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Determinants of Loan Repayment: Evidence from Group Owned
Micro and Small Enterprises, Tigray, ort!ern Et!iopia

*itbare+ ,iros
Department of -anagement( .ollege of /usiness and Economics( JigJiga 0niversit1
E-mail2 1+iros3gmail.com

"#stract
45e stud1 aims to investigate factors affecting loan repa1ment performance of t5e group owned -SEs ta+ing
borrower c5aracteristics in to consideration. 45e primar1 data was collected b1 distributing semi-structured
6uestionnaire and interviewing 72 group owned -SEs located in -e+elle cit1( 4igra1 8egional state of Et5iopia
financed b1 DE.SI b1 using census met5od( of w5ic5 19 group owned -SEs were found to be defaulters and
t5e remaining( ): -SEs were non-defaulters. ;n econometrics model !/inar1 <ogistic 8egression# was used to
anal1=e t5e effect of t5e literature driven variables 5ave on loan repa1ment !dependent variable#. 45e binar1
logistic regression result s5ows among t5e variables 51pot5esi=ed to affect loan repa1ment( initiation and sector
5ave statisticall1 significant effect on loan repa1ment. >5ereas li+e group composition and group si=e 5ave
statisticall1 insignificant effect on loan repa1ment. 45erefore( to improve t5e loan repa1ment performance of t5e
group owned -SEs and increase t5e potential contribution of -SEs to t5e economic growt5 of t5e countr1( all
concerned sta+e5olders must to pla1 t5eir role.
$eywords: Determinant( <oan 8epa1ment( ?roup &wned( -icro and Small Enterprises( /inar1 <ogistic
8egression <ogistic( 4igra1( Et5iopia.

%& 'ntroduction
>ell-functioning and organi=ed financial mar+ets are pre-re6uisites for sustainable development. /ut suc5
mar+ets are often lac+ing in developing countries !?uus5( 2)#. 45e poor are usuall1 e@cluded from credit
facilities because of man1 reasons. 45ese include insufficient collateral to support t5eir loans( 5ig5 transaction
costs( unstable income( lower literac1 and 5ig5 monitoring costs !-ead A <ied5olm( 1::$#. In t5e past man1
governments devoted resources to suppl1ing c5eap credit to farmers. In most cases( t5e result was rat5er
disappointing. 45e failure was partl1 due to failures to set up and implement prudent and innovative institutional
approac5es suited to local situations and conte@ts !?uus5( 2)#. -oreover( bureaucratic lending procedures(
stringent collateral re6uirements( and 5ig5 transaction costs made t5e problem worse !Jemal( 29#.
45is time( -icrofinance Institutions !-BIs# are growing as an innovative means of widening access to
financial services in developing countries. In most poor countries( t5e obCective 5as been two fold2 reducing t5e
ris+ of income s5oc+s to 5elp reduce povert1 and raising asset accumulation to encourage private activit1
!;rmendDri= A ?ollier( 2#. ;dditionall1( micro and small enterprises !-SEs# 5ave been recogni=ed as a
maCor source of emplo1ment and income in man1 countries of t5e t5ird >orld !-ead A <ied5olm( 1::$#. 45e
>orld /an+ claims t5at between one t5ird and t5ree 6uarters of total emplo1ment in most developing countries
comes from informal sector !Nor5a=ia5 A -o5dnoor( 21#.
