For the business
*** and ** are Significance at 1% and 5% level respectively
Sources: Survey result, 2022

The survey result indicates that, only 25% of the respondents were trained on business and
financial management and different microfinance aspects like saving, repayment and insurance.
These are the long lasting clients and they took the training within three years since
establishment of the institution (Table 3). The difference between the values of the two groups
was statistically significant this indicate that borrower who was taken the institution training was
significant defaulters therefore; training is decisive for borrowers. In addition, the difference
between the values of the two groups was statistically significant therefore; defaulters who was
utilized the loan for business less defaulters than who was not used for their own business
purpose.

26
Table 3: Loan specific characteristics and their loan repayment status

Variables Response Defaulter Non-defaulter X2-value

% %
Is the repayment period set suitable Yes 32 68 12.6**
in your opinion? No 64.5 35.5
Was the loan issued timely? Yes 23.3 76.7
No 78 22 24.8***
Did you get anytraining from ACSI Yes 51.9 48.1 45.1***
Debre Markos Branch before taking No
43.6 56.4
the loan?
Have you got adequate supervision Yes 30.9 69.1 10.8**
about your loan utilization and No
76.1 23.9
repayment?

Did you spendthe entire loan on the Yes 20.4 79.6 8.5**
purpose specified in the agreement? No
96.9 3.1

Did you obtainthe amount ofloan Yes 20.3 79.7

you requested? No
66.1 33.9

*** and ** are Significance at 1% and 5% level respectively

Sources: Survey result, 2022

The result in table 3 also revealed that there is a significant difference in loan repayment
performance status among borrowers as functions of suitability of loan repayment period set by
ACSI Debre Markos Branch. There is a significantly large proportion of borrowers who
responded the repayment period is suitable of which 68% were found to be non-defaulters while
low proportion of them on which 32% were found to be defaulters and large proportion of
borrowers who responded the repayment period isn’t suitable which is 64.5% were found to be

27
defaulters while low proportion of 35.5% were found to be non-defaulters. This evidenced that
suitable repayment period enhances loan repayment performance.

The result also revealed that there is a significant difference in loan repayment performance
status among borrowers as functions of loan disbursement time line. As presented in the result
there is a significantly large proportion borrowers who responded the loan was disbursed timely
of 76.7% were found to be non-defaulters while low proportion of 23.3% were found to be
defaulters and large proportion of borrowers who responded the loan wasn’t disbursed timely of
which 78% were found to be defaulters while low proportion of 22% were found to be non-
defaulters. This evidenced that loan disbursement timeline is related to loan repayment
performance.

The analysis was also made to check whether loan repayment performance is statistically related
with training provision for ACSI Debre Markos Branch borrowers. The result presented in the
result showed that no significant difference between borrowers who took the training and who
didn’t take it in terms of loan repayment performance was observed. Implying in training
provision has no significant impact on borrowers’ loan repayment performance. In addition, the
result showed that significantly large proportion of borrowers who were adequately supervised of
which 69.1% were found to be non-defaulters while small portion of 30.9% were found to be
defaulters and large portion of borrowers who weren’t adequately supervised by ACSI Debre
Markos Branch staffs of 76.1% were found to be defaulters while small proportion of them were
found to be non-defaulters. This indicated that loan repayment performance of borrowers is
dependent on adequacy of supervision made by ACSI Debre Markos Branch staffs.

This study also tested how applying the received loan to the intended purpose specified in the
agreement is related to loan repayment performance. The result presented in table 3 portrayed that
significant difference was observed in terms of loan repayment performance between borrowers
who used loans to the intended purposes specified in the agreement and who partly or entirely
diverted it to the non-intended. This showed significantly large proportion of borrowers who
used their borrowers for the intended purposes of 79.6% were found to be non-defaulters while
small portion of them were found to be defaulters and large proportion of borrowers who
diverted loans to the non-intended purposes of 96.9% were found to be defaulters while very

28
small proportion of 3.1% were found to be non-defaulters. This evidenced that loan repayment
performance is significantly related to loan diversion practices.

The role of adequacy of the received loan on loan repayment performance was tested in this
study and the results are presented here below in table 3. The result showed that there is a
significant difference in loan repayment performance status between borrowers who received
adequate loan and who didn’t receive adequate loan. This revealed that significantly large
proportion of borrowers who replied as they took adequate loan of 79.7% were found to be non-
defaulters while small proportion of 20.3% were found to be defaulters and large proportion of
borrowers who replied as they didn’t take adequate loan of 66.1% were found to be defaulters
while small proportion of 33.9% were found to be non-defaulters. This is a strong evidence that
adequacy of the received loan enhances loan repayment performance.

