UNIVERSITY OF GONDAR

COLLAGE OF BUSINESS AND ECONOMICS

DEPARTMENT OFACCOUNTING AND FINANCE

RESEARCHE PROPOSAL ON: ASSESMENT OF FACTORS

AFFECTING LOAN REPAYMENT PERFORMANCE OF AMHARA
CREDIT AND SAVING INSTITUTION (IN CASE OF GONDAR CITY
MAIN BRANCH)

PREPARED BY: Name ID/No

1. Gebreslassie Nora …………………. ……………………….05759/10
2. Melkamu Amsal ………………………………………….…05755/10
3. Gizealem Godie …………………………………………….05797/10
4. Kidist Getnet ……………………………………………….05684/10
5. Habtamu Zewudie ………………………………………….05784/10

ADVISOR: ZELALEM A. (MSC)

Jan 5/12/ 2021
Gondar, Ethiopia

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ABSTRACT

Micro finance institutions have a significant role for the development of one’s country economic
development by providing a credit and saving service for those productive clients. Though there
are many factors that can affect the efficiency of the institution like, loan management and
processing system, cash management, and loan repayment performance. The study will be
conducted with the aim of analyzing the factors that influence micro-finance loan repayment
performance, specifically in Amhara credit and saving institution in Gondar city branch using
primary data collection through self-administering questionnaire. The study intends to assess the
factors affecting loan repayment performance of the beneficiaries of ACSI. In order to achieve
this objective, the study will be adopted mixed research approach. Primarily data will be
collected from 15 institution’s employees holding different positions selected through purposive
sampling techniques using a self-administering questionnaire. Moreover, secondary data will be
obtained from the annual financial report of ACSI. For the data analysis, descriptive statistics
including percentage through statistics will use to assess or describe the phenomena or variables
that influencing repayment rate. The findings of the study show that credit term, credit
monitoring, collateralized loan and loan supervision by the institution assign as the causes of
nonperforming loan.

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ACRONYM:
ACSI: -Amhara credit and saving institution
MFI: - Micro-finance institution

CBE: - Commercial bank of Ethiopia

DBE: - Development bank of Ethiop

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Table of contents

ABSTRACT...................................................................................................................................................i
ACRONYM:................................................................................................................................................ii
Table of contents........................................................................................................................................iii
CHAPTER ONE..........................................................................................................................................1
1. INTRODUCTION...................................................................................................................................1
1.1. BACK GROUND OF THE STUDY................................................................................................1
1.2 STATEMENT OF THE PROBLEM.................................................................................................3
1.3 OBJECTIVE OF THE STUDY.........................................................................................................5
1.3.1 GENERAL OBJECTIVE............................................................................................................5
1.3.2 SPESIFIC OBJECTIVE.....................................................................................................................5
1.4 RESEARCH QUESTION..................................................................................................................5
1.5 SIGNIFICANT OF THE STUDY.....................................................................................................5
1.6 SCOPE OR DELIMITATION OF THE STUDY..............................................................................6
CHAPTER TWO.........................................................................................................................................7
2. LITERATURE REVIEW........................................................................................................................7
2.1 Theoretical Literatures.......................................................................................................................7
2.1.1. The concept of microfinance services and its importance..........................................................7
2.1.2. Loan Repayment Performance of borrowers..............................................................................9
2.1.3 FACTORS OF LOAN REPAYMENT PERFORMANCE.......................................................11
2.2. EMPERICAL LITERATURE:.......................................................................................................14
2.2.1. STUDIES OUTSIDE ETHIOPIA............................................................................................14
2.2.2. STUDIES WITH IN ETHIOPIA.............................................................................................15
Conceptual framework......................................................................................................................17
CHAPTER THREE...................................................................................................................................18
RESEARCH METHODOLOGY..............................................................................................................18
3. INTRODUCTION.................................................................................................................................18
3.1 RESEARCH APPROACH..............................................................................................................18
3.2 RESEARCH DESIGN.....................................................................................................................18
3.3 POPULATION SAMPLING...........................................................................................................18

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 3.3.1 TARGET POPULATION.........................................................................................................19
3.3.2 SAMPLING TECHNIQUE:.....................................................................................................19
3.3.3 SAMPLE SIZE:........................................................................................................................20
3.3.4 SOURCE AND METHODS OF DATA COLLECTION:........................................................20
3.4 METHODS OF DATA ANALYSIS...............................................................................................20
3.5. Time schedule and Budget break down..........................................................................................21
3.5.1. Budget break down.................................................................................................................21
3.5.2. Time budget.............................................................................................................................21
References.................................................................................................................................................22

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 CHAPTER ONE

1. INTRODUCTION

1.1. BACK GROUND OF THE STUD

Microfinance is an important strategy to alleviate poverty in developing countries (Fikirte

K. , (2011), ) As Prof. Muhammed Yunus and Grameen Bank phrased, Micro-credit is a means
by which large people can find the ways in which they can break poverty.
The microfinance services are considered as an intervention instruments that Gov-
ernment and Non-government sectors are using to enable low-income groups of
the community to improve their lives through increasing income, increase their
productivity levels, enhance the ability of providing quality inputs to the market,
reducing poverty and ensuring food security (Alemayehu Y., (2008), )

(Abafita, 2003) argued that an innovative target designing and adequate screening
mechanism is a major task of those lending institutes to select the target poor
clients who can sustainably and efficiently utilize the loan for the intended
purpose only.

(Abafita, 2003) were discussed in his study that a limited access to institutionalized
financial service for the poor peoples in Ethiopia enforces the needy society to
borrow from Iddir, Iqub, friends and relatives and other informal lenders to finance
their business. As a result, an initiation to establish the formal financial sources
was in place to serve those poor peoples by discouraging the exorbitant effects of
those lenders. The main objectives of the MFIs as development organizations
were to serve the financial needs of the non-served and underserved poor peoples
who have the ability to work hard and change his/her life style due to the presence
of these financial services.
The microfinance institutions in Ethiopia were established legally under procla-

1
 mations and provide their financial services to farmers and entrepreneurs who are
supposed to be engage in micro and small-scale businesses at urban and rural ar-
eas of the country (Abreham, 2011). As a result, a rapid growth in Microfinance
industry plays an indispensable role in addressing the millennium developmental
goals of the Government through delivering massive financial service schemes to
empower women, youths and other community groups.

