Analysis of Determinants of Loan Repayment

Performance:
The Case of Sinqee Bank:

HARAMBEE UNIVERSITY
ADAMA CAMPUS
DEPARTMENT OF ACCOUNTING AND FINANCE
MSC PROGRAM

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE

DEGREE OF
MASTER IN ACCOUNTING AND FINANCE

BY: TAREQEGN TESHALE

JANUARY, 2023
ADAMA, ETHIOPIA
Analysis of Determinants of Loan Repayment
Performance:
The Case of Sinqee Bank

A Thesis Proposal Submitted to Department of Accounting and Finance in

Partial Fulfillment of the Requirements for the Award of Master Degree in
Accounting and Finance (MSC)

By:
Tarekegn Teshale
ADVISOR: Abdi Dhufera (Ph.D)

HARAMBEE UNIVERSITY

FACULTY OF BUSINESS AND SOCIAL SCIENCES

DEPARTMENT OF ACCOUNTING AND FINANCE

GRATUATE PROGRAM

JANUARY, 2023
ADAMA, ETHIOPIA
 Table of Contents
Contents Page
1. INTRODUCTION....................................................................................................................1
1.1. Background of the Study...................................................................................................1
1.2. Statement of The Problem.................................................................................................3
1.3. Research Questions...........................................................................................................5
1.4. Objectives Of The Study...................................................................................................6
1.4.1. General Objective......................................................................................................6
1.4.2. Specific Objectives....................................................................................................6
1.5. Scope Of The Study..........................................................................................................6
1.6. Significance of the Study..................................................................................................6
1.7. Organization of the study..................................................................................................7
2. REVIEW OF RELATED LITERATURE...............................................................................8
2.1. Theoretical Review Of Related Literature............................................................................8
2.1.1. Concept and Definition of Loan....................................................................................8
2.1.2. Loan Default..................................................................................................................9
2.1.3. Theories of Loan Default..............................................................................................9
2.1.3.1. Modern Portfolio Theory.......................................................................................9
2.1.3.2. Asymmetric Information Theory.........................................................................12
2.1.3.3. Transactions Cost Theory....................................................................................13
2.1.3.4. Credit Risk Theory...............................................................................................14
2.1.3.5. Risk Management Theory....................................................................................15
2.1.3.6. The 5C’s Client Appraisal Model........................................................................15
2.1.4. Determinants of Loan Repayment Performance.........................................................16
2.1.4.1. Credit Standards...................................................................................................16
2.1.4.2. Loan Terms and Conditions Policy......................................................................19
2.1.4.3. Lending Policy and Procedures............................................................................21
2.1.4.4. Loan Collection Policy and Procedures...............................................................23
2.1.4.5. Loan Default Management Policy.......................................................................26
2.2. Empirical Literature Reviews.............................................................................................27
2.2.1. Global Studies Related to Determinants of Loan Repayment Performance...............28

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 2.2.2. Local Empirical Studies in Ethiopian Context............................................................30
2.3. Conceptual Framework of the Proposed Study..................................................................33
3. RESEARCH DESIGN AND METHODOLOGY..................................................................34
3.1. Research Approach.........................................................................................................34
3.2. Research Design..............................................................................................................34
3.3. Data Type and Source.....................................................................................................34
3.4. Research Methodology...................................................................................................34
3.4.1. Target Population.....................................................................................................34
3.4.2. Sampling Technique................................................................................................35
3.4.3. Sampling Size Determination..................................................................................35
3.5. Data Collection Instruments............................................................................................37
3.6. Data Collection Procedure..............................................................................................37
3.7. Method of Data Analysis................................................................................................37
3.8. Data Quality Assurance..................................................................................................38
3.8.1. Test of Validity........................................................................................................38
3.8.2. Test of Reliability....................................................................................................38
3.9. Ethical Considerations....................................................................................................38
4. Time and Budget Schedule.....................................................................................................39
4.1. Time Schedule.................................................................................................................39
4.2. Budget Schedule.............................................................................................................39
4.2.1. Transport Expense...................................................................................................39
4.2.2. Miscellaneous Expense............................................................................................39
4.2.3. Budget Summary.....................................................................................................39
Reference.......................................................................................................................................40

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 1. INTRODUCTION

1.1. Background of the Study

Financial system stability is one of the key fundamentals upon which economic growth is built.
The traditional role of a bank is lending and loans make up the bulk of banks’ assets (Njanike,
2009). However, lending is not an easy task for banks because it creates a big problem which is
called non-performing loans (Chhimpa, 2002) as cited in Upal (2009). According to Alton and
Hazen (2001), non-performing loans are those loans which are ninety days or more past due on
their payment or no longer accruing interest. Due to the nature of their business, Banks expose
themselves to the risks of default from borrowers (Waweru and Kalami, 2009). While issuing
loans, banks ought to exercise caution in order to avoid cases of default by their potential
customers. Several cases of default in a financial institution(s) can easily lead to a collapse in the
entire banking system.

Credit risk assessment and lending decisions made in the past by lenders put a lot of emphasis on
security than other similar important considerations (Santomero, 1997). There are examples in
the past when it was easier to get a loan from a financial institution as long as the borrower had
security to be charged rather than the ability to service the loan. Cash flow projections, viability
of the project, character of the borrower, previous loans completion and ability to repay were not
considered as important. This way a number of lending institutions ended up with many loan
defaults due to incomplete, poor and unprofessional credit risk assessment and valuation
particularly using all the 5C’s of credit appraisal model that is: capacity, credibility, capital,
collateral and character. Effective loan portfolio management begins with oversight of the risk in
individual loans (Sundarajan, 2007). Prudent risk selection is vital to maintaining favorable loan
quality. Therefore, the historical emphasis on controlling the quality of individual loan approvals
and managing the performance of loans continues to be essential.

It seems appropriate for any discussion of risk management procedures to begin with why these
firms manage risk. According to standard economic theory, managers of value maximizing firms
ought to maximize expected profit without regard to the variability around its expected value.
However, there is now a growing literature on the reasons for active risk management including
the work of (Sundarajan, 2007) and (Fallon, 1996) to name but a few of the more notable
contributions. A review of risk management reported by (Strutt, 2000) contributions to the area

1
of credit assessment and at least four distinct rationales offered for active risk management.
These include managerial self-interest, the non-linearity of the tax structure, the costs of financial
distress and the existence of capital market imperfections. Any one of these justifies the firms'
concern over return variability, as the above-cited authors demonstrate.

Exploring the determinant factors of ex post credit risk is an issue of substantial importance for
regulatory authorities concerned on financial stability and banks management. The ex post credit
risk takes the form of non-performing loans (NPLs). Credit risk is dependent on the quality of
assets, and is reflected through the volume of NPLs. Louzis, et al. (2012) have focused their
study on the effect of bank-specific characteristics such as the quality of management, policy
choices, and size and market power on problem loans. A case in point attributed to institutional
factors was evidenced in Greece, where the country’s financial sector took a downturn in the
financial crunch of 2007. This was due to inefficient management of advancing loans without
regard to credibility of borrowers and compromising regulations.

Masood, Bellalah & Mansour (2010) state that most developing economies that undergo the
process of financial liberalization have banking systems that are burdened by a large proportion
of bad loans and risky credits. The most common cause of bad loans is directed lending to
preferred individuals or favored sectors of the economy. These loans have created several
problems for financial sectors and have seriously hindered the growth of developing economies
especially in the Pakistani and Turkey financial systems. Loan default in West Africa has also
been documented by Edet (2008). In the East African region, a study on microfinance loans
default in Kenya revealed that most of the small loans were defaulted due to non-supervision of
the borrowers from MFIs, inadequate training of borrowers before they receive loans, and
spending of received loans by borrowers in projects other than agreed ones (Bichanga, 2013).

According to Derge (2010) who states that, though the credit operations of Development Bank
Ethiopia show a dramatic increase in loan approval and disbursements, there are non-performing
loans which resulted from clients’ default, which in turn come about from lack of follow-up,
market problems, environmental problems, credit policy of the Bank, and so forth. This raises a
question on how Sinqee Bank can improve the repayment performance of its borrowers.
Therefore the motivation behind the proposed study is to know the factors that determine the

2
performance of loans in Sinqee banks establishing how institutional factors credit management
policies affect the performance of loans disbursed.

1.2. Statement of The Problem

Controlling non-performance of loans is very critical for both the performance of an individual
bank and the economy’s financial environment. Credit management is the combination of
coordinated tasks and activities for controlling and directing challenges confronted by an
organization through the incorporation of key risk management tactics and processes in relation
to the organization’s objectives (Nikolaidou & Vogiazas, 2014). Churchill (1999) indicates that
bank staffs do not only work in a specific community but also form part of that specific
community and thus often find themselves in situations where they are related to the client or
know the client very well. These pose a definite threat to the bank if the staffs are not absolutely
objective and can easily be manipulated into fraudulent acts. It is not only clients who commit
fraud; dishonest staff may grant credit to themselves under a false name or make bad decisions
deliberately to help somebody else.

Loan performance is not only considered as a largest asset as well as pre-dominate source to
generate revenue but one of the biggest risk source for the financial institution’s soundness and
safety as well (Richard et al., 2008). Despite of the efforts made by the financial institutions, in
recent years, a number of problems increased significantly in both, emerging as well as matured
economies of the world (Basel, 2004). Most important of all the risks associated to financial
institutions is weak credit management, being a threat for the banking sector (Chijoriga, 2011).
Well formulated loan policy is beneficial for institutional performance. Hence it helps
organizations to follow the same for risk management as well as fulfilling regulatory
requirements. Loan review is a part of policy and is crucial, helping management in problem
identification on regular basis to check either loan officers are following the policy in true letter
and spirit or not. The review policy is better implemented by commercial bank hence they were
easily able to top up loans in no time through use of modern technology unlike institutions
(Craig, 2006).