Table 4: Summary of continuous variables

Variables Defaulter Non-defaulter Total sample T (X2)

value
Mean Std.dev. Mean Std.dev. Mean Std.dev.
Business experience 5.95 5.564 7.45 6.644 7.12 8.432 -1.73*
(year)
Number of times 1.52 0.893 2.33 1.682 1.92 1.403 -4.25***
borrowed
Number of visits made 1.49 1.501 1.89 2.146 1.69 1.858 -1.53
by loan officer
Number of group 5.15 3.848 5.78 5.356 5.4 4.497 -2.92***
members
Interest rate (high) 23 3.5 24.7 2.8 23.6 3.2 12.55***
Resident of borrowers 23.1 2.9 43.9 7.5 34.6 6.7 7.1***
(urban)
** Significant at 5% level
Sources: Survey result, 2022

29
As shown in Table 4, average of loan utilization of business purpose of defaulters and non-
defaulters respectively 5.95 years and 7.45 years respectively. The difference between the values
of the two groups was statistically significant the more experienced borrowers were less
defaulters so that business experience is a factor for borrowers in order to default the loan or not.
The average number of visits made by loan officers per 3 months was about 1.7 (Table 4). Some
of the borrowers stated that nobody came to their business and residence place since loan
disbursement time. The mean length of borrowing experience for non-defaulter borrowers (7.4)
was found to be significantly greater than the mean length of borrowing experience for defaulters
(5.9). Indicating length borrowing experience enhances loan repayment performance.

Interest rate of loan can determine the borrowers who initiated to be beneficiary of loan from
different institution in order to easy his/her livelihood challenges. According to the study result
in table-6 above indicated that, 62.6% and 37.4% of respondents were said that the interest rate
in ACSI was low and high respectively when compare to other financial institutions such as
wisdom, Iqub, and primary cooperatives. However, inferential statistics results confirm that there
was significance correlation between interest rate and loan repayment.

The respondents revealed that, borrowers were no willingness to accept credit in the study area
because they fear of high interest rate, low confidence on its profitability and absence of insurance
when natural disaster (economic shock) was occurred so as they were obligated to stay in vicious
circle of financial scarcity. This condition from raised from lack of knowledge about credit,
utilization of money and how repay loan based on its time line.

The income source of borrowers in rural areas is predominantly on agriculture. Loans extended
for agricultural purposes are expected to face problem of default because of risk and uncertainty
attached to agriculture. In addition, rural areas are limited by difficulty of access, poor quality of
infrastructures and limited local markets. As result of study in table above indicated that 66.7%
and 33.3% of respondents were lived in urban and rural respectively. Out of total 67%
respondents, 23.1% and 43.9% of borrowers were defaulters and non-defaulters who lived in
urban areas accordingly while out of total 33.3% respondents 18.6% and 14.75% of borrowers
who were defaulters and non-defaulters who lived in rural areas respectively. This finding
indicated that borrowers who lived in urban have more likely to pay their credit on time because
they have access to infrastructure and market facilities than rural borrowers. Also, the analysis of

30
the result indicated that there was significance association between residence of borrowers and
loan repayment.

4.1.3. Business related characteristics

The result of the respondent borrowers indicated that majority of the borrowers have saving
accounts before they took loans from ACSI Debre Markos Branch. As presented in figure 5,
76.47% of them replied they did save money to expand their existing business while 9.80%,
11.77% and 1.96% of them replied respectively for personal need, for consumption and for
emergency case. From this it is possible to deduce that among ACSI Debre Markos Branch
borrowers who did have the experience of saving money in saving institutions before taking
loans, majority of (76.4%) did it to expand their business. In addition, the result known that
business men usually did it either to evaluate profit and loss of their business or for loan
repayment purposes. In this study as shown in the next figure, among those who did have
financial records majority of them (72.62%) responded as they kept accounting/financial records
to evaluate the profit and loss of their business activities while the remaining 27.4% replied that
they kept financial records for loan repayment purpose.