&ne of t5e met5odologies of t5e microfinance institutions in e@tending finance to t5e need1 is group
lending. Since t5e 1:7s( group lending programs 5ave been promoted in man1 developing countries. 45e idea
be5ind group lending is t5at t5e group obtains a loan under Coint liabilit1( so eac5 member is made responsible
for repa1ment of loans of 5is or 5er peers !Eeller( 1::7#. 45e t5reat of losing access to future credit incites
members to perform various functions( including screening of loan applicants( monitoring t5e individual
borrowerFs efforts( fortunes( s5oc+s( and enforcing repa1ment of t5eir peersF loans !Eeller( 1::7#. <enders use
t5e t5reat of banning t5e entire group from future loans if one or more of t5e group members fail to repa1
induces borrowers to be5ave to t5e interest of t5e -BI b1 self-selecting eac5 ot5er and coerces t5em to monitor
eac5 ot5erFs proCects !?uus5( 2)#.
?roup based institutions 5ave been able to perform so well w5ile ot5ers failed. 45e success of -BIs is
because( in group based programs( t5e function of screening( monitoring( and enforcement of repa1ment are to a
large e@tent transferred from t5e ban+ to borrowers. 45e main argument is t5at( compared to t5e p51sicall1
distant ban+s( group members can obtain at low cost( information regarding t5e reputation( indebtedness and
wealt5 of t5e loan applicant and about 5is or 5er effort to ensure t5e repa1ment of t5e loan. 45us( group
members are found to be able to access comple@ and sensitive information. Burt5er( more group members can
potentiall1 emplo1 sanctions or sei=e t5e p51sical collateral of t5e defaulter. ;nd also group members appear to
be in a better position to access t5e reason for default and to offer insurance services to members e@periencing
s5oc+s be1ond t5eir control !-ano5ar A Eeller( 1::7#.
It is important to note( 5owever( t5at group lending ma1 not ensure 5ig5 repa1ment rates at all times.
8epa1ment problems become t5e main obstacle for t5e -BIs to continue providing microcredit services
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!Nor5a=ia5 A -o5dnoor( 21#. >5en loans are received on t5e basis of Coint liabilit1( t5e ris+ of loan default
b1 a particular member is s5ared b1 5isG5er peers. It ma1 also be t5at borrowerFs assessment of 5is or 5er peerFs
li+eli5ood of defaulting triggers t5e borrowerFs own decision to default. ;nd also groups be1ond a certain si=e
ma1 e@perience increased difficult1 of communication and coordination so t5at bot5 information and monitoring
advantage of t5e group are dilute !-ano5ar A Eeller( 1::7#. ;nd also( t5e lenders cannot observe t5e be5aviors
of t5eir clients w5et5er t5e1 are 5onest and dis5onest. 45e lenders onl1 observe t5e outcome of t5e loans eit5er
t5e clients repa1 or not !Nor5a=ia5 A -o5dnoor( 21#.Hence( loan repa1ment problem is one of t5e maCor
issues of -BIs t5at concerns man1 sta+e5olders were t5e 5ig5 loan default rate is t5e primar1 cause for t5e
failure of -BIs. 45is researc5 t5erefore( aims to investigate t5e factors affecting loan repa1ment of t5e group
owned micro and small enterprises !-SEs# financed b1 Dedebit .redit and Saving Institution !DE.SI# located
in -e+elle cit1( 4igra1 regional state of Et5iopia.