It is widely recognized that all over the world, financial institutions face enormous credit
management challenges (Krestlow, 2013). According to (Mugambi, 2010) did an investigation
into the factors leading to loan defaults of microenterprises financed by Cooperative Bank in

3
Kangemi and Kawangware areas in Nairobi, Kenya and established that many Micro-enterprises
were mainly constrained by irregular income, poor management and high competition from the
well-established businesses. According to (Waruinge, 2009) survey, the factors which contribute
to non-performance of loans among commercial institutions including banks in Kenya and
established that economic factors and poor credit management greatly contributed to high
portfolio of nonperforming loans among commercial banks in Kenya.

According to Wolday and Gebrehiwot (2004), in Ethiopia, despite the enormous importance of
the investments to the national economy with regards to job creation and the alleviation of abject
poverty, some of the foreign owned investors in Ethiopia are unable to realize their full potential
due to the existence of different factors that determine their successful loan repayment
performance. One of the leading factors contributing to the unimpressive loan repayment
performance of the investors is limited access to finance. According to Abreham(2016), the
probability of being creditworthy of the borrowers can be characterized by the willingness and
ability of the borrowers. 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.

According to Ayele (2016) effective control of loan repayment is critical for sustainable and
healthy growth of the Banking sector especially for those predominantly engaged in provisioning
loans. In other words, the determinants of successful loan repayment performance in project
financing have to be properly investigated because the survival and the sustainable operation of
such institutions are directly influenced by these factors. Therefore, investigation of the major
determinant for successful loan repayment of Banks is especially essential.

This study is different from earlier other studies in the following respect. First, earlier different
studies in Ethiopia were greatly focused on borrower side such as access to finance for SME or
factors affecting loan repayment performance by SMEs. For example, studies conducted by
Brehanu and Mesfin (2015) and Deresse and Zerihun (2017) are among those studies carried out

4
touching on access to finance for SMEs in Dilla town and West Oromia Region respectively.
Secondly, few existing researches were done on specific sectors. In the area of loan repayment
performance researches have been done by Kibrom (2010), Mulugeta (2010) and Muluken
(2014) under the Development Bank of Ethiopia. Mulugeta (2010) research had been conducted
specific to agricultural borrowers. Muluken (2014) on his research had been conducted specific
to floriculture growers’ borrowers.

Thirdly, no one study was done on institutional factors such as credit management and policy
related factors that affect loan repayment performance. This implies that there is existing
knowledge gap between loan repayment performance and institutional factors that determine
successful loan repayment. Therefore, an in depth analysis of factors affecting loan repayment
performance of commercial banks would help policy makers to formulate successful credit
policies and programs that enable them to allocate scarce financial resources to the development
of basic sectors of the economy in Ethiopia. The output of the proposed study can also help the
financial institute (Banks) to evaluate their credit or loan management practices and policies and
correct accordingly.

Therefore, the importance of credit management and policy to loan repayment performance
necessitated the proposed study which aims to establish the effect of credit management on loan
performance of sinqee banks east showa district branches. Accordingly the following research
questions will be answered in the proposed study:

1.3. Research Questions

The following research questions will be answered in the proposed study:
1) What is the effect of credit standards on loan repayment performance in Sinqee banks?
2) What is the effect of Loan Terms and Conditions on loan repayment performance in
sinqee banks?
3) What is the effect of Lending Policy and Procedures on loan repayment performance in
sinqee banks?
4) What is the effect of Loan Collection Policy & Procedures on loan repayment
performance in sinqee banks?
5) What is the effect of Loan Default Management Policy on loan repayment performance
in sinqee banks?

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 1.4. Objectives Of The Study
1.4.1. General Objective
The main objective of the proposed study is to examine the effect of credit management practices
on loan performance in Senqee banks
1.4.2. Specific Objectives
 To examine the effect of credit standards on loan repayment performance.
 To determine the effect of Loan Terms and Conditions on loan repayment performance.
 To evaluate the effect of Lending Policy and Procedures on loan repayment performance.
 To determine the effect of Loan Collection Policy & Procedures on loan repayment
performance.
 To examine the effect of Loan Default Management Policy on loan repayment
performance.
1.5. Scope Of The Study
Geographic Scope: The scope of the proposed study mainly delimited to sinqee banks east
showa district branches which comprise 21 total branches.

Conceptual Scope: the proposed study mainly aims to examine institutional factors (credit
management practices and policies) that affect loan performance (i.e. effects of credit standards,
Loan Terms and Condition, Lending Policy and Procedures, Loan Collection Policy &
Procedures and Loan Default Management Policy on loan performance).

Subject Scope: east Showa district branches employees.

1.6. Significance of the Study

The finding of proposed study believed to provides relevant information to commercial banks on
the area of loan repayment performance (weakness and strength) which needs improvement.
Furthermore, the proposed study will be useful in understanding the current framework for credit
management in commercial banks in Ethiopia and how it affects loan performance in
commercial banks. The study will also be instrumental in exposing and evaluating the various
risks faced by commercial banks in their credit taking operations and the various mechanisms put
in place to mitigate them. The study will also help to explore the challenges faced by commercial
banks in the credit market as well as lay out measures of addressing these challenges.

6
Besides, it will be used as a reference to researchers that want further investigation into the area
of study.

1.7. Organization of the study

The proposed study will be organized into five chapters: 1 st Chapter contain the introductory part
dealing with back ground of the study, the statement of the problem, objectives of the study,
scope and limitation of the study, significance of the study and definition of basic terms. The 2 nd
chapter focuses on the theoretical review and empirical review taken from different sources. The
3rd chapter presents the research methodology of the study. The 4 th chapter presents data analysis,
presentation and interpretation of the study and finally, the 5 th chapter presents the summary of
major findings, conclusion and recommendations.

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 2. REVIEW OF RELATED LITERATURE

2.1. Theoretical Review Of Related Literature

2.1.1. Concept and Definition of Loan
According to Yodit (2017) Loan refers to any type of commercial loan like term loan, personal
loan, consumer loan, merchandise loan but excluding any letter of credit, credit card debt, line of
credit, overdraft or other forms of revolving debt. It is important that borrowed funds be invested
for productive purposes, and the additional incomes generated be used to repay loans to have
sustainable and viable production processes and credit institutions. Kibrom states (2010) the
provision of loan has increasingly been regarded as an important tool for raising the incomes of
urban as well as the rural populations, mainly by mobilizing resources to more productive uses.
As development takes place, one question that arises is the extent to which loan can be offered to
the private sector to facilitate their taking advantage of the developing entrepreneurial activities

According to Armstrong (2016), the practice of lending and borrowing in human history can be
traced back to Babylon. The Babylonians introduced a legal framework to regulate the custom of
loaning money and goods as early as 1800 B.C. Valid loans at the time of the Babylonians had to
include a written contract with the oversight of a public official. These contracts could include a
pledge of security in form of land and other possessions including the wife, children and slaves
of the borrower. The state regulated interest rates by setting maximum annual interest rate the
lender could claim from the borrower. As Dennis (2015) the legal systems and institutions
around borrowing and lending has been evolving and improving throughout the major human
civilizations.

According to Enzo (2012) Banks are the largest providers of debt capital in project finance and
the financial structure of the project (leverage ratio) is very important in convincing bankers to
provide capital. It implies that banks must pay particular attention to the evaluation of the credit
risk of the project. Hence, the failure of the project and the subsequent borrower‘s insolvency
may damage lenders heavily. The assessment of economic and financial feasibility of the project
made by banks should primarily evaluate the expected economic return of the project on medium
and long term, rather than focusing on collaterals provided by sponsors or third parties. To assess
the ―bankability of the project is necessary to carry out a feasibility study. Banks have to
differentiate bankable projects from non-bankable ones.

8
 2.1.2. Loan Default
Bloem & Gorter (2001) have defined loans default as the loans left unpaid for a period of 90
days. Also, the definition of default defined by Consultative Group to Assist the Poor (CGAP)
2009 is "when a borrower could not or will not pay back his or her loan and when the MFI no
longer expects to be repaid (even though it keeps attempting to collect)". The banking sector is
central to any financial system and plays a pivotal role in supplying credit to the market
(http://fsi.gov.au/). However, lender can also be a private person, a group of people, companies
or even governments. The funds provided cover various types of needs such as mortgage
payments, start-ups, business expansions and consume. As Addison and Geda (2001) the
regulation from the government follows the constitutional law and protects both participators.
Governments have several roles in the financial markets in addition to being providers and
consumers of credit in the market. Since the looking after the long term national interest is one of
government‘s main responsibilities, it has to develop policies that allow the financial systems to
function in a way that benefits the people. Geda and Yimer (2014) states understanding the risk
involved when a lender approves a loan to a borrower is vital to the pricing of the loan. The
wellbeing of the overall economy depends also in the ability of the banking sector to measure the
risk.

2.1.3. Theories of Loan Default

2.1.3.1. Modern Portfolio Theory
Modern Portfolio Theory is an investment framework for the selection and construction of
investment portfolios based on the maximization of expected returns of the portfolio and the
simultaneous minimization of investment risk (Fabozzi, Gupta, & Markowitz, 2002). Overall, the
risk component of Modern Portfolio Theory can be measured, using various mathematical
formulations, and reduced via the concept of diversification which aims to properly select a
weighted collection of investment assets that together exhibit lower risk factors than investment
in any individual asset or singular asset class. Diversification is in fact, the core concept of
Modern Portfolio Theory and directly relies on the conventional wisdom of “never putting all
your eggs in one basket” (Fabozzi, Gupta, & Markowitz, 2002; McClure, 2010; Veneeya, 2006).