Figure 6: Respondents by purposes of saving before taking loans and accounting record

1.9%
11.7% to expand
bussiness to evaluate
9.8% for personal 27.4% profit and loss
need
for consumption 72.6% for loan
repayment
76.5% purpose
for emergency

Figure 6.1 Purposes of saving before loans Figure 6.2. Purpose of keeping accounting records
Source: Survey result, 2022

31
As indicated in figure 6, borrowers of ACSI Debre Markos Branch are engaged in various
business activities using the obtained loans. The result showed that 32.74% of them were
involving in animal husbandry while 25.60%, 15.47%, 14.88%, 8.33% and 2.98% were engaging
in textile, construction, food processing, metal work and poultry activities, respectively.
Implying in using the obtained loans large number of ACSI Deber Markos branch borrowers
were engaging in animal husbandry and followed by textile activities.

Figure 7: Respondents by types of business borrowers engaged in using loan

35 32.7%
30 25.6%
25
20 14.8% 15.5%
15
8.3%
10
5 2.9%
0
Animal Poultery Textile Food Metal work Construction
husbandery processing

Source: Survey result, 2022

The chi square test result presented in table 6 revealed that there is significant difference in loan
repayment performance among borrowers as functions of business experience. As presented in
table 5, significantly high proportion of borrowers who have business experience of 69.5% were
found to be non-defaulters while low proportion of 30.8% were found to be defaulters and high
proportion borrowers who didn’t have business experience of 83.6% were found to be defaulters
while low proportion of 16.4% were found to be non-defaulters. This significantly evidenced that
borrowers’ loan repayment performance rate is dependent on business experience. Business
experience enhances borrowers’ loan repayment performance.

32
Table 5: Business related discrete variables and loan repayment status

Variables Response Defaulter Non-defaulter t-value

Percent Percent
Do you have business Yes 30.8 16.4
experience before No 83.6 69.2 23.76**
taking loans?
Did you conduct market Yes 40 60
study before starting your No 75 25 12.52**
business?
Were you ableto get Yes 42.7 29.5
business information No 70.5 57.3 6.48***
related to yourbusiness?
Source: survey result, 2022

As presented in table 5 above, there is significantly high proportion of borrowers who have
conducted market study before they started business of 60% were found to be non-defaulters
while low proportion of 40% were found to be defaulters and high proportion of borrowers who
have not conducted market study which is 75% were found to be defaulters while low proportion
of them which is 25% were found to be non-defaulters. This evidenced that conducting market
study before starting business enhances loan repayment performance.

4.2. Challenges and Difficulties

The most typical challenges faced by any microfinance institution is credit risk. Moreover, the
cost of debt collection per loan amount is, on average, higher than in formal intermediation,
especially in developing countries lending (Vento 2004). In addition to this ACSI as an
institution have many internal and external challenges. Respondents indicated that several factors
contribute to loan default. As per the outcome of the interview the factors can be categorized as
ACSI internal situations, external environment and customer related factor are summarizes as
follows:-

ACSI internal factors

33
ACSI internal factors are factors relating to internal inefficiencies due to systems, governance,
human resource issues and the related. Under this most of the interview participants raised the
following issues:
 Lack of adequate highly skilled man power. Due to high turnover of
experienced employees of ACSI Debre Markos Branch to other organizations
where better salary scales and benefits exists, mainly privately owned
commercial banks.
 Lack of adequate inputs like internet, electricity, etc. Many activities in the
institution have been done manually /don’t use computerized system.
 Insufficient working place/office in most of service delivery posts, staff of the institution
were share one office with the employees of other government organization,
 Poor documentation
 Lack of loaners’ skill of managing business activities.
 Shortage of borrowers’ commitment to respect the loan repayment agreement

ACSI external factors

The ACSI external factors are factors that were beyond the influence of institution and
borrowers. They are presented as follows:
 Intervention of external bodies in credit decision making in case of ACSI
 Competition- there is very strong competition faced with conventional banks in
mobilization of savings and increasing withdrawal. People trust formal banks specially
commercial bank of Ethiopia. Moreover, the other sources of competition are NGO’s,
women’s fund and other institutions who give loan without interest.
 Macroeconomic factors like inflation, and money supply etc.
 Improper interference of third party in the decision of loan approval.

Challenges for loan repayment

The sample respondents identified many problems that hinder the loan repayment process. The
summary of most frequently mentioned challenges are the following:

 Insufficient loan size specially for group lending

 High interest rate

34
  No grace period
 Preventive techniques methods
 Weak in following up to retrieve loans and on business
 Poor customer handling specially the manager of the services delivery center
 No training is given by the institutions
 They do not provide the necessary information like interest rate, insurance, etc.
Some of the above challenges are associated with the limited financial capacity of the institution,
and insufficient employees specially loan officers. Moreover, they couldn’t consider the
customer complaints and don’t take corrective action.