In provision of this credits service to those who are in need of the financial services, MFIs
develops the credit provision policies which set the loan size, interest rates and repayment
schedules to be complied by those borrowers. Although microfinance institutions have a
mission of alleviating and or reducing poverty by improving the livelihood of the low-income
groups of the community through credit delivery they may face an obstacle in collecting the
outstanding loan amounts with its interest charges for the time period elapsed according to the
contractual agreements made between the lending institutions and the borrowers on the specific
dates.
Moreover, a rapidly growing in supply of micro-loans, the increasing competition in the micro-
markets, the increasing over- indebtedness among micro entrepreneurs and the current financial
crises increases the credit risks (i.e. the risk of failure of microfinance borrowers). Thus, it is a
crucial issue for the microfinance institutions to assess the problems of loan recovery to
improve the financial sustainability and profitability of their respective institutions by
maintaining a strong credit risk management system (Abdulfettah , 2013). The probability of
being creditworthy of the borrowers can be characterized by the willingness and ability of the
borrowers and the lending characteristics of the institutes. These factors might have significant
impacts on the repayment performance of the respective borrowers. In another word, the
repayment behavior of borrowers can be determined by their attitudes or willingness and ability
to repay the loan, which might be expressed as a choice between the two alternatives: either to
repay or commit defaults. Moreover, the existence of other internal and external factors that can
influence the repayment attitudes of borrowers can significantly affects the repayment recovery
rate of lending institutes at large. On the other hand, in reaching-out with the financial services
to the large number of poor peoples in the areas through delivering these financial services to
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enhance their livelihood and improving their lifestyles, an increasing number of defaulters
probably could have a significant impact on the institution’s social as well as economic
objectives by retaining a large amount of outstanding loans. This could result in difficulties to
the lending institution’s capacity towards poverty eradication strategy as well as realizing their
financial sustainability due to the gradual diminishing loan repayment performances of
borrowers. Hence, the observed situations required the researcher to conduct a descriptive study
on identifying the major possible factors that can affect the repayment performance of ACSI as
the study area to resolve the problem of delinquencies faced by the lending institutions. The
study will be applied on Gondar City main branch. Those factors that have been identified as an
influential to explain repayment performances will be analyzed and discussed using the descriptive
analysis. The marginal effects of those significant variables in influencing the repayment status of
borrowers will be also discussed in the subsequent chapters of the paper.

1.2 STATEMENT OF THE PROBLEM

In alleviating poverty and underemployments, microfinance institutions play an indispensable
role through provision of credit and saving services to the poor peoples who lack financial
services (Fikirte K. , (2011), ). Effective repayment performances of microfinance institutions
are a requirement for being serving the large poor needy borrowers in a sustainable manner
rather than subsidizing through government or donor supports. Although the provision of
financial services to the underserved or non-served poor peoples is the primary objectives of
microfinances, an increasing rate of defaulters with large amount of outstanding loan is still the
challenges of most microfinance institutions that are operating in Ethiopia. According to the
operational reports of some lending microfinance institutions, although slight improvements in
repayment recovery rate from year to year were obtained, still there is a gap which required
researchers to identify the major factors that undermines repayment performance. Although
various studies were found out different factors that determine loan repayment performance
among micro-finance institution’s borrowers give mixed and overlapping results. External
factors such as the economic, political and business environment in which the borrower
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operates are important determinants of loan repayment (Belayneh , 2006). Moreover, in
exploring micro-finance repayment problems in the informal sector (Addisu, 2006) found that
repayment capacity increased with education level. Addisu also found that borrowers who
planned their business activities in advance or who had prior experience were least likely to
default in their loan repayment. (Efram and Ibrahim.. , (2003). ) in their study on determinants
of loan repayment performance in Bahirdar town identifies loan size, age of beneficiaries,
household size, and number of years of formal education and occupation as the key predictors
of loan repayment performances, still identifying the role of credit term on the loan repayment
performances by the lending institutes is the major limitations that most microfinance
managements lacks during their operations.

(Abafita, 2003) argued that efficient characteristics of the lending institutes and other concerned
bodies while screening the target borrowers, effective attitudes of borrowers towards credit
service and socio-economic factor of the borrowers are among the factors that can influence the
repayment performances. Besides, although further study on the level of the relevancy of
collateralized loan on the non- performing loan were not conducted, it is believed that the
purpose of security is to reduce the risk of granting credit by increasing the chances of the
lender recovering the amounts that become due to the borrower.

Moreover, no further studies were conducted by the researchers to evaluate the importance of
credit monitoring activities to influence group members repayment performances. In addition to
this, evaluating the effectiveness of supervision and monitoring time intervals by the MF
practitioners to improve the gaps is another important issue to be assessed by the researcher so
that MFIs can improve their lending strategies to attempt better repayment recovery rate.
Therefore, identifying the institutional factors such as (credit term, supervision, collateral and
credit monitoring) that influences repayment performance is an essential issue of microfinances
in provision sustainable financial services. So, in our study we are going to narrow this gap on
the basis of taking a sample from the institution's employee.

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 1.3 OBJECTIVE OF THE STUDY

1.3.1 GENERAL OBJECTIVE

The general objective of this study is to assess the factors that affect the loan repayment
performance of Amahara credit and saving institution.

1.3.2 SPESIFIC OBJECTIVE

Specifically the research tries to address the following objectives:

 To assess the role of credit term on the loan repayment performance of ACSI.
 To find out the relevancy of collateralized loan on the non- performing loan.
 To investigate the function of loan supervision in the repayment performance of
borrowers.
 To identify the role of credit monitoring on loan default.

1.4 RESEARCH QUESTION

This study tries to address the following question:

1. What is the role of credit term on the loan repayment performance ACIS?
2. Does the organization require the relevancy of collateralized loan on the non-
performing loan?
3. What is the function of loan supervision in the repayment performance of borrowers?
4. What is the role of credit monitoring on loan default?

1.5 SIGNIFICANT OF THE STUDY

As explained earlier, targeting credit to the poor is one of the several instruments of alleviating
poverty. Micro-finance Institutions 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

5
donations or subsidies in the long run. This requires an efficient loan repayment performance as
well as an impact to be observed on the target beneficiaries.

Although some studies have been conducted on the credit schemes that targeted the poor in
Ethiopia, no empirical study has been done on micro financing operation of Amahara credit and
saving institution (ACSI) so far. So, this study will be tries to provide a detailed empirical
analysis on the factors that affect the loan repayment performance of ACSI.

The finding of the study will have some important for the manager of Amahara credit and
saving institution in the assessment of loan granting procedures of the institution, for the
institutions policy maker, for the programmers, for other researchers who want to do on this area,
for governmental purpose, the credit worthiness of borrowers and other interesting parties about
the factors affecting performance of loan repayment in the institution and to suggest possible
solutions for the problem.

1.6 SCOPE OR DELIMITATION OF THE STUDY

Even though, sustainability of MFIs includes financial, economic, and institutional and borrower
viability, this study will focus on only one aspect of it, i.e., borrower viability. Accordingly, the
study focuses on factors affecting loan repayment performance of ACSI (such as collateral, loan
supervision, and credit monitoring and credit term) which is concerned on the borrowers’
viability. Additionally, the sample of this study will be taking from the institution's employee
who is stated as a knowledge gap in the statement of the problem.