Modern portfolio theory tries to look for the most efficient combinations of assets to maximize
portfolio expected returns for given level of risk (McClure, 2010). Alternatively, minimize risk

9
for a given level of expected return. Portfolio theory is presented in a mathematical formulation
and clearly gives the idea of diversifying the assets investment combination with a purpose of
selecting those assets that will collectively lower the risk than any single asset. In the theory, it
clearly identifies this combination is made possible when the individual assets return and
movement is opposite direction (Veneeya, 2006). An investor therefore needs to study the value
movement of the intended asset investment and find out which assets have an opposite
movement. However, risk diversification lowers the level of risk even if the assets’ returns are
not negatively or positively correlated.

The modern portfolio theory explains ways of maximizing return and minimizing risk by
carefully choosing different assets (McClure, 2010). The Primary principle upon which the
modern portfolio theory is based is the random walk hypothesis which states that the movement
of asset prices follows an unpredictable path: the path as a trend that is based on the long-run
nominal growth of corporate earnings per share, but fluctuations around the trend are random.
Since the 1980s, banks have successfully applied modern portfolio theory (MPT) to market risk.
Many financial institutions are now using value at risk (VAR) models to manage their interest
rate and market risk exposures (Veneeya, 2006). Unfortunately, however, even though credit risk
remains the largest risk facing most banks, the practical of MPT to credit risk has lagged.

The framework for Modern Portfolio Theory includes numerous assumptions about markets and
investors. Some of these assumptions are explicit, while others are implicit. Markowitz built his
portfolio selection contributions to modern portfolio theory on the following key assumptions
(Markowitz, 1959): investors are rational (they seek to maximize returns while minimizing risk);
investors are only willing to accept higher amounts of risk if they are compensated by higher
expected returns; investors timely receive all pertinent information related to their investment
decision; investors can borrow or lend an unlimited amount of capital at a risk free rate of
interest; markets are perfectly efficient; markets do not include transaction costs or taxes; and it
is possible to select securities whose individual performance is independent of other portfolio
investments. These foundational assumptions of modern portfolio theory have been widely
challenged. Many of the criticisms leveled at the theory are discussed later in this essay.

Risk and Return trade-off relates to modern portfolio theory’s basic principle that the riskier the
investment, the greater the required potential return. Generally speaking, investors will keep a

10
risky security only if the expected return is sufficiently high enough to compensate them for
assuming the risk (Ross, Westerfield & Jaffe, 2002). In modern portfolio theory, risk is
synonymous with volatility, the greater the portfolio volatility, the greater the risk. Volatility is
the amount of risk or uncertainty related to the size of changes in the value of a security. This
volatility is measured by a number of portfolio tools including: calculation of expected return;
the variance of an expected return; the standard deviation from an expected return; the
covariance of a portfolio of securities, and the correlation between investments (Ross,
Westerfield & Jaffe, 2002).

Adverse selection occurs because lenders would like to identify the borrowers most likely to
repay their loans since the banks’ expected returns depend on the probability of repayment. In an
attempt to identify borrowers with high probability of repayment, banks are likely to use the
interest rates that an individual is willing to pay as a screening device. Since the bank is not able
to control all actions of borrowers due to imperfect and costly information, it will formulate the
terms of the loan contract to induce borrowers to take actions in the interest of the bank and to
attract low risk borrowers. The result is an equilibrium rate of interests at which the demand for
credit exceeds the supply. Other terms of the contract, like the amount of the loan and the
amount of collateral, will also affect the behavior of borrowers and their distribution, as well as
the return to banks (Moti et al., 2012).

Raising interest rates or collateral in the face of excess demand is not always profitable, and
banks will deny loans to certain borrowers. Since credit markets are characterized by imperfect
information, and high costs of contract enforcement, an efficiency measure as exists in a
perfectly competitive market will not be an accurate measure against which to define market
failure. These problems lead to credit rationing in credit markets, adverse selection and moral
hazard. Adverse selection arises because in the absence of perfect information about the
borrower, an increase in interest rates encourages borrowers with the most risky projects, and
hence least likely to repay, to borrow, while those with the least risky projects cease to borrow
(Ewert et al., 2000).

Interest rates will thus play the allocation role of equating demand and supply for loan funds, and
will also affect the average quality of lenders’ loan portfolios. Lenders will fix the interest rates
at a lower level and ration access to credit. Imperfect information is therefore important in

11
explaining the projects have identical mean returns but different degrees of risk, and lenders are
unable to discern the borrowers’ actions. An increase in interest rates negatively affects the
borrowers by reducing their incentive to take actions conducive to loan repayment. This will lead
to the possibility of credit rationing (Boland, 2012).

2.1.3.2. Asymmetric Information Theory

The asymmetric information theory was first introduced by Akerlofs (1970). According to
Ekumah and Essel (2003), the theory details the situation in which related information is not
available both parties concerned in any transaction. Sellers frequently do not know their buyers'
true creditworthiness, and buyers frequently do not know the quality of goods. Epp (2005)
argued that all the parties in a given transaction do not know the relevant information. Edwards
and Turnbull (1994) showed that in a situation where the lender doesn’t have sufficient
information relating to the borrower as compared to the borrower with full information on
returns and risks associated with projects invested is referred information asymmetry in the
capital market. The lender on the other hand doesn’t have sufficient information relating to the
borrower. The theory points out those financial institutions face two problems through
information asymmetry: Monitoring entrepreneurial behavior and adverse selection that is
making errors in lending decisions, moral hazard.

Information theories of credit allude to the measurement of credit to companies and individuals if
banks could better predict their prospective customers ' probability of reimbursement (Fan, Lai &
Li, 2015). On these lines, the deeper the credit markets would be the more financial foundations
believe about the loan repayment record of scheduled borrowers. According to Love, Pería and
Singh (2016), open or private loan registries that collect and provide expansive information on
the reimbursement history of prospective clients to money-related institutions are essential to
expand credit markets. The data that each party to a credit exchange transmits to the market will
have imperative ramifications for the manner it receives credit; the ability of credit markets to
skillfully match borrowers and credit experts, and the pretended enthusiasm rate for credit
allocation among borrowers (Agarwal, Chomsisengphet, Liu, Song & Souleles, 2018). The way
credit markets can prompt specific components for different kinds of money lenders and unique
kinds of borrowers (Feenstra, Li & Yu, 2014).

12
According to Edwards and Turnbull (1994), information asymmetry in the capital market occurs
when the lender lacks sufficient information about the borrower in comparison to the borrower
who has complete information about the returns and risks associated with projects invested. The
lender, on the other hand, lacks sufficient information about the borrower. According to the
theory, financial institutions face two problems as a result of information asymmetry. Monitoring
the entrepreneurial behavior and adverse selection result in lending decisions are incorrect due to
moral hazard. According to Denis (2010), low default rates and higher aggregate lending can be
achieved by reducing information asymmetry between borrowers and lenders, credit registries,
and allowing the extension of loans to customers previously priced out of the market.
Furthermore, the exchange of client credit worthiness aids in determining the quality of credit
applicants.

According to Lee and Stowe (1993), small firms tend to offer more trade credit than large firms
because small firms must still establish their reputation for product quality. Firms with longer
production cycles extend their collection period because they produce high-quality goods. Firms
that sell goods for whom the quality is difficult to evaluate stretch long credit terms because
buyers must have enough time to assess quality. Vendors of low-quality goods may try to pass
them off as high-quality goods. In this case, as the cost of extending trade credit rises, these
companies will have less incentive to falsify quality information.

2.1.3.3. Transactions Cost Theory

Schwartz established the Transactions Cost Theory in 1974. This theory postulates that financial
institutions may have an advantage over traditional creditors in determining their clients' actual
financial situation or creditworthiness. Financial institutions, on the other hand, have a greater
ability to display and force credit score compensation. These types of benefits may also provide
with a cost advantage over financial institutions. According to Rajan and Petersen (2007), three
fee benefit resources have been cataloged, with the useful resource of benefit in data acquisition,
client control, and charge salvaging from current assets. According to Gazendam and Jorna
(2002), transaction expenses with the employer within the employer may also include
coordination and organizational expenses. Contracting expenses and settlement fulfillment
expenses between organizations are included outside of the employer. More rents are obtained
through the use of the useful resource of optimizing the predicted income on expenses. The

13
correct assumption here is that organizations may try to optimize rents but are unsure of their
success.

The model concludes that in a two-part credit with a high interest rate, buyers who do not choose
to take advantage of the discount are high risks because they may be experiencing financial
difficulties. Simple net terms can produce a similar sign Smith by varying the penalties for late
payers (1987). Emery (1987) conducted another study related to transaction cost theory and
hypothesizes that there is a positive relationship between demand variability and credit offered.
Two intriguing perspectives on this cost structure the former contends that the more long-lasting
the goods, the better the assets they provide and the greater the credit offered to vendors. The
latter emphasizes the importance of the extent to which customers transform the product. The
less transformed they are, the easier it will be for the provider to repossess and sell the asset
through the same channel (Petersen and Rajan conducted, 1997)

2.1.3.4. Credit Risk Theory

Credit Risk Theory was founded by Robert Merton in 1974. This school of thought states that in
spite of the fact that individuals have been confronting credit chance as far back as early ages.
According to Emekter, Tu, Jirasakuldech and Lu (2015), credit risk has usually not been focused
on until late 30 years. Early writing using a loan utilizes usual actuarial credit risk methods, the
true problem of which is their complete dependence on verifiable data. There are currently three
quantitative methodologies for examining loan opportunity: an auxiliary approach, a reduced
form review and a deficient information approach: auxiliary approach, lessened shape
examination and deficient data approach (Imbierowicz, Rauch, 2014).