4.3. Econometric Results

In this section econometric analysis was carried out in order to identify the most important and
significant factors that affect the loan repayment performance of borrowers. As explained in the
methodology section, a logit model (binary logistic regression model) was employed to estimate
the effects of hypothesized explanatory variables on the loan repayment performance. Different
literatures claim that the following key assumptions of logistic regression model/logit model
need to be tested. To this effect, before carrying out binary logistic regression using SPSS, the
following key assumptions were checked and found none of the assumptions were violated. First,
binary logistic regression requires the dependents variable to be binary. In this study the
dependent variable is loan repayment performance which has binary response responses (default
which is coded as “0” and non-default which is coded as “1”.

4.3.1 Multicollinearity test

Multicollinearity test help to identify the correlation between explanatory variables and to avoid
double effect of the independent variable from the model. Multicollinearity is a problem when
the explanatory variables logit model is highly correlated and provides redundancy information
about the response. The existence of Multicollinearity in the model may cause large variance,
large T-value and misleading results (Hosmer & Lemeshow, 1980). Thus, the two popular
methods which used to detect the presence of Multicollinearity are Variance Inflation Factor
(VIF) and Tolerance (TOL) that calculated as follow.

35
 1
𝑉𝐼𝐹 =1−𝑅𝑖 2 ; TOL =1-R2. As the common rule VIF is 10 or greater than 10 and a TOL 0.10 or

less it may indicate the presence of multicollinearity otherwise free from the problem. As
indicated table 6 below, the value of variance inflation factor for all explanatory variables is less
than 10% and TOL greater than 0.1. Therefore, it implies that there is no multi co linearity
problem between explanatory variables.

Table 6: Multicollinearity test

Variables VIF TOL (1/VIF)

Sex 1.04 0.961538

Age 1.03 0.970874

Marital status 1.07 0.934579

Education level 1.16 0.862069

Family size 1.03 0.970874

Business experience 1.17 0.854701

Interest rate 1.16 0.862069

Residence 1.15 0.869565

Loan size 1.17 0.854701

Training 1.09 0.917431

Information 1.07 0.934579

Adequacy 1.06 0.943396

Suitability 1.15 0.869565

Saving habit 1.12 0.892857

Financial record 1.05 0.952381

Mean VIF 1.04

Where, VIF=Variance Inflation Factor, TOL =Tolerance
Source: Survey result, 2022

36
4.3.2. Goodness of fit test of the model

The measure of goodness-of-fit test used in the logit regression model was the pseudo R2, Chi-
square and p- value of the model output. In such away, pseudo R2 is a measure that at least lies
in the [0, 1] interval (Windmeijer, 1995). Usually the value found in range 0.1 up to 1 is normal
in logit regression model (Pindyck & Rubinfeld, 1998). As shown in table 7 below the model
output showed that the pseudo R2, Chi-square and the p-value were 0.7409, 113.42 and 0.0018
respectively. This reveals that the logit model was correctly predicted by the predicting variables
incorporated in this study. Thus, the probabilities that the loan repayment performance of ACSI
sectors assumed that the proportion of the statistical parametric values where suited with the
model.

4.3.3. The summary statistics of the variables in the model

Thus, the logistic regression model output of the variables included in this study was presented
as follows.

Interpretations of the coefficients in the model

According to this study result, out of 15 explanatory variables, 9 variables were found to be
statistically significant in the model analysis. This variable such as age, training, education level
and adequacy of loan found to positively influence the loan repayment performance at 1%
significance level. While, business experience, loan size and saving habit found as positively
influence the loan repayment performance of enterprises at 5% significance level. Finally, loan
interest rate and family size negatively influence the loan repayment performances at 1% and 5%
significance level respectively.

The age of enterprises leader positively and significantly influence loan repayment at 1%
significance level. This indicates an increase of the enterprises leaders’ age in one year increases
the probability of the loan repayment performance by 5.1%, holding other variables constant.
This implies that through time aged ACSI borrowers acquired experience in business,
accumulated more wealth and properly utilized it than lower age in the study area. This is agreed
with the finding result of Abafita (2003) and Ann mukono (2015). However, argued with the
reports reveled by Abreham (2017) and Tesfaye (2018).