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 CHAPTETWO

2. LITERATURE REVIEW

2.1 Theoretical Literatures

The theoretical aspects of the literatures reviewed were focuses on the concepts of microfinance
services from the very beginning to today’s operations in the microfinance industries and the
importance of these microfinance services in poverty eradication and stabilization of high
unemployment rates at global as well as country wide level. Moreover, the concept of factor
affecting repayment performance were also reviewed and presented as follows.

2.1.1. The concept of microfinance services and its importance

The theorist Lysander Spooner was stated that the historical initiation of Micro financing service
was traced back in the middle of 1800‟s. Consequently he wrote the impact of the credit schemes
on the target entrepreneurs and farmers while targeting the poor peoples to get out of the poverty.
Meanwhile, the modern industry of microfinance service has been initiated since 1970 by
Grameen Bank of Bangladish and pioneer Mohammed Yunus. Shore bank was the first
microfinance and community development bank founded 1974 in Chicago. According to Prof.
( Mohammed Yunus and Grameen , 2016) an improvement in the economy and social welfare
could partly realize through delivering micro-credits to the poor people.

(Hor Kimsay , &“Abdulfettah, 2011. [12 October 2016]. (2013), ) reported that microfinance
institutions were established originally as a non-for- profit making financial schemes that had
particularly serves the poor (low-income groups of the society) at rural areas. As it was reported
on this module, through time it was believed by some peoples in Cambodia that serving those
poor peoples as non-profit making institute has its own impact on the financial sustainability of
these MFIs to realize that the services would address a wide range of poor peoples in the country.
As aresult MFIs in the Cambodia has reviewed their credit scheme and tried to marginalize the
services by commercializing their credit schemes at lower interest rates than commercial banks.

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The reason for transforming the MFIs service into commercial is to bring the transparency of the
financial services, increasing the confidence of donors and investors and to ensure that MFIs are
financially sustainable to serve wide range of poor societies which demands financial services.

Moreover, the author stated that the average loan sizes of MFIs were steadily increased from
time to time based on the repayment experience of borrowers. However, through periods an
increase in number of clients served and average loan sizes experiences some defaulted loans
over couple of few years that leads the microfinance practitioners to review their implementation
mechanisms and needs of new credit assessment methodologies that emphasizes on the micro
and small-scale Enterprises (MSE). The assessment was focused on the cash flow assessment of
borrowers rather than the collateral requirements which may fulfill the needs of MSE‟s. An
increase in the average loan size and change of loan approach to MSEs was the result of the
increased capacity of lending larger loan size by MFIs (Hor Kimsay , &“Abdulfettah, 2011. [12
October 2016]. (2013), )

Microfinance institutions in developing countries have a great contribution in reducing poverty.

It has been proved that microfinance service can be viewed as a developmental strategy
implementer that intended to empower poor women entrepreneurs, to initiate their businesses
and providing them awareness on how to manage their assets and its related risks (Abdulfettah ,
2013). Furthermore, the availability of these micro-credits schemes and other financial schemes
increases the number of enabled young poor groups which have been organized in the form of
micro & small-scale enterprises. This in turn will creates agreat employment opportunities for
the poor young societies which have been lacked with financial sources at national level
(Abdulfettah , 2013).

(Alemayehu Y., (2008), ) argued that micro finances are considered as a chance for the poor peoples
to promote self-employment through credit and saving service delivery. Micro finances have
been established to support the low-income groups of societies by enabling them finance their
startup businesses and expansion of their low scaled income generating activities. Moreover,
people living in poverty, like in Ethiopia, need a wide range of financial services for
consumption smoothing, running their business and building assets. But due to collateral
8
requirement problems, poor people in most cases have no credit access from formal financial
institutes (Fikirte K. , (2011), )

The banking requirements of high collateral valued assets or material guarantee and intrinsic
banking procedures are among the most difficult cases that the poor cannot deal with. On the
other hand, the volume of loan demanded by small farmers/poor is not appealing to the bank
being there is an assumption that transactions are costly for small amount (Alemayehu Y.,
(2008), ). Furthermore, some theoretical frameworks also noted that unlike those microfinance
institutions, either government owned or private owned commercial banks are not willing to
serve the poor/low-income group peoples by providing small financial services due to the fact
that their requirements of collaterals. (Yunus, (1994),) .

In contrast, all microfinance institutions are intended to provide financial services in the absence
of any collateral values unlike the formal commercial banks by delivering various microfinance
schemes such as; micro credits, saving mobilization and provision of insurance schemes to the
poor. The major objectives of these microfinance services are to strengthening the economic
bases of the low-income generating activities of the poor peoples who are living in the rural and
urban areas of the country (Fikirte K. , (2011), ).

2.1.2. Loan Repayment Performance of borrowers

According to various researchers, microfinance institutions loan repayment performances can be
influenced by a number of factors identified as borrower’s characteristics and lender’s lending
characteristics. The lending approaches of micro finances can be classified as group-based
approach and individual-based approach. A common characteristic of group lending approach is
that the group obtains the loan under joint liability, where each member in a group is responsible
for repayment of loans of his or her peers. Screening of the viable loan applicants, monitoring the
individual borrower’s efforts and enforcing repayment of their peers‟ loan among the members
are listed as the major characteristics of group-based lending approaches (Abafita, 2003)

Group lending approaches creates better information on borrower’s efforts in settling the loan
obligations and have better monitoring advantages among the members than that of individual

9
borrowers. Members can get important information like reputation, indebtedness and asset
ownership of the loan applicants at a lower cost. They can also easily monitor individual efforts
made towards ensuring repayment. Moreover, group members appeared to be in a better position
to assess the reason for default and inform to the lending institutes for the shocking experience
exercised by the members which seems beyond their control (Abafita, 2003).

Individuals are supposed to select those whom they trust to form a group with; that is, they are
more interested to form group with those whom can make regular repayments and have a good
concern about the possible loss they face in case of non-repayments (Abafita, 2003). In most of
the cases, in group-lending approaches the functions of screening, monitoring and enforcement
of repayments are mainly endorsed to the group members than the lending institutes (Abafita,
2003). Furthermore, in addition to the above benefits from group-based lending approach,
commitment of the borrower to feel indebtedness to the obligation they entered into is an
exemplified character of borrowers for on-time loan repayment performances (Florence &
Daniel , (2014), ).

On the other hand, individual based lending approach is the other approach that loan contract
obligation is endorsed only to the single individual borrower. According to Reikne (Abafita,
2003), individual based lending approach may have better repayment performance than that of
the group lending approach. This is due to the possible existence of fragmented geographical
locations and high market share competitions among the group members which in turn affects
mutual indebtedness’s.