Merton (1974) presented the credit chance hypothesis generally called the auxiliary hypothesis
which said the default occasion gets from an association's advantage advancement demonstrated
by a dispersion procedure with steady parameters. Such models are defined frequently as
"fundamental model" and a specific guarantor is linked to the factors. A development of this
classification is spoken to by resource of models where the default-restrictive misfortune is
specific (Fanta, 2016).

Numerous researchers including Bekhet and Eletter (2014) have highlighted the significance of
utilizing Credit rating assessment models as a part of assessing credit risk. In any case, Bekhet
and Eletter (2014) contend that there is no ideal technique. This demonstrates one kind of rating

14
model may function but neglects to work in others for specific budgetary organizations.
According to their reasoning, various factors used as part of choosing a client's reliability, e.g. to
what degree is a client delegated large or awful, this can be measured using factual techniques.
Washington (2014) explored the link between macro-economic issues and credit risk using this
theory. This theory is relevant to the study because Islamic Banks just like their conventional
banks face credit risk of loan beneficiaries failing to repay the principal and profit as agreed.

2.1.3.5. Risk Management Theory

Risk management is the identification, assessment, and prioritization of risks followed by
coordinated and economical application of resources to minimize, monitor, and control the
probability and/or impact of unfortunate events or to maximize the realization of opportunities.
Effective risk management can bring far reaching benefits to all organizations, whether large or
small, public or private sector. These benefits include, superior financial performance, better
basis for strategy setting, improved service delivery, greater competitive advantage, less time
spent firefighting and fewer unwelcome surprises, increased likelihood of change initiative being
achieved, closer internal focus on doing the right things properly, more efficient use of resources,
reduced waste and fraud, and better value for money, improved innovation and better
management of contingent and maintenance activities (Wenk, 2005).

2.1.3.6. The 5C’s Client Appraisal Model

Lending Institutions build their credit policy around the 5 C’s of credit: Character (of the
applicant), Capacity to borrow, Capital (as back up), Collateral (as security), economic
Condition. These assessments are based upon lenders own experience taking into consideration
not only historical information but also the futures view of the borrowers’ prospects (MacDonald
et al, 2006). Character refers to as the maturity, honesty, trustworthiness, integrity, discipline,
reliability and dependability of a customer. A person of good character was open and divulges
information about them in the process of the decision making. Capacity refers to the ability of a
client to service his debt obligation fully. This is determined by reviewing sources of income
versus obligations to determine his paying ability based on past information about borrower.
Capital refers to the borrower’s wealth position measured by financial soundness and market
standing.

15
The loan officer looks at what would happen if there is deterioration in the borrower’s financial
condition. Would they still be able to meet the debt obligation? Condition looks at the
commercial, socio-economic, technological and political environment to assess the successful
implementation of the project therefore the recovery of the loan issued. It looks at the sources of
cash and how they vary with the business cycle and consumer demand. Collateral is a security
issued to secure a loan. These guarantee the issuer of credit of a source of income in the event of
failure or inability of the loan holder to pay their debt. Securities include land, building,
machinery and others which may sometimes prove to be difficult to dispose in loan recovery
(MacDonald et al, 2006).

The personality of a client to the lender, that is the way he presents himself as a person, social
behavior, economic standard, and his culture influences his clientele (Orua, 2009) The basis of a
man’s psychology factor is his inner worth and not touchable accomplishments. MFIs are able to
determine also if the borrower is able to repay the debt from the cash flow, the technicality of
cash flow analysis can make it difficult to sometimes compare income and expenses hence result
to ratios (Anthony 2006). Alternative pledges for repayment of loans are collaterals which are
mostly assets such as pledged against debt like land, plant & equipment or even stocks and
debtors can be pledged (Lawrence &Charles 2007).Borrowers of short term loans are advised to
match their loans with securities that are short term.

2.1.4. Determinants of Loan Repayment Performance

The two fundamental functions of financial institutions are investment and intermediation in
finance. The most crucial one is intermediation in finance that aims in bringing together
borrowers and savers (Pelrine, 2001). Kifle, Tesfa and Mariam (2012) emphasized on gender,
household income, and amount of loan borrowed and year of cooperative membership.
Sambasivam (2013) investigated on strategy of servicing loan, growth sign, and efficiency on
mobilizing saving and financial soundness. The proposed study focuses on credit management
practices and policies as determinants of loan repayment performance in commercial banks.

2.1.4.1. Credit Standards

Pandey (2010) defines credit standard as the method which is followed by a firm in selection of
clients for credit extension purpose. The firm can decide to give credit to only the most reliable
customers and those who are stable financially; it can also have stringent credit standards by

16
mainly selling on cash basis. This will result to less administration costs and no bad debt losses
but no much expansion on sales of the firm, hence less costs saved by the firm as compared to
the profit sacrificed on lost sales. Loose credit standards of the firm to large sales but increases
debtors and in turn credit administration costs and bad debt losses increase.

According to Ross et al. (2008), in advancing loans, credit standard must be emphasized such
that the credit supplier gains an acceptable level of confidence to attain the maximum amount of
credit at the lowest as possible cost. Credit standards can be tight or loose (Moti et al.,
2012).Tight credit standards make a firm lose a big number of customers and when credit are
loose the firm gets an increased number of clients but at a risk of loss through bad debts. A loose
credit policy may not necessarily mean an increase in profitability because the increased number
of customers may lead to increased costs in terms of loan administration and bad debts recovery,
In agreement with other scholars. Horne (2007), advocated for an optimum credit policy which
would help to cut through weaknesses of both tight and loose credit standards so, the firm can
make profits. This is a criteria used to decide the type of client to whom loans should be
extended.

Cooper et al. (2003) noted that it’s important that credit standards be basing on the individual
credit application by considering character assessment, capacity condition collateral and security
capital. Character it refers to the willingness of a customer to settle his obligations (Richard et
al., 2008) it mainly involves assessment of the moral factors. Social collateral group members
can guarantee the loan members known the character of each client; if they doubt the character
then the client is likely to default. Saving habit involves analyzing how consistent the client is in
realizing own funds, saving promotes loan sustainability of the enterprise once the loan is paid.
Other source should be identified so as to enable him serve the loan in time. This helps financial
institutions not to only limit loans to short term projects such qualities have an impact on the
repayment commitment of the borrowers it should be noted that there should be a firm evidence
of this information that point to the borrowers character (Chijoriga, 2011).

According to Boldizzoni (2008) the evaluation of an individual should involve; gathering of

relevant information on the applicant, analyzing the information to determine credit worthiness
and making the decision to extend credit and to what tune. They suggested the use of the 5Cs of
lending. The 5Cs of lending are Capacity, Character, Collateral, Condition and Capital. Capacity

17
refers to the customer’s ability to fulfill his/her financial obligations. Capacity, this is subjective
judgment of a customer’s ability to pay. It may be assessed using a customer’s ability to pay. It
may be assessed using the customer’s past records, which may be supplemented by physical or
observation. Collateral is the property, fixed assets, chattels, pledged as security by clients.
Collateral security, This is what customers offer as saving so that failure to honor his obligation
the creditor can sell it to recover the loan. It is also a form of security which the client offers as
form of guarantee to acquire loans and surrender in case of failure to pay; if borrowers do not
fulfill their obligations the creditor may seize their asset (Latifee, 2006).

Appraisal of clients is a basic stage in the lending process. Ross et al. (2008) describes it as the
‘heart’ of a high quality portfolio. This involves gathering, processing and analyzing of quality
information as way of discerning the client’s creditworthiness and reducing the incentive
problems between the lenders as principals and the borrowers as agents. The bank’s credit
policy, procedures and directives guide the credit assessment process. Banks should base their
credit analysis on the basic principles of lending which are Character, Capacity, Capital,
Collateral and Conditions (Moti et al., 2012). It is designed to ensure lenders take actions which
facilitate repayment or reduce repayment likely problems. This information about the riskiness of
the borrower makes the financial institution to take remedial actions like asking for collateral,
shorter duration of payment, high interest rates and other form of payment (Abedi, 2000) when a
financial institution does not do it well, its performance is highly affected.

According to Basel (2004), one of the features that banks deliberate when deciding on a loan
credit application is the estimated chances of recovery. To arrive at this, credit information is
required on how well the applicant has honored past loan obligations. This credit information is
important because there is usually a definite relationship between past and future performance in
loan repayment. Chijoriga (2011) in a study of the response of National Bank of Kenya Ltd. to
challenges of non-performing loans concludes that the reliance of the bank on qualitative credit
analysis methods that entails such factors as character of the borrower, reputation of the
borrowed and the historical financial capability of the borrower as opposed to the used of
quantitative techniques that emphasized on the borrowers projected cash flows and analysis of
audited financial books of accounts have contributed to immensely to the non-performing loan
portfolio.