(& Literature Review
/ruce and ,ofi( !1:::# conducted a researc5 on t5e determinants of loan default and delin6uenc1 in rural credit
programs in ?5ana using a logit regression. 45e stud1 reveals t5at( a person w5o is married is

less li+el1

to
default t5an one w5o is separated or divorced. ; male is more li+el1 to default t5an a female. Holding
ever1t5ing else constant( t5e larger t5e loan( t5e less li+el1 a person is to default. /orrowers wit5 an elementar1
or secondar1 education

are more li+el1 to default compared to t5ose wit5 no formal sc5ooling.

;ccording to ;Ca1i !1::2#( t5e factors w5ic5 influence loan default in mortgage finance institution
wit5 particular reference to t5e Bederal -ortgage /an+ of Nigeria using multiple regression anal1sis based on
12$ samples s5owed t5at default 5as largel1 been positivel1 influenced b1 cost of construction( mont5l1
repa1ment( loan to value ratio( mar+et value of propert1( age of borrower and t5e annual income of borrower.
45e e@pected rental income from propert1( 5owever( 5ad a negative influence on default.
; stud1 made b1 NCo+u and &dii !1:::# on t5e determinants of loan repa1ment in Nigeria b1
emplo1ing multiple regression model based on 9 sample beneficiaries indicated t5at poor loan repa1ment
performance was as result of late release of loan funds( cumbersome loan application and disbursement
procedures and emp5asis on political considerations in loan approvals. In addition( loan diversion to non-
agricultural enterprises as well as low enterprise returns resulting from low adoption rate of improved
agricultural tec5nologies contributed to poor loan repa1ment performance of small 5olders. <oan volume( 1ears
of farming e@perience( farming as maCor occupation( 1ears of formal education( 5ouse5old si=e( loan period(
farm si=e( farm output( value of assets and interest paid on loan were all 5ig5l1 significant determinants of loan
default. 45e coefficients of loan volume( 1ears of formal education( 5ouse5old si=e and interest paid on loan are
positive w5ile t5e coefficients for 1ears of farming e@perience( loan period( farm si=e( farming as maCor
occupation( farm output( and value of assets are negative.
;ccording to !,as5uli=a( 1::9#( 5e used a linear regression model to anal1=e determinants of loan
repa1ment in small5older agriculture in t5e sout5ern 5ig5lands of 4an=ania. His stud1 s5owed t5at education(
attitude towards repa1ment( farm income and off-farm income positivel1 affect loan repa1ment wit5 farm
income being significant( w5ile age( 5ouse5old e@penditure and 5ouse5old si=e 5ave negative influence on loan
repa1ment performance wit5 5ouse5old e@penditure being significant.
; stud1 b1 ;de !1:::# on t5e determinants of small 5older loan repa1ment performance evidence
from Nigerian micro-finance s1stem found out t5at t5e proportion of borrowers wit5 secondar1 education(
number of times borrowers were visited b1 loan officials and t5e loan si=e were t5e maCor factors t5at cause t5e
loan default b1 t5e borrower.
; stud1 made b1 8oslan and -o5d !2:# on t5e determinants of microcredit repa1ment in -ala1sia
t5e case of ;gro ban+ b1 ta+ing a sample of 79 and emplo1ing probit and logit models indicated t5at t5e factors
t5at influence loan repa1ment are gender of t5e borrower( t1pe of business activit1( amount of loan and training.
;ccording to t5eir result t5e probabilit1 of loan default is 5ig5er for males( if t5e borrower is engaged in t5e
production activit1( if t5e amount of loan is 5ig5er and if t5e borrower did not ta+e an1 training.
'igano !1::9# in 5is stud1 about t5e case of development ban+ of /ur+ina Baso emplo1ed a credit-
scoring model. He found out t5at being women( married( aged( more business e@perience( value of assets(
timeliness of loan release( small periodical repa1ments( proCect diversification and being a pre-e@isting depositor
are positivel1 related to loan repa1ment performance. &n t5e ot5er 5and( loan in +ind( smaller loan t5an re6uired(
long waiting period from application to loan release and availabilit1 of ot5er source of credit were found to 5ave
negative relation wit5 loan repa1ment performance.
.5irwa !1::7# estimated t5e probabilit1 of agricultural credit repa1ment utili=ing data from five
;gricultural Development Divisions in -alawi using a probit model. 45e result are based on 1297 sample
farmers s5owed t5at t5e availabilit1 of resources from crop sales and income transfers( t5e si=e of t5e club( t5e
degree of diversification and t5e 6ualit1 of information determined t5e probabilit1 of repa1ment. In contrast(
ot5er factors suc5 as amount of loan( se@ of 5ouse5old 5ead( and si=e of 5ouse5old were not statisticall1
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significant. .rop sales( income transfers( degree of diversification and 6ualit1 of information are positivel1
related wit5 t5e probabilit1 of repa1ment.

)& Researc! Met!od
4o e@amine t5e factors affecting t5e loan repa1ment of group owned -SEs( t5is stud1 draws on empirical
evidence from t5e 212 surve1 covering 72 purposivel1 selected -SEs from -e+elle cit1 4igra1 regional state
of Et5iopia. ; semi-structured 6uestionnaire and personal interview were used to collect first 5and data. 45e
data collected in t5is wa1 was classified( summari=ed and presented using te@t and table( and anal1=ed using t5e
descriptive statistical tools li+e percentages( ratios( mean and standard deviation. In addition( t5e econometric
anal1sis tool t5at is binar1 c5oice logistic regression model was used to test t5e literature driven 51pot5esis and
to draw conclusions.
)&% T!e Model
In t5is stud1 -SEs are assumed to be eit5er defaulting or non-defaulting. Hence t5e binar1 c5oice logistic regression
model t5at assumes dic5otomous dependent variable w5ic5 ta+es eit5er 1 or value depending on
*
I is used
<et *
i
J 1( if t5e borrower repaid t5e full amount of t5e loan wit5in t5e given maturit1 period.
*
i
J( if t5e borrower did not repaid t5e full amount of t5e loan wit5in t5e given maturit1 period.
/ut *
i
J 1( if 1I is K
*
i
J ( if 1I is L
>5ere 1I is a latent variable. It is unobserved variable w5ic5 can affect t5e loan repa1ment b1 t5e borrower.
Hence it cannot be measured.
45e probabilit1 t5at a borrower will repa1 t5e loan is given b12
P
i
(Y
i
=1) = or --------- Equation 1