Besides, borrowers‟ characteristic that is the ability to repay the loan on- time can be determined
by: 1) the willingness of borrower to repay the loan, 2) capacity (how much debt a borrower can
handle) and 3) the cumulative capital (Assets) owned by the borrower. Before delivering credit
service, identifying and analyzing the characteristics of the borrowers is an important issue to be
considered by the credit managers to judge whether the borrowers exerts the lowest efforts to
honor the credit obligations (Florence & Daniel , (2014), ).

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Repayment performance of borrowers can be affected due to various factors. An economic
theory suggests that a flexible repayment schedule set by the lending institutes can benefits

Borrowers and potentially enhances their capacity of repaying their debts. On the contrary, MFIs
practitioners believed that high repayment recovery rate can be realized through maintaining the
regular repayment time schedules (Abdulfettah , 2013).

(Florence & Daniel , (2014), ) lack of sufficient monitoring and reporting to ensure whether funds
are utilized for the intended purposes are another possible factor that determines repayment
coverage. Furthermore, the repayment rate improved as borrowers get closer to the loan limit,
which is the maximum available loan. In other words, motivation for reaching the maximum loan
level is positively associated to the repayment performance (Seyedmehrdad, Andrea, Giorgio,
Paolo & Emanuele , 2016).

Majority of the literatures on repayment performance of the borrowers have been focused on the
group-based lending or joint liability lending category of the credit schemes. Most of them have
revealed that a group-based loan is more effective in minimizing the default rate than that of the
individual based loan (Ghatak, 2000). (Mohd Sherif, 2012), borrower‟s inability and
unwillingness to repay the loan amount is considered as causes for high default rates.

2.1.3 FACTORS OF LOAN REPAYMENT PERFORMANCE

Loans constitute as the primary source of income by any micro finance institutions. As any
business establishment the institutions also seeks to maximize its profit. Since loans are more
profitable than any other assets, the institution is willing to lend as much of its funds as possible.
But institutions have to be careful about the safety of such advances. Institutions naturally try to
balance the issue of maximizing profit by lending and at the same time manage risk of loan
default as it would impair profit and thereby the very capital. Thus, the institution needs to be
Cautious in advancing loans as there is a greater risk which follows it in a situation where the
loan is defaulted. Generally, in developing and underdeveloped countries, the reasons for default
have multidimensional aspect. Various researchers have concluded various reasons for loan

11
default. Literature categorizes determinants of loan repayment performance. The following
paragraphs were discussed about determinants of nonperforming loans.
Credit term
The institutions credit term has an effect on the repayment performance. If there is a strong care
made a strong negotiation between the institution and their clients about the credit term the
institution faces a little loan default or non-performing loan. In his study (Abreham,
2004)conducted on the Oromia credit and saving share company evidence that non-performing
loans are determined by a credit term. And also, who studied in other financial sectors like
commercial bank of Ethiopia investigated that credit term is one of the determinants of
nonperforming loan. Besides other studies find out the borrower’s poor knowledge about credit
term as the cause for loan default (studies in commercial bank and other financial institutions of
Indian).

Collateral

It is something valuable which is pledged to the institution by the borrower to support the
borrower’s intention to repay the money advanced. Guaranty is taken to componset to the
institution’s risk at the time of loan default, and is considered as Secondary source of repayment
(MacDonald, K. , . (2003). ). The purpose of security is to reduce the risk of granting credit by
increasing the chances of the lender recovering the amounts that become due to the borrower.
Security increases the availability of credit and improves the terms on which credit is available.
The offer of security influences the lender’s decision whether or not to lend, and it also changes
the terms on which he is prepared to lend, typically by increasing the amount of the loan, by
extending the period for which the loan is granted and by lowering the interest rate. The reasons
why a security is needed by the institution are:

• To assure the borrowers full commitment for their operation.

• To provide as an insurance for the borrower’s default.

• To provide as a protection for the borrower’s deviation from normal course of action.

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Credit Monitoring

Lending decision is made on sound credit risk analysis /appraisal and assessment of
creditworthiness of borrowers. But past records of satisfactory performance and integrity are no
guarantee future, though they serve as useful guide to project trend in performance. Loan granted
on the basis of sound analysis might go bad because of the borrower may not meet obligations
per the terms and conditions of the loan contract. It is for this reason that proper monitoring is
essential. Monitoring deals with the following vital aspects:
• Ensuring compliance with terms and conditions.
• Knowing the final use of approved funds.
• Assessing performance to check continued viability of operations.
• Detecting deviations from terms of decision.
• Making periodic assessment of the health of the loans and advances by nothing some of
the key indicators of performance that might include: profitability, activity level and
management of the unit and ensure that the assets created are effectively utilized for
productive purposes and are well maintained.
• Ensuring recovery of the installments of the principal and interest in case of term loan as
per the scheduled repayment program.
• Identify early warning signals, if any, and initiate remedial measures thereby averting
from possible default.
Loan Supervision
Supervision is the follow up of the institution for the borrower about that they are in the right
way operating their business or other determining operation for the provision of loan. There are
three major types of loan follow up. These are physical follow up, financial follow up and legal
follow up each discussed below.
Physical follow- up:

Physical follow-up helps to ensure existence and operation of the business, status of collateral
properties, correctness of declared financial data, quality of goods, conformity of financial data
with other records (such as taxes, register books), availability of raw materials, labor situation,

13
marketing difficulties observed, undue turnover of key operating personnel, change in
management set up among others.

Financial Follow- up:

Financial follow up is required to verify whether the assumptions on which lending decisions
was taken continues to hold good both in regard to borrowers’ operation and environment, and
whether the end use is according to the purpose for which the loan was given.
Legal Follow- up:
The purpose of legal follow up is to ensure that the legal recourse available to the institution is
kept alive at all times. It consists of obtaining proper documentation and keeping them alive,
registration, proper follow up of insurances. Specific issues pertaining to legal follow up include:
ascertaining whether contracts are properly executed by appropriate persons and documents are
complete in all aspects, obtaining revival letters in time (revival letters refer to renewal letter for
registration of security contracts that have passed the statutory period as laid down by the law),
ensuring loan/mortgage contracts are updated timely and examining the regulatory directives,
laws, third party claims among others.

2.2. EMPERICAL LITERATURE:

Loan repayment performance is affected by a number of socio-economic and institutional
factors. While some of the factors positively influence the loan repayment, the other factors are
negatively affecting the repayment rate. Regarding to the loan repayment performance of
borrowers several studies have been conducted in many countries by different authors. Some of
the studies are mentioned below.