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 2.1.4.2. Loan Terms and Conditions Policy
Wamasembe (2012) describes credit terms as the stipulation under which credit sales are made to
clients by the firm. The stipulations involve: cash discount and credit period. An industry culture
and practices can direct the credit period of a firm. The firm may widen the credit period or
shorten the credit time. A firm tightens credit period by increasing sales and extension of credits
hence increase in operating profits. With increased sales and extend credit period. According to
kakuru (1998), found out that cash discount boosts collections due from customers and is used as
a tool to increase sales. This will lead to the reduction in the level of debtors and associated
costs. Terms of credit in practice includes: the time of cash discount, the net credit period and the
cash discount period. Saleh and Zeitun (2007) showed that credit period is the length of time
taken to approve from the applicants to the loan disbursement. Failure by customers to pay loan
within a specified credit period would result to bad debts.

According to Miller (2008) cites four reasons why an organization must have a written loan
policy: first, it reduces default and enhances cash flow. Second, having a policy in place
improves reliability across departments. This is due to the fact that by marking down what is
expected, the firm's arms will achieve that they share a common goals, reducing redundant work
and departmental tension. Third, it encourages customer uniformity by making decision making
a logical function based on predefined parameters. This easier decision-making and enables a
sense of fair play, both of which will benefit customer interactions. Finally, it can provide some
acknowledgement of the credit department as a separate entity worthy of providing input into the
firm's overarching plan.

Credit contracts usually include promises, the amount of the securities involved, insures, interest
terms, and the time frame over which the loan must be reimbursed. To avoid misunderstandings
or potential legal action, default terms must be clearly detailed. In the case of default, the terms
of the bad debt collection should clearly specify the expenses involved in collecting the debt.
This also applies to groups who use promissory notes. According to Cheron, Boidin, and
Daghfous (2009), numerous people or organizations fight to meet the required prerequisites in
terms of interest rates, fees, and repayment terms, among other things. This makes it impossible
for them to obtain commercial borrowed funds. A loan contract's main objective is to define
what the parties are consenting to, what duties each party has, and how long the contract will

19
last. A loan agreement should be in accordance with state and federal regulations in order to
protect both the lender and the borrower in the event that either party fails to honor the
agreement. Depending based on the repayment type, the terms of the loan agreement and which
state or federal laws govern the outcome requirements imposed on both groups will differ.

Credit terms have been understood to mean collateral, repayment periods and interest rate
(Ayyagari et al., 2003). Collateral is the security given by a borrower to a lender as an assurance
that the loan will be paid and operates as a broad insurance against uninsurable risk or intentional
default leading to non-payment of the loan. Loan repayment period is the time in which the
borrower should repay the loan (Nkundabanyanga, 2014). Interest rate is the rate which is
charged or paid for the use of money and is used as a means of compensating banks for taking
risk. According to Stiglitz and Weiss (1981), credit terms are part of a general exercise to help
determine the extent of risk for each borrower. According to Malimba and Ganesan (2009), grace
period, collateral, interest rate charges and number of official visits to the credit societies, have a
strong effect on loan repayment.

According to Bagachwa (2009) in his look at fittings, having agreed to the terms of credit rating
with a repayment length that is clear to all stressed; the leaser has an obligation in his individual
good interests to ensure that the customer follows through on his promises. The speculator is
aware that his test of past due cost has been established as satisfactory with the assistance of the
lender as a point of reference. As a result, the lender can no longer impose constraints on the
unique credit terms because he has adopted unused expressions. The alternative is for the leaser
and the bank to sit down and restart the transactions. This is an all-too-common occurrence, and
a knowledgeable credit manager should never allow it to happen.

Each component of a company's credit policy is used as a tool for monitoring account
receivables, which are the result of credit sales; it covers everything from the type of customers
to whom credit may be extended to when actual collections would be made, there is no universal
credit policy that should be adopted by every organization; rather, each organization should
develop its own credit policies based on cash-flow circumstances, industry standards, current
economic conditions, and the level of risk involved (Ojeka, 2010).

According to Kariuki (2010), the issue will frequently be displayed at a few point of the
fundamental arrange of advance utility and thus turns into more basic all through the credit

20
endorsement, checking, and controlling stages, in particular when arrangements, methods, and
methodologies related to credit score handling as stipulated inside the credit score rate control
(CRM) recommendations are not followed, are helpless, fragmented, or are not watched. Credit
statements typically include contracts, the cost of collateral included, guarantees intrigued charge
expressions, and the time period over which it must be reimbursed. To avoid disarray or potential
criminal courtroom development, default expressions must be earnestly verifiable. In the event of
a default, the terms of collection of the obligation must be clearly stated, as well as the charges
emphasized in amassing the obligation. This also applies when promissory notes are used.

According to Elyasiani and Goldber (2004), the absence of a department in any region will result
in the following taking a toll of advances in terms of making visits to clients and following up on
obstructed credits. This will result in approximately higher leisure activity expenses being
exacted on advances from now on. The gathering of insights for the capability of having to get to
budgetary offerings, particularly credits, necessitates contact between the borrower and the
moneylender, which should be encouraged by implies geographic proximity. It follows that
geographically close banks would result in lower costs in gathering the necessary data, and
borrowers would most likely obtain better credit terms if they were close to a bank. The advance
cites a boom as the gap between the lender and borrower widens as a result of the esteem.
According to Atieno (2004), many organizations struggle to meet the necessary requirements,
such as interest rates and repayment terms. This prevents them from obtaining commercial bank
loans.

2.1.4.3. Lending Policy and Procedures

Stafford (2001) defines policy as "a purposeful action plan to direct decisions and achieve logical
outcomes”. A credit policy is an institutional method for analyzing credit requests and its
decision criteria for accepting or rejecting applications (Nikolaidou & Vogiazas, 2014). A credit
policy is important in the management of accounts receivables. A firm has time flexibility of
shaping credit policy within the confines of its practices. It is therefore a means of reducing high
default risk implying that the firm should be discretionary in granting loans (Richard et al., 2008;
Chijoriga, 2011). Policies save time by ensuring that the same issue is not discussed over and
over again each time a decision is to be made. This ensures that decisions are consistent and fair
and that people in the same circumstance get treated in the same manner (Ross et al., 2008).

21
According to Moti et al. (2012), credit policy provides a frame work for the entire management
practices.

Most financial institutions have written credit policies which are the cornerstone of sound credit
management, they set objectives, standards and parameters to guide micro finance officers who
grant loans and manage loan portfolio (Cooper et al., 2003). The main importance of policies is
to ensure operation’s consistency and adherence to uniform sound practices. Policies should
always be the same for all and is the general rule designed to guide each decision, simplifying
and listening to each decision making process. A good credit policy involves effective initiation
analysis, credit monitoring and evaluation. Credit policies are set of objectives, standards and
parameters to guide bank officers who grant loans and manage the loan portfolio. Thus, they are
procedures, guidelines and rules designed to minimize costs associated with credit while
maximizing the benefit from it (Boldizzoni, 2008).

The main objective of credit policy is to have an optimal investment in debtors that minimizes
costs while maximizing benefits hence ensuring profitability and sustainability of microfinance
institutions as commercial institutions. The credit policy of an organization may be stringent or
lenient depending on the manager’s regulation of variables. There are three main variables
namely credit terms, credit standards and credit procedures (Latifee, 2006). Managers use these
variables to evaluate client’s credit worthiness, repayment period and interest on loan, collection
methods and procedures to take in case of loan default. A stringent credit policy gives credit to
customers on a highly selective basis. Only customers who have proven creditworthiness and
strong financial base are given loans, the main target of a stringent credit policy is to minimize
the cost of collection, bad debts and unnecessary legal costs (Horne, 2007).

According to Kantor and Maital (2009), a financial institution's loan policy is an announcement
of the institution's philosophy, standards, and recommendations that its employees must consider
when granting or refusing a loan request. These policies determine which areas of the business or
enterprise are eligible for loans and how to avoid them, and they must be based on the
application of a's relevant laws and policies. Banks are the most important sources of outside
finance for businesses and individuals. According to Rose (2002), the loan policy provides
specific guidelines to management to improve individual loan decisions that shape the company's
as a whole loan portfolio. This ensures that compliance standards are met and that the

22
organization is cost effective. A written policy document is useful because it interacts to loan
staff members which procedures they should follow and what their responsibilities are. As a
consequence, it assists the organization in shifting to a loan portfolio, controlling risk exposure,
and meeting regulatory standards. Any exceptions to the policy should be fully documented, as
well as the reasons for them.

The Loans department considers all such changes and periodically reviews all loans until they
reach maturity. Loan review is crucial as it helps management to identify problematic loans more
quickly and acts as a continuing check on whether loans policy is adhered to by the loans officer.
Some commercial banks review loans more efficiently such that they are able to top up loans.
Written policy guides the banks towards reducing their risks and thus maintaining their
profitability thus high performance. It also guides the loan officer in evaluating the kind of client
they give loan to. It also helps the bank in lending to those customers who are credit worth thus
maintaining the bank performance high. According to clergymen & Minow (2004) Control
processes are the rules and procedures that govern how an organization is run. According to a
study conducted by Ministers and Minow (2004), an organization with excellent corporate
processes implies that it has a very good corporate company, which is defined as the connection
between shareholders, the organization, board of chairmen, professionals, customers, suppliers,
and various captivated groups in selecting the heading and execution of groups.

According to Hart & Milstein (2003), company management is a combination of law, direction,
and relevant intentional non-public division homes that enable a business to attract financial and
human capital, perform competently, and then maintain itself by producing semi-permanent
value for its shareholders, all while considering the interface of partners and society as a whole.
According to Perro and Ruoff (1997) Poor lending practices had a substantial impact on Korean
commercial banks and merchant banking firms and financial institution profitability had
deteriorated. As a result, the significance of revising existing lending policies as a precondition
for effective financial liberalization is being emphasized increasingly.