37
Table 7: Summary of binary logistic regression result by considering all factors considered in
this study

Number of observation = 314

LR Chi2 (15) = 113.42
Log likelihood = -125.7503 Prob>chi2 = 0.0018
Pseudo = 0.7409
Variables Coef. Std.Err. Z P>Z [95% Conf. Interval]

Sex .1205601 .152156 0.29 0.621 -.3205610 .1829471

Age .0512832 .018267 2.81 0.005*** .0154792 .0870871

Marital status 1.29801 .374923 3.46 0.191 .5631738 2.032847

Education level .1717052 .147273 1.17 0.024*** -.1169457 .4603561

Family size -.1301534 .1911681 0.68 0.015** -.5009693 .1125664

Business experience .2839964 .135581 2.09 0.036** .0182617 .549731

Interest rate -.136804 .215905 -0.63 0.006*** -.5599709 .2863622

Residence .052976 .129354 0.41 0.082 .3065064 .2005536

Loan size -.3962608 .6729874 -0.59 0.556 -1.715292 .9227703

Training .0180247 .154604 0.12 0.007*** -.2849951 .3210445

Information -.066421 .151749 -0.44 0.1623 -.3638446 .2310017

Adequacy .659284 .426575 -1.55 0.042*** -1.495358 .1767892

Loan size .160231 .200253 -0.80 0.024** -.5527208 .2322576

Saving habit 1.14653 .362162 3.17 0.002** .4367074 1.85636

Financial record .130153 .191168 0.68 0.496 -.2445293 .504836

Constant -2.02876 4.907973 -0.41 0.679 -11.64822 7.590683

***and** indicates that the level of significance are at 1% and 5% respectively.

Source: Survey result, 2022

The higher education level of enterprises leader were positively and significantly influence loan
repayment performance at 1% significance level. For a change in category of leader’s education

38
level from lower educational level to higher educational level, the loan repayment performance
of enterprises is increased. Thus, as the education level increases the probability of repaying the
loan increases and the probability of not repaying the loan decreases. This suggests that as the
level of education increases ACSI leaders may have access to business information, to new
production techniques, efficient in resource allocation and easily adapt to changing
circumstances. This is agreed with the prior expectation and with the finding result of Nancy and
Mohamed (2014), Ann mukono (2015), Tolosa (2014), Mesele et al, (2016), Ababiya et al
(2015), Benjamin et al (2017) and Gobena (2018).

The Family size negatively and statistically significantly influences the loan repayment
performance at 5% significance level. Holding other variables constant, an increase in a one
individual in the Family size decreases the probability of the loan repayment performance by
13% in the study area. This means that ACSI sectors those have higher family size would be
more likely to fail to repay their loan timely at the repayment schedule in the study area. This
means in fact that the larger member’s size of the ACSI sectors results in different of interest that
leads to create disagreement among members and it leads to increases their cost that in turn
affects their loan repayment activities. This result is the same with the prior expectation and
supported by the finding of Benjamin (2017) and Gobena (2018).

The business experience was found to influence loan repayment performance positively and
statistically significantly at 5% significance level. Holding other variables constant an increase
enterprises business experience in a one year, increases the probability of the loan repayment
performance by 28.3% in the study area. With the enterprises experience in the business, the
more likely to be the ACSI sectors non-defaulter, which means that the enterprise those have
experience in the business would be the more likely repay their loan timely at the repayment
schedule in the study area. Having more experience leads to non-defaulter category of ACSI loan
repayment performance status whereas lack of experience leads to defaulter category of ACSI
loan repayment performance status. This is because skilled and experienced enterprises are better
able to manage their businesses and make efficient use of their loans. Experience in the business
operations is also able to increase enterprises problem solving ability including seizing
opportunities that are important to the growth of the business and their loan repayment abilities.

39
This result is agree with the prior expectation and in line with the study made by Ann mukono
(2015), Firafis (2015), Selam (2016), and Gobena (2018).

Loan interest rate was found to determine loan repayment performance negatively and
statistically significantly at 1% significance level. Holding other variables constant an increase a
one unit in the loan interest rate charged by the lenders would decrease the probability of loan
repayment by 13% in the study area. Which means that with the higher loan interest rate charged
by lenders institution, the ACSI sectors fails to repay their loan at its repayment schedule. As the
interest rate charged by lender increased the probability of default to be increase. This result is
similar with the prior expectation and supported by the result of Nancy and Mohamed (2014),
Ann mukono (2015) and Gobena (2018). However, this result is inconsistent with Benjamin et al
(2017).