2.2.1. STUDIES OUTSIDE ETHIOPIA

Studies in other countries (Bhatt N. and Tang S. , (2002) ‘) studied the determinants of loan
repayment in microcredit evidence from programs in the United States. Their study showed that
women has low repayment rate because some women entrepreneur in the study might have been
engaged in high risk and low return activities. (Godquin, M., (2004) ) also examined the
microfinance repayment performance in Bangladesh. His result is female borrowers did not
prove to have a significant better repayment performance. The size of loan and the age of the
14
borrower showed the negative impact on the repayment performance. On the contrast, ( Abreham
Gebeyehu ‘, (2002), ) showed in his study male borrowers are the undermining factors for
repayment.

(Zellar, Manfred , (1996), ) analyzed the determinants of repayment performance of credit groups in
Madagascar. His finding is groups with higher level of social cohesion have a better repayment
rate. Moreover, the programs that provide saving service to their members have a significantly
higher repayment rate. (Olagunju F.I. and Adeyemo R. , (2007)) also analyzed the determinants
of repayment decision among small holder farmers in southwestern Nigeria. The result showed
that the number of visits made by loan officers to the borrowers, higher level of education and
time of loan disbursement would have a better repayment performance. Moreover, borrowers
with lower number of household members would meet their repayment obligation better than
those with high number of household members. And having access to business related
information and providing training to the clients are increasing the loan repayment rate of the
borrowers.

As mentioned above, various studies were conducted on the determinants of loan repayment
performance in different countries. Most of these studies were focused on the credit associated
with agricultural activities and they identified the socio-economic factors that affect the loan
repayment rate of rural household. However, in the literature review nothing was indicated about
the factor influencing the loan repayment performance of urban borrowers. Thus, this research
could focus on the borrowers who made various types of business in urban area.

2.2.2. STUDIES WITH IN ETHIOPIA

(Berhanu A, . (2005),) Studied on the determinants of loan repayment performance of smallholder
farmers in North Gondar, Ethiopia. In order to analyze the factors that affect loan repayment, he
employed the probity model. A total of 17 explanatory variables were considered in the
econometric model. Out of these seven variables were found to significantly influence the
repayment performance. These were land holding size of the family, agro-ecology of the area,
total livestock holding, number of years of experience, number of contacts, sources of credit and
income from off-farm activities. The remaining variables (family size, distance between main
15
road and household residence, purpose of borrowing, loan amount and expenditure for social
festivals) were found to have insignificant effect on loan repayment performance of smallholder
farmers.

(Abafita, 2003)Analyzed the microfinance repayment performance of Oromia credit and saving
institution in Kuyu, Ethiopia. According to his finding; sex, loan size and number of dependents
are negatively related to loan repayment. On the other hand, age was found to be positive, while
age squared turned to be negative. Income from activities financed by loan, repayment period
suitability and loan supervision are positively and significantly related to loan repayment
performance. Moreover, loan diversion is significant and negatively related to loan repayment
rate. The negative sign implies that the use of diverted funds for non-income generating
purposes.

(Assefa B.A, . (2002) ) Employed alogit model to estimate the effects of hypothesized explanatory
variables on the repayment performance of rural women credit beneficiaries in Dire Dewa,
Ethiopia. Out of the twelve variables hypothesized to influence the loan repayment performance
of borrowers, six variables were found to be statistically significant. Some of these variables are
farm size, annual farm revenue, celebration of social ceremonies, loan diversion, group effect
and location of borrowers from lending institution. ( Abreham Gebeyehu ‘, (2002), ) Studied on
the loan repayment and its determinants in small-scale enterprise financing in Ethiopia around
Zeway area. The estimation result employingTobit model. He is found out other sources of
income, education, and work experience related economic activities before the loan are
enhancing loan repayment. While extended loan repayment period is influence the repayment
performance negatively. ( Reta, 2002) Employed probity model for loan repayment performance
of women fuel wood carriers in Addis Ababa. His finding is frequency of loan, suitability of
repayment period and other income sources are found to encourage repayment hence reduce the
probability of loan default. While educational level is negatively related to loan repayment.

16
Conceptual framework
The conceptual model for the study is to identifying and analyzing factors that can influence the
loan repayment performance of MFIs in Gondar city. In the literatures reviewed, various
empirical studies were focused on the probable factors that can determine repayment
performances. To carry on the empirical studies to investigate the probability of variables that
can affect repayment performance of borrowers, the study mainly focused on identifying and
assessing institutional characteristics(factors).

Figure-1: Conceptual Framework

(Independent variable) (Dependent variable)

Institutional characteristics Loan repayment status

 Credit term  Fully repaid

 Collateral  Progressively repaid
 Credit monitoring  Past due
 Loan supervision  Defaulted

(Sources: Adopted by the researcher)

17
 CHAPTER THREE

RESEARCH METHODOLOGY

3. INTRODUCTION
In chapter two the related literature of the study was observed. In this chapter we are going to see
research methodology. It comprises different sections; 3.1 research approach, 3.2 research
design, 3.3 population sampling and respondents of the study and 3.4 presents’ methods of data
analysis.

3.1 RESEARCH APPROACH

For this study the researchers used both qualitative and quantitative or mixed research approach.
Qualitative research involves studies that do not attempt to quantify their results through
statistical summary. So, it is appropriate to use qualitative approaches in ordered to obtain an
understanding about the institutions specific factors that would determine the occurrence of
nonperforming loan and quantitative research is the systematic and scientific investigation of
quantitative relationships between the repayment performance and those the factors to repayment
will be summarized quantitatively.

3.2 RESEARCH DESIGN

The research design is needed to provide relevance information that would be most effectively
and efficiently the research questions as can be seen in the research questions (Hair et al., 2007)
and objective of the study. As a result, the most appropriate research design in this study is the
descriptive method. The essentials of the descriptive research design are: to address questions
that have been raised, to solve problems that have been observed, to identify whether the specific
objectives have been met or not.

18
3.3 POPULATION SAMPLING
In this part the target population, sampling technique and sample size of the study would be
discussed.

3.3.1 TARGET POPULATION

According to (Joseph, G. & Mertez, F, 2003) population is a group of items that a sample had
been taken from. A sample, on the other hand, refers to a set of individuals or groups selected
from an identified population with the intent of representing the findings to the entire population.
A sample was selected as a result of constraints that make it difficult to cover the entire research
population. The target population of this research is the whole employees of Amhara credit and
saving institution in Gondar City main branch.

Figure-2: total population of the study

NO. Institutions Number of employees

Male Female

1 ACSI 18 10

2 Total 28

Source: human resource management report of ACSI

3.3.2 SAMPLING TECHNIQUE:

The data will be collected from different employees of the target population of the study i.e., the
management department of the institution, loan approval section (account officer & loan officer,
auditor and service department. The study will be used purposive/judgmental sampling to select
the respondents of the study.