2.1.4.4. Loan Collection Policy and Procedures

Atieno (2001) defines a collection methods as the procedures an institution follows to collect
past due account. The collection process can be rather expensive in terms of both product
expenditure and lost good will (Ayyagari et al., 2003; Nkundabanyanga, 2014). Collection

23
efforts may include attaching mandatory savings forcing guarantors to pay, attaching collateral
assets, courts litigation. Methods used by financial institutions could include letters, demand
letters, telephone calls, visits by the firm’s officials for face to face reminders to pay and legal
enforcements. According to Kariuki (2010), a collection policy is required to ensure frequent and
timely collection, as well as to speed up collection from sluggish payers and decrease bad debt
losses. A few customers are complete non-payers, while others do not even recognize the time
factor; thus, the collection policy needs to accommodate all of these. He found that timely
collection is required for quick turnover of working capital, maintaining collection costs and bad
debts within limits, and efficient collection maintenance.

According to Kariuki (2010) to ensure regular and prompt collection a collection policy is
needed which should also aim at fastening the collection from slow payers and reducing bad debt
losses. Some customers are non-payers completely and others don’t even put the time factor in
consideration, hence the policy of collection caters for all these. He further found out that for fast
turnover of working capital, keeping costs of collection and bad debts within limits and efficient
maintenance of collection, prompt collection is needed.

According to Pandey (1995), repayment policy should set clear collection methods. Inefficient
loan collection reflects governance ineffectiveness. Deficit in loan distribution to clients is thus a
policy established by cost per loan asset, which is identified as an average cost per loan advanced
to clients in financial terms calculated by total cost and total amount of loans ratio. According to
Deakins and Hussein (2005), the information helps lenders determine the risk of lending money
to potential borrowers. There are a variety of scoring systems available, but they all use the
debtor's loan history to predict repayment based on the past behavior of borrowers with similar
profiles. Loan information and the length of the lender's relationship with the bank are two of the
most important factors in a lender's decision to reject or approve an applicant, and they also
influence the rate and terms provided.

According to Altman (2008), the theory of asymmetric information contends that differentiating
higher risk debtors from lower risk borrowers may be impossible, resulting in moral hazard and
adverse selection hazards. Adverse selection and moral hazard hampered the accumulation of a
large number of non-performing accounts in banks. Berlin and Loeys (2008), also noted that in
order to meet capital adequacy guidelines and ensure long-term survival, banks must carefully

24
monitor the risk-return profile of their lending portfolio. The bank's goal is to maximize profits
and, as a result, shareholder wealth. If the main objective of all bank lending is to make trouble-
free advances, a borrowing applicant's financial ability and prior borrowing experience, as well
as their willingness to pay off their debts, are crucial. According to Atieno (2004), a business's
economic performance may provide valuable information to banks in two main ways: first, it
reveals the level of rivalry in aggressive markets, and second, it implies constructive
diversification against domestic shocks, lowering the likelihood of default for such businesses.

Collection procedure is required because some clients do not pay the loan in time some are
slower while others never pay. Thus collection efforts aim at accelerating collections from
slower payers to avoid bad debts. Prompt payments are aimed at increasing turn over while
keeping low and bad debts within limits (Malimba and Ganesan, 2009). However, caution should
be taken against stringent steps especially on permanent clients because harsh measures may
cause them to shift to competitors. Anderson (2002) states that collection efforts are directed at
accelerating recovery from slow payers and decreases bad debts losses .This therefore calls for
vigorous collection efforts .The yardstick to measurement of the effectiveness of the collection
policy is its slackness in arousing slow paying customers.

The collection process can be rather expensive in terms of both product expenditure and lost
good will (Ayyagari et al., 2003). Collection efforts may include attaching mandatory savings
forcing guarantors to pay, attaching collateral assets, courts litigation. Methods used by
commercial banks could include letters, demand letters, telephone calls, visits by the firm’s
officials for face to face reminders to pay and legal enforcements. Nkundabanyanga (2014)
asserts that collection policy is a guide that ensures prompt payment and regular collections.
Collection procedure is required because some clients do not pay the loan in time hence
collection efforts aim at accelerating collections to avoid bad debts.

According to Ifeanyi et al. (2014) posited that prompt payments aimed at increasing turn over
keeping low bad debts. Collection efforts are directed at accelerating recovery from slow payers
and decreases bad debts losses increase profitability of the banking institution Methods used by
Micro finance institutions could include letters, demand letters, telephone calls, visits by the
firm’s officials for face to face reminders to pay and legal enforcements (Ayyagari et al., 2003;

25
Nkundabanyanga, 2014). Stiglitz and Weiss (1981) assert that collection policy is a guide that
ensures prompt payment and regular collections.

2.1.4.5. Loan Default Management Policy

Loan Default management is the process of obtaining an outstanding loan and learning how to
repay it by persuading the borrower to repay the outstanding loan. Debt payment is difficult
because most clients do not have access to lenders (banks). Most financial institutions have loan
recovery departments that track loans and try to repay them before they become delinquent
(Garber, 1997) According to Waweru and Kalani (2009), some of the causes of non-performing
loans in Kenyan banks include the national economic downturn, reduced consumer purchasing
power, and legal issues. Bichanga and Aseya (2013) identified a number of factors as making
contributions to loan default: Banks' insufficient of micro and small businesses, delays in loan
processing and payment, diversion of funds, and over-concentration of making decisions, with
some banks requiring all loans to be approved by Area/Head Offices.

According to Asantey and Tengey (2014), the primary factors of bad loans among SMEs are a
loanee's level of education, years of business experience, company size, availability of other
income sources, kinds of products/services, loan size, and number of dependents. Other factors
include credit analysis, the suitability of the interest rate, and the duration the loan is disbursed.
However, the study discovered that political stability has little effect on bad loans. According to
Arishaba (2011), in a study on lending methodologies and loan losses and default in a
microfinance deposit-taking institution in Uganda, the following factors were identified as
relevant factors boosting loan default: Insufficient financial analysis, as well as inadequate loan
assistance, is another cause of loan default. The study also revealed that illiteracy and inadequate
skills, disappearance of loan clients, poor business practices, and competitive factors exist,
whereby, due to the existence of many banks involved in the lending business, they ignore
asking for adequate collateral and only have debtors

Kohansal and Mansoori (2009) claim The majority of the defaults resulted from ineffective
management techniques, advance preoccupation, and lack of willingness to reimburse loans, and
as a result, moneylenders plan different regulatory elements aimed at reducing the possibility of
advance default (i.e. guaranteeing of collateral, third-party credit ensure, utilize of credit rating,
collection organizations, etc.). According to Aballey (2005), poor credit can be limited by

26
ensuring that debts are made to debtors who are likely to be able to repay and are unlikely to
become insolvent.

According to Montana (2012), the following are some of the suggested bank debt collection
techniques that are likely to help significantly raise their debt collection success: flexible
repayment plans for customers debtors experiencing financial distress, well-formulated hardship
programs for debtors who are late on their reimbursement, stretch or lower payments, interest
rates, or reduced fees when you anticipate customer payment problems, and create
communication lines where customers can openly unsatisfied. You can avoid larger problems by
reaching out to customers ahead of time. Bank debt recovery is taking on an alarming trend, with
growth that appears to be unstoppable. This rise can be attributed primarily to a weak economy,
which impacts both customers and markets globally. Financial institutions are developing new
techniques and strategies to improve loan collection/recovery. Debt reinstatement represents an
alteration in the terms of an outstanding loan. When a financial firm determines that rescheduling
a debt is in the best interests of the government and that recovery of all or a part of the loans is
reasonably assured, it should consider adjusting the debt (Maphartia, 2004).

The goal of repossession of security is to recover unpaid debts, not to take property away from
the borrower. The security repossession recovery process will include repossession, security
valuation, and security realization through proper methods. Everything would be done fairly and
openly. Only after the above-mentioned notice has been issued will repossession take place. The
legal procedures will be followed when repossessing the assets. In the normal course of business,
the bank will take all rational precautions to make sure the property's security and safety after
taking custody (Umoh, 2007). Credit scoring systems can be used by banks as part of their credit
recovery strategy. A credit score is a number that represents a borrower's ability to repay and is
based on a data analysis of the borrower's credit report. A credit rating is generally determined
by information contained in a credit history. Credit ratings are used by lenders, such as banks, to
evaluate the risk of lending to customers and to mitigate losses due to bad debt. Credit ratings are
used by financial firms to decide who is most qualified for a loan, at what interest rate, and up to
what credit limit (Capon, 2002).

2.2. Empirical Literature Reviews

27
 2.2.1. Global Studies Related to Determinants of Loan Repayment
Performance
Mohammad (2008) did a study on risk management in Bangladesh Banking Sector. His main
objective was to investigate the contribution of credit risk on non-performing loans. He found
that, the crux of the problem lies in the accumulation of high percentage of nonperforming loans
over a long period of time. As per him unless NPL ratio of the country can be lowered
substantially they will lose competitive edge in the wave of globalization of the banking service
that is taking place throughout the world. Since they have had a two-decade long experience in
dealing with the NPLs problem and much is known about the causes and remedies of the
problem, he concluded that it is very important for the lenders, borrowers and policy makers to
learn from the past experience and act accordingly.

According to Ainemigisha (2015), a study that examined commercial banks' lending policies
used by commercial banks in Ibanda town council, the study concludes that interest rate,
property valuation, repayment period, type of loan required, and minimum and maximum
amount of loan are the powerfully used policies to decide credit lending. The study examined the
relationship among commercial banks' lending policies and the financial performance of small
businesses in Ibanda, and it was discovered that the amount of money given, The poor
relationship with financial firms, the high level of security needed, the short repayment period,
and the high interest rates as a result of banking institutions' lending policies all have an impact
on the financial performance of small businesses.