Training provided by lender found to determine loan repayment performance positively and
statistically significantly at 1% significance level. Holding other variables constant, the
delivering of well-organized and sufficient training provided for ACSI increases the probability
of being creditworthy by 1.8 times in the study are. If the lender provides various training, the
enterprises will able to understand the rule and regulation easily. They also develop skill on how
to do business and money utilization. The model results show that to the priori expectation, this
variable has a significant positive impact on loan repayment performance. These because those
enterprises with sufficient and adequate trainings have hints on the activities that performed and
become friendly with the lender, which results initiated to fulfill their loan repayment obligation.
This result is similar with the result of Firafis (2015), Abreham (2017), Ababiya et al (2015),
Tesfaye (2018) and Gobena (2018). However, it contradicts with the result of Tolosa (2014) and
Mesele et al (2016).

Based on the above regression analysis of the model, the saving habit has a statistically
significant and positive effect on loan repayment performance 5% significance level. This
implies that the performance of loan repayment in Debre Markos Branch of ACSI strongly
influenced by saving habit. The enterprises saving habit increase, then loan repayment also
increase i.e. other predictor variable remain control saving habit in each loan repaying process
will improve loan repayment performance by 14.6%. This implies that the enterprises saving

40
habit high effect on loan repayment performance and also good working relationship between
ACSI and lenders.

The result of multinomial logit estimate showed that a one ETB increase in the size of loan for
both delinquents and defaulters relative to paid on time category given that all other variables are
held constant. So that, if a subject were to increase their loan size by one ETB, the relative risk
for delinquents relative to paid on time clients would be expected to increase by a factor of 0.16.
On the other side, the relative risk for defaulters relative to paid on time clients would be
expected to increase by a factor of 0.16 with 5% level of significance for both comparison
categories. These results contradicted with the findings of Nawai and Shariff (2012), Pasha and
Tolosa (2014) and Ashhari and Nassir (2015).However, if the amount of loan exceeds what the
borrower needs and can handle, it would be more of a burden than help as it goes to personal use,
thereby undermining repayment performance (Fikirte, 2011).

Loan adequacy is another variable considered in this study. As presented in table 33 it was found
that releasing of adequate loan as per to the borrowers request significantly determines loan
repayment performance at 1% level of significance. Based on this, the null hypotheses “there is a
significant relationship between loan adequacy and loan repayment performance” was failed to
reject. This showed ACSI Debre Markos Branch borrowers who replied the released loan was
not as adequate as they requested were more likely to be defaulters in comparison to borrowers
who replied the released loan was as adequate as they requested. As to Von Pischke (1991)
adequate loan matters loan repayment performance rate. If the amount of loan released is
adequate for the intended purpose, it will have a positive impact on borrowers’ chance to repay,
other it will negatively affect. The finding is pertinent to the study of Roslan and Karim (2009)
and, Zohair (2013) which found releasing adequate loan has a positive impact on loan repayment
performance.

41
 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1. Summary

Many literatures state that there are many factors that affect loan repayment performance of
borrowers. Thus, this study was designed with the purpose to examine the determinants of loan
repayment performance status of ACSI Debre Markos Branch borrowers. Accordingly, the
following research questions were raised in this study. This study were employed both
descriptive and explanatory research design with both qualitative and quantitative research
method. Also simple random sampling technique was used and both descriptive and logit model
were employed in order to analyze the data collected through structured questionnaire from
sampled ACSI leaders.

Regression analysis was conducted by the models, by considering loan repayment performance
as the dependent variable with fifteen explanatory variables that was basically done to get the
best linear combinations of the constructs. Thus, the result of this study indicates that the loan
repayment performance of ACSI were age, training, education level and adequacy of loan found
to positively influence the loan repayment performance at 1% significance level and business
experience, loan size and saving habit found as positively influence the loan repayment
performance of enterprises at 5% significance level. Finally, loan interest rate and family size
negatively influence the loan repayment performances at 1% and 5% significance level
respectively.

5.2. Conclusions

This study employed both the descriptive and logistic regression model in order to analysis the
factors that determine loan repayment performance of ACSI by considering demographic, the
enterprises, the internal and the external related characteristics. This study found pertinent factors
that affect the loan repayment performance of ACSI. The following conclusion is made based up
on the main findings of this study.

42
Age of enterprises leaders was positively and statistically significantly influences loan repayment
performance of ACSI. As the age of leaders increases their loan repayment performance
increased in study area. It is possible to say that through a time age ACSI leaders acquire
experience in business, more responsible for their activities, became settled and accumulate more
wealth than youths.