19
Purposive sampling

According to the institutions human resource management report the employees were employed
in to different position based on their activities such as management department (credit manager,
human resource manager, financial manager), service department, loan approval section (loan
officer or account officer), and auditing department. Apurposive sampling will be then used to
select representatives from each department and we will use sampling technique of
purposive/judgmental sampling technique to select all employees in credit management
department. Because the employees in credit management department are daily involved in
credit processing and we believe that they have better information about loan.

3.3.3 SAMPLE SIZE:

To investigate the points raised by this research it is important to select a representative sample.
The determination of sample size is influenced by many factors that need to be taken into
account. These factors include the cost and time constraints, variability of elements in the target
population, the current situation (COVID 19) and others. In this study the sample size includes
the whole employees of in credit department total 4 employees, 1 auditor, and 1 institution’s
managers, and 9 employees from other department such as loan approval section (account officer
or loan officer), management department, and other service department.

3.3.4 SOURCE AND METHODS OF DATA COLLECTION:

This study will be used both primary and secondary data sources. The questionnaire will be both
open-ended and close-ended type which is administered to the sample respondents of the study
area.

3.4 METHODS OF DATA ANALYSIS

The method of data analysis depends on three main issues. These are knowledge of the
researcher, objective of the study and measurement of the data. Accordingly, this study will be
used both qualitative and quantitative methods of data analysis. In this study quantitative data
utilizes the descriptive statistics, and percentages. Tables will be used to present the data, and

20
also qualitative data will be used to analyze through simple qualitative description about loan and
its determinants for the repayment performance of the institution.

3.5. Time schedule and Budget break down

3.5.1. Budget break down

Number Item Unit Cost per unit Total
required cost
1 PEN 4 10 40
2 PAPER 200 1 200.00
3 PRINT 100 1.5 150.00
4 TRANSPORTATION 6 25 150.00
COST
5 TELEPHONE CARD 10 10.00 100.00
6 FLASH 8GB 200 200.00
TOTAL 840.00

3.5.2. Time budget

Number Activity to be conduct Due time

1 Title Selection November
2 Data Collection March
3 Data processing and analyzing March
4 Proposal writing March
5 Proposal submission March
6 Presentation of the research June

21
CHAPTER FOUR
4.DATA PRESENTATION AND ANALYSIS

In the previous chapter the research methodology containing sub topics such as research
approach, research design, population and sampling technique and methods of data collection
and analysis used in the study has been presented. In this chapter the results and analysis of the
data collected through a questionnaire is present. Respondent profile with regard to their work
place, position, experience in the institution and experience in the institution lending system
were presented at the end of the paper (in appendix).

4.1 SAMPLING RESULTS

The questionnaire was distributed for the whole credit department employees (including the
management department, loan approval section i.e., loan officer or account officer, auditor, and
other service department employees in Amhara credit and saving institutions in Gondar City
main branch. The questionnaires that were physically distributed are 15 for the institutions
employees whose position are related with loan and related department. Out of the whole 15
distributed questionnaires all are completely collected. Therefore, the response rate is 100%.

Table 4.1: sample response rate

Total Sample size 15

Completed and collected questionnaires 15

Response rate 100%

Source: questionaries’ outcome of 2020

22
 Table 4.2 the role of collateralized on non-performing loan
Strongly agree Agree (%) Neutral (%) Disagree Strongly disagree
(%) (%) (%)

Collateralized loans 40 53.33 - 6.66 -

perform well in the in-
stitution

Collateralizing loans 53.33 33.33 6.66 6.66 -

help to protect loan
default

Most of the time 26.66 53.33 - 6.66 13.33

non collateralized

loans are defaulted

Source: questionnaire outcome of 2020

Collateral (also known as warranty) is the asset that borrowers pledged for the institution to
compensate the institution’s risk in the time of loan default (Sinkey, 2002), and it is considered
as a secondary source of repayment (MacDonald, 2003).

In the table 4.2 above we have observed that 53.33% of respondents were agreed that
collateralized loan is performed well in the institution. As a result, this study has got knowledge
that institutions are not granting loan without any collateral. Besides 40% of the respondents are
strongly agreed that collateralized loan is performed well in the institution and only 6.66% of the
23
 population disagrees on that. The sampling result of this study shows 53.33% of the respondents
are strongly agreed that collateralized loan is help to protect loan from default. As a result, the
study reaches on an understanding that since the properties of the borrower’s such as home,
automobile and other furniture are behind them as collateral and become sold if they default to
repay the loan and have no any other way to repay the lender, they repay the loan with
compliance to the agreement. So collateral (warranty) is used to reduce the risk of granting a
loan by increasing the chance of the creditor recovering the amounts that become due to the
borrower. Moreover, 33.33%, 6.66% and 6.66% of the respondents are agree, neutral and
disagree respectively that collateralized loan helps to protect loan default and 53.33% of the
respondents are agree non collateralized loans are defaulted.

Table 4.3 Factors indicating credit monitoring on loan default

Strongly agree Agree (%) Neutral (%) Disagree (%) Strongly

(%) disagree (%

Strict monitoring ensures 51.4 40 5.7 2.9 -

loan performance

Loan follow up is directly 31.4 48.6 5.7 5.7 8.6

related to occurrence of
nonperforming loans

Institutions with higher 57.1 34.3 2.9 5.7 -

effort for loan monitoring
have lower non-perform-
ing loans

Source: questionnaire outcome of 2020

Based on the result of our sample in table 4.3, 51.4% of respondents are strongly agree that strict
monitoring is believable to ensure the institutions loan performance. In other ways the

24
 respondents that agreed, neutral and disagreed that strict monitoring is believable to ensure the
institutions loan performance are 40%, 5.7% and 2.9% respectively.

From this the study has got a knowledge that if the institution monitors their borrower’s property
and give an attention for the borrower what are they have been doing by the money they borrow
from the institution and giving an announcements about the system how to utilize the money
they borrowed and give warning sign if they use the money for unintended purpose since the
borrowers are on the good performance to repay their loan.

The institutions have many possible alternatives to monitor the borrowers. Amongst this one of
the best methods is visiting to understand the progress of the borrower’s business operation and
giving an advice as necessarily important, and 48.6% the respondents agree that loan follow up is
also is a relevant factor for the occurrence of nonperforming loan. Moreover, 57.1% of the
respondents of the institution strongly agreed that though credit monitoring needs a higher effort
to ensure the repayment performance of loan. And also 34.3%, 2.9% and 5.7% of the
respondents are agreed, neutral and disagreed that credit monitoring needs a higher effort of the
institution to ensure loan repayment performance. From this the study gets knowledge that
effective monitoring of the borrower by the institution got a better repayment performance.