The study also discovered a link between in a study on the requirements for effective debt
repayment performed by Paxton (1996), in terms of avoiding reimbursement delays, the 100
percent rule was applied, which meant that no new credit was offered until the former was repaid
in full. Later, this rule was relaxed, and loans were awarded as long as the payment rate reached
90percent of the outstanding loan balance. In order to achieve credit, every borrower had to have
savings equal to 20percent of the loan amount. To be eligible for credit, each member had to buy
a certain number of shares. For credit in excess of certain limits, guarantor ship was also
required.

According to Jackline (2016), the study investigated the effects of credit policy on the financial
performance of microfinance institutions in Nairobi County. According to his findings, credit

28
standards, credit terms and conditions, and collection efforts all have an impact on the financial
performance of microfinance institutions. As a result, management should exercise caution when
developing credit policies that will not have a negative impact on the operations of microfinance
institutions in order to maximize profits. Inappropriate credit risk management that is not
correctly set up decrease MFI profits affects asset quality and increases loan losses and
nonperforming loans, potentially leading to financial distress.

Vincent, Byusa and Nkusi (2012) investigated the effect of credit policy on performance of
banks using selected banks’ data. They used existing literature review, questionnaires,
quantitative collection of data, all termed as triangulation of methods like quantitative data
collection, questionnaire, and review of existing literature were used. The study evaluated
performance of banking industry, profitability, and efficiency during post-liberation policies and
how deep it becomes over time. The policy of collection, credit evaluation from personal loans,
car loans, overdraft and interest rate mortgages of 17.5% to 20% per annum, credit
responsibilities, bank’s mission and goals, all reflected credit policies in them. The findings were
that commercial banks of Rwanda increased their accounts, and customer base which increased
their profitability. High spreads were witnessed in non- competitive banking system. Highly poor
completion and inefficiency because banks had unusually high and increasing average interest
rate spreads and interest rate margins. Banks should continue to improve their lending policies
due to continued existence of bad debts.

Ntiamoah, Egyiri, Diana Fiaklou, Kwamega (2014) carried out assessing credit management and
loan performance using some selected microfinance in the Greater Accra region of Ghana as a
case study. The research used qualitative and quantitative methods. Data was collected from 400
Microfinance companies using administered questionnaires. The study population comprised of
management and non-management staff of the selected Microfinance companies. The study
found out that there was a high positive correlation between the credit terms and policy, lending,
credit analysis and appraisal, and credit risk control and loan performance.

Wanja (2013) investigated effects of credit policy used by commercial banks on their
performance. The objective of the study was to examine the relationship between loan terms and
conditions and performance, and relationship between loan processing procedures, amount of
loan disposable, credit information and length of credit relationship with the bank and

29
performance. The study was carried out using descriptive research design. The study population
was all forty three commercial banks headquarters thus a census was taken. To obtain
information from the respondents both open and closed ended questionnaires was used. Primary
and secondary data was collected. The findings of the study were that, the nature of loan terms
and conditions had a strong effect on the competitiveness of the banks. Furthermore, the nature
of loan policies, credit history of the borrower in awarding loan amount and borrower’s personal
behavior had an influence on volumes of the loans procured by the banks.

Kohansal and Mansoori (2009) found that received loan size has positive effect on repayment
performance of recipients. The study result of Oladeebo& Oladeebo (2008) showed that amount
of loan obtained by farmers was the major factors that positively and significantly influenced
loan repayment. Afolabi (2010) obtained that the amount of loan granted to farmers has major
significant positive influence loan repayment. Among the determinants of loan repayment of
microfinance institutions, loan size had positive impact on loan repayment.

Kohansal and Mansoori (2009) found that received loan size has positive effect on repayment
performance of recipients. The study result of Oladeebo & Oladeebo (2008) showed that amount
of loan obtained by farmers was the major factors that positively and significantly influenced
loan repayment. As of Afolabi (2010) research carried out loan repayment performance of
microfinance institutions, he obtained that the amount of loan granted to farmers have major
significant positive influence loan repayment. Among the determinants of loan repayment of
microfinance institutions, loan size had positive impact on loan repayment.

2.2.2. Local Empirical Studies in Ethiopian Context

According to Tekeste (2016) the Evaluation of Credit Management Performance in Emerging
Private Commercial Banks in Ethiopia, the main study results of the study revealed that
impeding loan growth and higher loan client complaints on the bank are regarding the length of
loan processing, amount of loan processed and authorized, loan period, and discretionary
restrictions influencing credit performance management.

According to Birtukan et al. (204), an evaluation of lending practice: the case of commercial
bank of Ethiopia, the bank lending practice in implementing and managing loan suitability are
low, and the bank procedure is below medium in terms of business advancement and loan
analysis. According to Bereket (2017), the study on Monetary Policy and Loan Portfolio of

30
Ethiopian Commercial Banks suggests that private banking institutions should consider
macroeconomic variables when developing strategies to efficiently control their loans and
advances, as we showed a significant relationship between macroeconomic variables and
cumulative loans and advances.

According to Gebremedhin (2010) carried out a study on Determinants of Successful Loan

repayment performance of Private Borrowers in Development Bank of Ethiopia, North Region.
In the study, primary and secondary data collection methods were used. The study used stratified
random sampling where borrowers were selected in such a way that it comprised their loan
repayment status. The findings of the study revealed that diverting loans to more productive
projects will have positive impact on successful loan repayment while if the loan is diverted to
less feasible projects then it will have a negative impact on repaying the loan successfully.
Hence, the sign of diverting loans to another purpose cannot be predetermined.

According to Addisu (2006), even though studies on the factors determining loan repayment
finance institutions borrowers give mixed and overlapping results, the general consensus is that
is determined by willingness, ability and other characteristics of the borrowers; businesses
characteristics and characteristics of the lending institutions including product designs and
suitability of their products to borrowers. Other external factors such as the economic, political,
and business environment in which the borrower operates are also important determinants of
loan repayment. As of Sileshi et al. (2012) who investigated loan repayment performance of
government credit to small holder farmers in East Hararghe, Ethiopia. The credit was meant to
increase production and productivity through improved agricultural technologies. The findings
indicated that agro ecological zone, off-farm activity and technical advice from extension
officers positively influenced loan repayment performance, while production loss, informal
credit, festivals and loan-to-income rate negatively influenced loan repayment at 95 percent
confidence level.

Wondimagegnehu (2012) also in his study ―determinants of NPLs on commercial banks of

Ethiopia‖ revealed that underdeveloped credit culture, poor credit assessment, aggressive
lending, botched loan monitoring, lenient credit terms and conditions, compromised integrity,
weak institutional capacity, unfair competition among banks, willful defaults by borrowers and
their knowledge limitation, fund diversion for unexpected purposes and overdue financing has

31
significant effect on NPLs. Conversely, the study indicated that interest rate has no significant
impact on the level of commercial banks loan delinquencies in Ethiopia.

As Tolosa (2014) who have been conducted his study on performance of loan repayment
determinants in Ethiopian microfinance. The researcher revealed that an increasing age of
borrowers can significantly influence repayment performance of borrowers. The elder borrowers
have better repayment performance than that of youngsters as argued by Abafita (2003) and
Fikirte (2011) respectively. Hence age, education, time laps between loan application and
disbursement, loan size, loan diversion, repayment period, number of dependents, availability of
training and supervision and advisory service to borrowers were found significant to influence
repayment performance of borrowers at 1 and 5% significance levels. The researcher employed
binary logistic regression to estimate the model.

32
 2.3. Conceptual Framework of the Proposed Study
The conceptual framework in the proposed study intends to examine the interconnection between
the variables in the study. It explores how the independent variable influences or determines the
dependent variable.

Figure 2.1: Conceptual framework of the proposed study

INDEPENDENT VARIABLES
nts

ym

rfo
ter

Ins
ce,

uti
rm
De

Credit Standards

on
Re
mi

en

Pe
an

an
na

pa

tit
Lo

Fa
of

al
t  Credit Monitoring DEPENDENT VARIABLES
 Credit Worthiness
 Loan Approval

Loan Terms and Conditions

 Repayment period
 Interest rate
Loan Repayment
 Duration of loan processing
Performance
 Decreased loan
Lending Policy and Procedures defaulters
 Standard underwriting processes  Improved loan
 Standard approval stages repayment
 Client history assessment procedures  Organizational image

Loan Collection Policy & Procedures

 Credit Collection Procedure
 Repayment monitoring
 Penalty in case of non-repayment

Loan Default Management Policy

 Legal action
 Liquidate the firm asset
 Default collection

Source: Adopted and Modified from Ross, Westerfield and Jordan (2008)

33
 3. RESEARCH DESIGN AND METHODOLOGY

3.1. Research Approach

The research approach will be quantitative research approach; it is a means for testing objective
theories by examining the relationship among variables. These variables, in turn, will be
measured, typically on instruments, so that numbered data will be analyzed using statistical
procedures.
3.2. Research Design
A research design influences the choice of analysis and sampling technique to use. It refers to the
overall strategy chosen to integrate the different components of the study in a coherent and
logical manner (Brown, 2006). Therefore, Explanatory studies and descriptive designs are
appropriate and will be intended to be used for the proposed study, which allows the researcher
for the gathering of information, summarize, present and interpret it for the purpose of
clarification (Creswell, (2003). The design will allow the researcher to draw conclusions on the
effect of Credit Management practices on loan repayment performance.
3.3. Data Type and Source
In the proposed study primary sources of data will be utilized through Questionnaires. The
questionnaires will be distributed to employees of Sinqee bank east showa district branches
which have 21 total branches.
3.4. Research Methodology
3.4.1. Target Population
To collect data about the practices of credit management and policies and loan repayment
performance of Sinqee bank the researcher intends to target all east showa district branches
employees which comprise a total employee of 304 as shown in the table below. Therefore,
target population of the study will be 304.
Table 3.1: Target Population of the Proposed Study
S.No Target Population in Each East Showa District Branches
Branch Name Place No of Employee
1 Adama Adama 21
2 Chafe 19
3 Barentu 12
4 Boku Shenen 13
5 Torban Obo 15