The education level attained by the institution leaders was statistically significant and had
appositive relationship with loan repayment. In this study the leaders with more education was
more likely to be successful in ACSI sectors .That is the enterprises leaders with higher
education level has greater chances of succeeding than those with less education. The institutions
that are more educated know how to prepare business plan, manage expenses, generate revenue,
save, invest etc. Therefore, institution who attained higher education are repaying their loan
better than those attained lower education.

Business related experience was found that positively and significantly affect loan repayment
performance. This shows that institution managed by experienced managers have higher
probability of success to repay the loan. It has been known that business related experience is
one of the determinants that affect the loan repayment rate of institutions. Having more
experience leads to non-defaulter category of ACSI loan repayment performance status whereas
lack of experience leads to defaulter category of ACSI loan repayment performance status.

Training accessibility was found to determine loan repayment positively and statistically
significant. Access to training for institution refers to the facilitation of different training which
assists the operators of the enterprises to perform in a suitable way. Capacity building trainings
would better prepare enterprises to perform in the business they engaged. Therefore, institutions
that have sufficient access of training are repaid their loan than those less trained. In other way
delivering of well-organized and sufficient training properly to institution, lessen the probability
of being defaulter.

Loan interest rate negatively and statistically significantly influences loan repayment. This study
showed us institutions more repay their loan if the interest rate charge is less. So rising interest
rates can cause loan repayment failure and discourage business to grow in the sense that a big
part of the profit generated goes back to the financial institution to service the loan that once

43
given to the enterprises or borrowers. Generally, if the lender imposes high-interest rate it leads
to default. Or if the lender imposed low interest rate it leads to non-default.
The institution that have savings habit been found to determine loan repayment statistically and
positively relationship with loan repayment performance. Having its own saving cultures enable
the ACSI to run their business properly and effectively. This means ACSI sectors those have
saving habit was found to be repay their loan timely, whereas ACSI sectors those do not having
saving habits fail to repay their loan timely.

In general, the econometric model output shows that, age, training, education level and adequacy
of loan, business experience, loan size and saving habit were significant and positively related to
loan repayment. While family size and interest rate, were significant and have a negative
relationship with loan repayment of borrowers. Therefore, those determinant variables have to be
giving emphasis by ACSI and concerned bodies.

5.3. Recommendations

On the base of the findings/conclusion derived; the following recommendation were forwarded
based on the logit model result, about the determinant of the loan repayment performance of
ACSI sectors.

Since, borrowers who have small number of family in the household perform better in loan
repayment performance and borrowers who have large number of family in the household have
performed less in loan repayment. Therefore, ACSI should provide loan for those borrowers who
have large family sizes with proper supervision and to prepare loan agenda about the
disbursement of loan considering with large family size. ACSI should provide short and long
term awareness creation training with especial attention to clients and also include in strategic
plan continuous supervision, monitoring and evaluation system
The researcher also recommended to ACSI should have clear and effective credit or lending
policies and procedures and must be regularly reviewed. If unreasonable and high- interest rates
charged by lenders it leads to default, so the ACSI should imposed reasonable and competitive
loan interest rates for the borrowers to ensure effective repayment. Borrowers who have business
experience before taking loans were found to be better to repay their loans than those who have
not. And as the length of business experience borrowers have increased, the probability of

44
repaying their loans also increased. From this point of view it is to recommend lender institution
to arrange business experience sharing form between those borrowers who have good business
experience and loan repayment status, and those who have such experience.

The borrowers who save their money in the institution have good repayment performance.
Therefore, ACSI should motivate the saving behavior of the clients by using different incentives
like an increasing interest rate for saving and decreasing from borrowed loans and work more on
promoting their services. Finally, financial institution in general and ACSI in particular should
make awareness to the borrower on how to develop their saving cultures and its importance
through by improving their saving frequency.

5.4. Future Research Implications

The results will have important implications and is believed to be helpful for Debre Markos
Branch in particular and in Ethiopia in general. There is limitation with regard to scope of the
study; the place in which this research has been conducted was ACSI in Debre Markos Branch.
Future researchers employed on this tittle attempt to increase its sample size and expand scope of
the study to make it more realistic and more reliable. This research has only examines nineteen
independent variables that affect loan repayment performance. The researcher suggested that
future researcher consider other factors of loan repayment performance. Finally, due to different
factors the study couldn‘t touch other dimensions of loan repayment performance. Thus, further
research needs to contain more desirable dimensions, in order to gain better insight.