Table 4.4 the relevant of credit term on loan repayment performance

Strongly Agree (%) Neutral Disagree (%) Strongly
agree (%) (%) Disagree (%)

Credit term is significant to

determine loan repayment
performance in the institution. 54.3 34.3 2.9 8.6 -

With growth in credit term comes 51.4 11.4 11.4 17.1 8.6
growth on loan default.

Borrowers default because they don’t 11.4 17.1 22.1 34.3 14.3
understand credit terms well.

25
Poorly negotiated credit terms lead to 51.4 25.7 8.6 5.7 8.6
loan non performance

Source: questionnaire result of 2020

In financial institutions credit term has a significant effect for the occurrence of nonperforming
loan (Abreham, 2002). In the table 4.4 above our sampling result indicates 54.3% of the
respondents are strongly agreed that credit term is significant to determine loan repayment
performance in the institution. And 51.4% of the respondents are strongly agreed that when the
credit term becomes growth the chance of loan default is highly increased. As a result, the study
got knowledge that credit term is one of the main determinants for the repayment performance of
the institution’s loan, and the credit term grows the chance of loan default becomes increase. On
the other hand, 11.4%, 11.4% 17.1% and8.6% of the respondents are agreed, neutral, disagreed
and strongly disagreed respectively that with the growth of credit term the chance of loan default
becomes increased. Besides, most of the respondents i.e. 34.3% are disagreed that borrowers
default to repay the loan is not related with the misunderstanding of credit term (this is in
different with the studies of Indian commercial banks and other financial institutions). This
entails that borrowers are clearly understand the credit term. Therefore, the Indian researchers
are better to see again about the client’s knowledge about credit term. On the assumption, poorly
negotiated credit term leads to loan nonperformance about 51.4% of the respondents are strongly
agreed. Accordingly, if the lenders have a good deal about the credit term for the borrowers, the
borrowers are in a better position to pay the debt.

26
 Table 4.5 the significance of loan supervision on repayment
performance
Strongly Agree Neutral (%) Disagree (&) Strongly
agree (%) (%) disagree (%)

The institution supervises the 31.4 57.1 5.7 5.7 -

borrowers after loan granting

The institution supervises the 25.7 40 8.6 20 5.7

borrowers before granting loan

Loan supervision is relevant for the 71.4 28.6 - - -

repayment performance

A borrower without loan 54.3 22.9 17.1 5.7 -

supervision become defaulted for
repayment

Institutions with high supervision 51.4 28.6 11.4 8.6 -

faces little nonperforming loan

Source: questionnaire result of 2020

Loan supervision is the follow up of the institution about for what purpose and how the
borrowers are used the money they lend from the institution for the best utilization of money
provided as a loan.

From the tale 4.5 above it is observed that 57.1% of the respondents are agreed that the
institution is supervise the borrowers when the loan is going to granting. From this sampling
result the study got knowledge that the institution has supervision policy to grant a loan for the
creditworthy borrowers. In other ways, 31.4%, 5.7% and 5.7% of the respondents are strongly
agreed, neutral and disagreed respectively that the institution supervises the borrowers to grant a
loan. Moreover, 54.3% of the respondents are strongly agreed that a borrowers without any
supervision becomes defaulted for repayment and 51.4% of the respondents also strongly agreed

27
that the institutions with higher loan supervision faces a little non-performing loan. As a result,
the knowledge that the study got from this sample result is if the institution provides a great
supervision for the borrowers when they decide to grant loan they have a better performance for
the repayment of loan wisely.

Difficulties that face during the repayment period

As the respondents tell there are different challenges that face during the period of repayment.
Those are borrowers used the loan they get from the institution for unintended purposes such as
ceremony, wedding clothing and others. Due to this they cannot be profitable rather than being
the owner of much accrued debts and they cannot pay the loan properly based on the agreement.
And other difficulties that face during the repayment period are

 Unwillingness of borrowers to pay their loan.

 Due to little knowledge of borrowers about the amount interest paid they are not
good to repay the principal with its interest.
 They have bad feelings with the institutions during the due date of the loan.
 Using the loan for unintended purpose
 Loss of the business
 Problem of market
 Dissolution of the borrower when taking loan in group
 Generally, borrowers are not good to repay their loan timely.
Incentives made by the institution for those who are creditworthy borrowers

Respondents say different things about the incentives made by their institutions for those
creditworthy borrowers. Some of these are:

 Getting a trust by the institution.

 Granting a loan as the amount they want.
 Get a loan at any time they want.
 Provide a loan by grouping collateral and also without any collateral.
 Appreciating them by different awards and so on.
 2 percent discount on the loan
 Advise
 Inform when new agenda and colander
To sum up, all the respondents says about the institution’s loan system it is a good oriented to
make the productive borrowers being achievable and self-reliant. It is also backed by collateral
for the warranty of institution’s risk due to the borrower’s default to repay their loan. The
28
respondents also say that the institution is the cornerstone for the development of the country’s
economy by providing a loan service for any intelligent and productive borrowers

CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1 CONCLUSION
The general objective of this research is identifying the factors that affect loan repayment
performance mostly related with credit. A number of specific research questions are developed
based up on the general objective of the research. In order to accomplish this general objective
the research used mixed approach. Mostly it uses a self-administered questionnaire for the
purpose of obtain a primary data from the targeted respondents. According to the respondents
view the result of the study showed that there are most likely occurrence of effects that affect
loan repayment performance of Amhara credit and saving institution in Gondar town branch. It is
presented below.

 This study finds out collateral is one among the main requirements for assuring the lend-
ing institution’s repayment performance of loan provided for the clients. Due to this most
of the time financial institutions did not grant a loan without any collateral. When the in-
stitution has done so it is helpful to ensure the borrowers full commitment, provide as a
security if the borrowers are defaulted for repayment, protect the borrower’s deviation
from performing the planned action at the time of credit extension. Since bounding the
borrower with high valuable collateral make a feeling for them not to lose the property
due to defaulting to repay their loan. Therefore, borrowers become in a good position to
repay the debt.
 The institution made a strong negotiation with the borrowers about the credit term since it
is one of the possible determinants for the repayment performance of loan. But the bor-
rower’s knowledge about the credit term is not the cause for loan default. So as the credit
term becomes long it is not the borrower’s poor knowledge about credit term rather it is
29
 the negligence of the borrowers so, the institution is cautious when there is a growth of
credit term since it approaches to loan default.
 In addition, the institution made a strict monitoring to ensure loan performance. The insti-
tution monitors the borrower’s property and gives an attention what the borrowers have
been made by the money they lend from the institution. The institutions have many possi-
ble alternatives to monitor the borrowers. Among this one of the best methods is visiting
to understand the progress of the borrower’s business operation and giving an advice as
necessarily important, and encouraging the repayment performance.
 Besides, the institution made loan supervision about for what purpose the borrowers need
a loan, how they are going to use the loan and also their productiveness of using a loan.
Such supervisions are a key factor for the client’s better productivity and the assurance of
repayment performance of the institution since the borrower’s achievement is also great
for little occurrence of nonperforming loan in the institution.
 Finally, the study investigates that even if there are some difficulties faced at the time of
loan repayment with the borrowers there is also an interesting condition with those credit
worthy borrowers who are really productive and achievable and the institution have an
incentive mechanism for such borrowers. Among the incentives some of them are pro-
vide a loan without collateral, granting a loan as the amount they want and at any time
they want, giving different awards, getting a trust by the institution and so on.