34
 6 Bishoftu 16
7 Adea Liben 19
8 Modjo 16
9 Tokuma 11
10 Hora Harsadi 14
11 Gimbichu 13
12 Liben Chukala 17
13 Wanji Gefersa 15
14 Olanciti 18
15 Fentale 10
16 Bole 8
17 Doni 8
18 Batu 10
19 Bulbula 16
20 Meki 20
21 Bora 13
Total 80
Source: Sinqee bank east showa district (2023)
3.4.2. Sampling Technique
For the purpose of the proposed study, the researcher will intend to use probability sampling
particularly stratified random sampling technique since the total population of the proposed study
is large and heterogeneous in type stratified sampling technique will be preferred. The target
population for the study will be classified into twenty one strata based on the organization 0r
branches. Then the samples will be selected from each stratum according to their proportion to
the total population. In this case respondents from each branches General Managers, financial
managers, credit analysts, operation managers, internal auditors will be considered in the sample.
3.4.3. Sampling Size Determination
Alreck & Settle (2005) noted that the choice of sample size is made after considering statistical
precision, practical issues and availability of resources. According to Malhotra & Peterson
(2006) there is no a single and precise way to determine the size of sample; hence there are a
number of inadequacy for deciding on sample size. The larger the sampling size of a research,
the more accurate the data generated. The researcher used Yamane’s (1967) formula to
determine the sample size for the study based on a 95% desired confidence level and a 5%
desired level of precision. Accordingly,

N
n=
1+ N (e)²

35
Where n is the sample size, N is the population size, and e is the level of precision. By using this
formula at 95% confidence level and 5% level of precision the sample size is obtained as
follows:

304
n= =172.72 ≈ 173
1+304 (0.05)²

From the total target population, 173 respondents will be considered as sample size of the
proposed study through considering the heterogeneity of sample respondents on the basis of
different units/ departments within the organization and its branch members.
Table3.2: Sample Size for each Branch Members
Branch Name No. of employees Percentile of each Proportionate Sample
in each branches population to the total to the total sample size
(e) population (P=e/N*100) (s=p*n)
Adama 21 6.91% 11.95 ≈ 12
Chafe 19 6.25% 10.81 ≈ 11
Barentu 12 3.95% 6.83 ≈ 7
Boku Shenen 13 4.28% 7.40 ≈ 7
Torban Obo 15 4.93% 8.53 ≈ 9
Bishoftu 16 5.26% 9.10 ≈ 9
Adea Liben 19 6.25% 10.81 ≈ 11
Modjo 16 5.26% 9.10 ≈ 9
Tokuma 11 3.62% 6.26 ≈ 6
Hora Harsadi 14 4.61% 7.98 ≈ 8
Gimbichu 13 4.28% 7.40 ≈ 7
Liben Chukala 17 5.59% 9.67 ≈ 10
Wanji Gefersa 15 4.93% 8.53 ≈ 9
Olanciti 18 5.92% 10.24 ≈ 10
Fentale 10 3.29% 5.69 ≈ 6
Bole 8 2.63% 4.55 ≈ 5
Doni 8 2.63% 4.55 ≈ 5
Batu 10 3.29% 5.69 ≈ 6
Bulbula 16 5.26% 9.10 ≈ 9
Meki 20 6.58% 11.38 ≈11
Bora 13 4.28% 7.40 ≈ 7
Total (N) 304304 100 173

Percentile formula Proportionate sampling formula

36
 e
p= ∗100 s= p∗n
N

Where: e = no of population in each branch

N= total number of population
n=total sample size
p = percentile
S=proportionate sample size
3.5. Data Collection Instruments
The researcher will intends to collect the data through structured questionnaires with closed
Likert type statement. The Likert type scale, commonly used in business research will be applied
because it allows participants to provide their perceptions and opinions both in terms of direction
(positive or negative) and intensity (degree of agreement or disagreement). The questionnaire
will be utilized with a five point likert scale namely Strongly disagree (SD), Disagree (D),
Neutral (N), Agree (A) and Strongly Agree (SA) which will be assigned scores of between 1 and
5. The closed ended questions and Likert type statements enabled the researcher to collect
quantitative data.

3.6. Data Collection Procedure

Before collecting the data, the instruments of the data will be prepared carefully and permission
of the selected branches will be taken. Then the objectives of the study will be explained to
subjects. Based on their willingness to participate in filling questionnaire the questionnaires will
be distributed.
3.7. Method of Data Analysis
After the data collection, both descriptive and inferential statistical techniques will be employed
to analyze the data. Descriptive analytical technique will be used with the aid of Statistical
Package for Social Sciences (SPSS) version 22. In order to describe the characteristics of the
study variables mean, standard deviation, frequencies, and percentages are intended to be used to
analyze and present the collected data in the proposed study. And also, the collected data will be
analyzed by Regression analysis and correlation analysis because it helps to investigate the
relationship between the independent variable of Credit Management practices and Loan
Repayment Performance and its effect on the dependent variables Loan Repayment performance.

37
3.8. Data Quality Assurance
In order to cross check its completeness the researcher will use Credit Risk Management
literature and empirical review of the previous researches on the area of the study. However,
according to the research texts, in survey based research, before the questioners are
administrated, it is important to validate the scales used for reliability and validity. The
researcher will intend to use a pre pilot and pilot survey to test the questioner validity and
reliability on current survey situations. In order to test face validity the questionnaire will be
given to the research adviser, academicians and employees from selected department of the
branches for their comment. Then, based on the observation of feedback of the academicians and
respondents, the redundant and ambiguous items will be either modified or eliminated.
3.8.1. Test of Validity
Malhotra (2010) mentioned about three types of validity in his study: content validity, predictive
validity, and construct validity. From the above mentioned validity types the proposed study will
intend to use content validity through the review of literature and adapting instruments used in
previous research and predictive validity test using the pilot test data and running Pearson
correlation between all independent variables and the dependent variable.
3.8.2. Test of Reliability
After the test of validity of the research instrument the next step is to cross check the constancy
and reliability of the instruments. Reliability refers to the extent to which data collection
techniques or analysis procedures yield consistent findings (Saunders, et al., 2009). Therefore,
based on the pilot test data collected from respondents mentioned above the reliability of the
variables will be measured by Cronbach alpha as a standard test for questionnaire accuracy.
3.9. Ethical Considerations
A formal letter will be written from Harambe University Adama campus, Department of
Accounting and Finance to concerned authorities of Sinqee bank east showa district branches.
The data collection will start after getting consent from the parties mentioned above. In addition
to this, name of the respondents (selected for the sample) will not be included to maintain
confidentiality.
4. Time and Budget Schedule

38
 4.1. Time Schedule
S.No Activities Duration
1 Proposal development and defense Week one, week two
2 Data collection Week three, four, five
3 Data analysis Week six, seven, and nine
4 Writing thesis submitting to advisor Week ten and eleven
5 Writing final thesis Week twelve and week thirtieth
6 Thesis defense Week fourteen, fifteen
The above table (activities) will be conducted from February/2023 to June 2023.
4.2. Budget Schedule
4.2.1. Transport Expense
Number of
S.No Traveler Departure Destination Cost/Trip Total
trips
1 Student Adama East D. Branches 10 200 2000

4.2.2. Miscellaneous Expense

S.No Purpose Cost
1 Photocopy service 3800
2 Thesis binding 1000
3 Internet service and others 2000
4 Restaurant (Cafe) 1000
5 Stationary materials 4500
Total 0

4.2.3. Budget Summary

S.No Description Subtotal Expense
1 Transport 2000
2 Miscellaneous Expense 12300
3 Total 14300

39
Reference
Nikolaidou E., & Vogiazas, S. (2014), Credit risk determinants for the Bulgaria banking system.
International Advance Economics Research, 20(1), pp. 87-102.

Richard, E., Chijoriga, M., Kaijage, E., Peterson, C., & Bohman, H. (2008). Credit risk
management system of a commercial bank in Tanzania. International Journal of
Emerging Markets, 3(3), pp. 323-332.

Abreham Garomsa (2016), ―Assessment of factors affecting loan repayment performance of

Borrowers: an empirical study on selected microfinance institutions Oromia region‖,
M.Sc Thesis, AAU.

Acquah H. D. & Addo J. (2011), Determinants of Loan Repayment Performance of Fisheries:

Empirical Evidence from Ghana, Cercetare Agwmonmice in Moldova XLIV, (4) (148) /
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Addisu,M. (2006) ‗Micro-finance Repayment Problems in the Informal Sector in Addis Ababa‘,
Ethiopian Journal of Business & Development Volume 1 Number 2 August 2006.

Ayele Shirga (2016). Determinant of successful loan repayment Performance in project financing
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school of Graduate studies, in partial fulfillment of the requirements for the degree of
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Bekele Hundie (2001). Factors Influencing Loan Repayment performance of Small-holders in

Ethiopia. MSc thesis Submitted to School of Graduate Studies of Haramaya University,
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