45
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 APPENDIX

DEBRE MARKOS UNIVERSITY

SCHOOL OF POST GRADUATE STUDIES

COLLAGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

I am a post graduate student of Debre Markos University, College of Business and

Economics, Department of Accounting and Finance. As partial requirement of the program, I am
undertaken a research work entitled: Determinants of ACSI Loan Repayment Performance:
A case of Debre Markos Branch. The purpose of this questionnaire is to collect data on the
factors affecting loan repayment performance, of ACSI Debre Markos Branch. So you are kindly
requested to extend your cooperation for the success of this study by genuinely answering all
questions in the questionnaire. I assure you that your individual responses will be kept strictly
confidential.

I would like to thank you in advance for your kind cooperation.

(Put “circle” in the box of your choice.)

Additional information
i. Not disclose your name.
ii. Put “circle” in the box choice that is the most appealing to you.
iii. Write your answers in the box provide is so required.
iv. For open-ended questions, you may use the blank space provided or you may use
additional paper, if the space is not adequate.
v. If you have any question, you can contact the researcher by the following addresses:

Part I: Questions related to Demographic related characteristics

1) Gender of the respondent: 1. Male 2. Female

2) Age: ____________________
3) Martial states: 1. Single 2. Married 3. Divorced 4. Widowed

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4) Educational level___________________
5) Total number of family members (family size): ____________________
6) Location of residence of borrowers 1. Rural 2. Urban
7) How many family members (family size) is/are regular income earners in your family? ____
8) What is the status of your enterprise? 1. Defaulter 2. Non-defaulter
9) Do you keep accounting record? 1. Yes 2. No
10) If yes for No 9, for what purpose? 1. To evaluate profit and loss 2. To loan repayment
purpose 3. Others (specify)_________
11) If no, what is the reason behind? 1. Lack of knowledge 2. Transaction too small to keep a
record 3. Others (specify)_________

Part II: Loan purpose and loan utilization Related question

1) Does the Family size deeply know about the important of Loan? 1. Yes 2. No
2) Did you get the loan at the right time after you requesting? 1. Yes 2. No
3) Did you gain the entire loan on purposes specified in the loan agreement? 1. Yes 2. No
4) Does the amount you received the loan and your intended request is similar? 1. Yes 2. No
5) Does yours institution have the ability to repay the loan? 1. Yes 2. No
6) Does loan repayment schedule given to ACSI is convenient to repay the loan? 1.Yes 2.No
7) Do you think that you are performing the loan repayment as per general loan standards
procedure? 1. Yes 2. No
8) Is timely repay the loan indicate the ability of borrowers? 1. Yes 2. No
9) Do you believe the loan issued timely? 1. Yes 2. No
10) Was the amount of loan you took enough for the purpose intended? 1. Yes 2. No

Part III: Business related questions

1) In which type of sector does your business enterprise operate? 1. Manufacturing 2.

Agriculture 3. Construction 4. Service 5. Trade
2) Does your enterprise have experience in business? 1. Yes 2. No
3) If your answer is yes for question No 2 above, for how many years? _________
4) Do you able to get information related to your business? 1. Yes 2. No

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 5) Do you think that the amount your institution received is similar to your intended request?
1. Yes 2. No
6) Does your enterprise save from income? 1. Yes 2. No
7) If yes for No 5, for what purpose your institution save: 1. To expand business 2. For
personal needs 3. For consumption 4. For emergency 5. For repayment
8) Did you get any training from your lending institution? 1. Yes 2. No
9) If yes question No 7, what kind of training you have taken? 1. Entrepreneurial 2. Marketing
3. Saving culture 4. Loan repayment 5. Other specify________
10) What amount of interest rate charged for loan provided? _______
11) Does loan interest rate charged is reasonable for your institution. 1. Yes 2. No
12) Does loan interest rate charged is reasonable for your institution. 1. Yes 2. No
13) Does the loan repayment period given to your institution is convenient? 1. Yes 2. NO

Part IV: Open ended Questions

1) What do you recommend to the loan officers for further improvement?________________
_________________________________________________________________________
_________________________________________________________________________
_____________________________________________________________________

2) List the factors that influence the loan repayment performance of your institution
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
3) If you face any difficulties and challenges during the repayment process, please discuss the
major challenges you faced both internal as well as external in loan repayment.
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

Thank you for your participation!!!

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