5.2 RECOMMENDATION
Based on the above the research findings and conclusion the following recommendation are
suggested.

 The institution should make an assessment on the loan’s normality periodically so as to

know the indicators of loan performance including profitability, management’s level of
activity and this ensures the assets which are utilized effectively and for productive pur-
pose.
 Collateral is decisive for the decision of lenders whether to provide a loan or not the insti-
tution is better to continue giving more attention on the property (like house, automobile

30
 etc.) of borrowers taking it as a collateral since it is used to assure the borrowers commit-
ment to pay the debt.
 The institution is also advised to strengthen their attention on monitoring the borrowers
attentively as they have done before to make them productive by assessing the businesses
intended to operate by the loan which is provided.
 In making the negotiation about the credit term the institution should not be shallow
rather it is expected to be strong. Because poorly negotiated credit term leads to the
growth of credit term even if the borrowers have knowledge about the credit term which
is the indicator of loan default as investigated in the analysis of the research.
 Loan supervision is having a key role for the performance of the institution. This because
if the institution supervises the borrower it is easy to know what the borrower intends to
operate, and give an advice how to utilize the money they borrowed. By doing so since
the credit is invested on the outlined purpose the borrowers become achievable and there
will not be nonperforming. As a result, the institution is ought to strengthen their supervi-
sion system than what they have been made before at the time of deciding to provide a
loan for the borrowers.
Recommendation for Further Researchers:

As it had tried to mention in the scope and delimitation of the study in chapter one, this research
has its own strength and limitation in terms of its scope and methodology used. Therefore, we are
recommended that: -

 There are different kinds of factors that affect loan repayment performance such as socio-
economic factors, loan related factors and institutional factors. However, this study is
mainly focused on institutional factors only

 The sample respondents of the study are taken from the employees of the institution. This
due to provide as a knowledge gap expressed in the statement of the problem.

31
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34
 UNIVERSITY OF GONDAR

COLLEGE OF BUSINESS & ECONOMICS

DEPARTEMENT OF ACCOUNTING AND FINANCE

APPENDIXE – 1
Personal profile of respondents

Genders distribution of respondents

Sex frequency Percentage

Male 10 66.66%

Female 5 33.33%

Total 15 100.00%

Position of respondents

Job position frequency Percentage

Credit manager 2 13.33%

Loan officer 2 13.33%

Auditor 1 6.66%

Institution’s manager 1 6.66%

35
 Service department 6 40%

Finance officer 2 13.33

Cashier 1 6.66

Total 15 100.00%

Educational level of respondents

Education level frequency percentage

Certificate ---- ----

Diploma 7 46.66%

Degree 8 53.33%

Master - -

Total 15 100.00%

Age level of respondents

Age level Frequency Percentage

18-30 9 60%

30-40 5 33.33%

40-50 1 6.66%

Above 50 --- ---

Total 15 100.00%

36
Years of experience in the institution

Years of experience Frequency Percentage

Less than 1 year 4 26.66%

2-5 years 7 46.66%

5-10 years 4 26.66%

Above 10 years ---- ----

Total 15 100.00%

Years of experience in credit process

Years of experience Frequency percentage

Less than 1 year 6 40%

2-5 years 6 40%

5-10 years 3 20%

Above 10 years ---- ----

Total 15 100.00%

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 APPENDIX 2

UNIVERSITY OF GONDAR
COLLEGE OF BUSINESS & ECONOMICS
DEPARTEMENT OF ACCOUNTING AND FINANCE

QUESTIONNAIRE
Dear Respondent:
The purpose of this study is to asses and find out factors affecting non-performing loans in
Amhara credit and saving institution in Gondar town branch. To this end the study intends to
gather a relevant information from selected respondents i.e., employees of the institution in
different departments through a self-administered questionnaire. The participation is fully
voluntary and responses will be confidential. We would appreciate your favorable consideration
in completing the enclosed questionnaire.

Part -1 personal information

Circle the appropriate choice
1. Sex A. Male B. female
2. Age A. 18-30 B. 31-40
C. 40-50 D. Above 50

3. Educational level status A. Certificate C. Degree

B. Diploma D. Above degree

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 4. Years of experience in the institution
A. Less than 1 years C. 5-10 years
B. Above 2-5 years D. Above 10 years
5. Years of experience in credit
A. Less than 1 years C. 5-10 years
B. 2-5 years D. Above 10 years
6. Your position in the institution

A. Credit manager
B. Loan officer
C. Auditor
D. service

Part-2 Questions on the factors affecting loan repayment performance

Put your mark as x on your appropriate choice

Please indicate your degree of agreement or disagreement to the statements pertaining to

Collateral and the repayment performance
Agree Strongly Neutral Disagree Strongly
agree Disagree

1 A) Collateralized loans perform well in

the institution
B) Collateralizing loans help to protect
loan default
C) Most of the time non collateralized
loans are defaulted

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2.A) Strict monitoring ensures loan per-
formance

B) Loan follow up is directly related to

occurrence of nonperforming loans

C) Institutions with higher effort for loan

monitoring have lower non-performing
loans

Please indicate your degree of agreement or disagreement to the statements pertaining to

credit term and repayment performance
Agree Strongly Neutral Disagree Strongly Dis-
agree agree

1 A) Credit term is significant

to determine loan repayment
performance in the institution.
B) With growth in credit term
comes growth on loan default
C) Borrowers default because
they don’t understand credit
terms well.
D) Poorly negotiated credit
terms lead to loan non perfor-
mance

Please indicate your degree of agreement or disagreement on loan supervision and the
loans default rate.
Agree Strongly Neutral Disagree Strongly Dis-
agree agree

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1 A) The institution super-
vises the borrowers after loan
granting.
B) The institution supervises
the borrower before loan
granting
C) Loan supervision has a rel-
evant for the repayment per-
formance
D) A borrower without super-
vision becomes defaulted for
repayment.

Part -3 general questions

21, please try to mention the difficulties that faces you during the time of loan repayments
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22, what incentives is advantages are provided by the institution makes for those who are credit
worthy borrowers in order to motivate them and also others?

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23, what is your comment about the institutions loan system?

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THANK YOU FOR YOUR PARTICIPATION!!!

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