If t5e probabilit1 of repa1ing t5e loan is given b1 e6uation 1( t5en t5e probabilit1 of non-repa1ment of t5e loan is2
"
i
!*
i
J#

1- "i J

45erefore( we can write
= = e
zi
---------

Equation 2
Now( is simpl1 t5e odd ratio- t5e ratio of t5e probabilit1 t5at t5e borrower repa1s t5e loan to t5e
probabilit1 t5at t5e borrower does not repa1 t5e loan wit5in t5e given maturit1 period. -at5ematicall1( t5e
model is specified as follows2-
LR= =
0
+
1
SO+
2
GS+ +
3
IN+ +

G!+e
i

>5ere2 J Natural logarit5m of t5e odd ratio !logistic model#( w5ic5 is t5e marginal effect.
LRJ <oan repa1ment !Dependent variable#
SOJ Sector of operation
GSJ ?roup si=e
'J Initiation
G*J ?roup composition
)&( Specifying dependent and independent varia#les
In t5is stud1 loan repa1ment( w5ic5 is dependent variable( is a dic5otomous( ta+ing two values t5at is M1N if t5e
borrower repaid in full and MN if t5e borrower did not repaid in full. 45e independent variables t5at t5at are
criticall1 e@amined in t5is stud1 are2-
Sector versus loan repayment
-SEs t5at engage in t5e service sector as compared to ot5er sectors li+e construction( manufacturing( and
agriculture face a lower loan default or a better loan repa1ment. 45is is because( service sector is less e@posed to
ris+ and uncertaint1 relative to ot5er sectors of t5e econom1 !8oslan A -o5d( 2:#.
Hypothesis 1: MSEs that are engaged in the service sector have a higher probability of loan repayment as
compared MSEs engaged in other sectors.
Group si+e versus loan repayment
45e larger t5e group si=e( t5e more imperfect are t5e flows of information li+el1 to be between members. Hence(
problems arising out of as1mmetric information ma+e monitoring and enforcing costl1 and less effective.
45erefore( loan repa1ment b1 t5e group is e@pected to decrease wit5 group si=e increasing !;rene( 1::2O /5att
A 4ang( 21O -ano5ar A =eller( 1::7#.
Hypothesis 2: The smaller the group size the higher the probability of loan repayment by the MSEs.
'nitiation versus loan repayment
It is 51pot5esi=ed t5at screening is more effective wit5 groups t5at are formed on t5eir own t5an wit5 t5ose
groups t5at depend on t5e intervention from an outside agent( indicating t5at delin6uenc1 or default rates are
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lower for groups t5at are formed on t5eir own !-ano5ar A Eeller(1::7#. In contrast wit5 t5is( it is of no
significance w5et5er t5e group was formed at t5e initiative of t5e e@tension officer or not !Eeller( 1::7#. /ut( in
t5is stud1( if t5e group is formed on its own it is positivel1 related to loan repa1ment b1 t5e group.
Hypothesis !: MSEs formed by the members themselves have a higher probability of loan repayment as
compared to the MSEs formed by an outside agent.
Group composition versus loan repayment
?roup 5omogeneit1 is defined as group members s5are some similar c5aracteristics suc5 as religion( age( and
educational status. 45e researc5er e@pects t5at group 5omogeneit1 to 5ave a positive impact on loan repa1ment.
45is is becauseO t5e costs of monitoring decreases if t5e group is 5omogenous and t5ere is also unconditional
5elp among group members as 5omogeneit1 increases social co5esiveness !Eeller( 1::7#.
Hypothesis ": MSEs that are homogenous have a higher probability of the loan repayment as compared to MSEs
that are heterogeneous.

,& Results and Discussion
Sector vs& Loan Repayment
4able ).9 reveals t5at groups engaged in t5e agriculture sector 5ave =ero average loan repa1ment as compared to
ot5er sectors in t5e econom1. 45e reason is t5at( groups engaged in t5e agriculture sector are more e@posed to
ris+ and uncertaint1 as compared ot5er sectors. In comparison( manufacturing sector 5as a better loan repa1ment(
w5ic5 is on average $7.%P as compared to construction sector wit5 average loan repa1ment rate of 77.2P.
Service sector 5as s5owed better loan repa1ment rate of $$.:P as compared to construction and manufacturing
sectors. ;s per t5e result obtained from t5e model !see table 1#( sectors of construction and manufacturing 5ave a
positive relation wit5 loan repa1ment and statisticall1 significant at 1P level of significance. /1 ta+ing t5e
service sector as reference( t5e construction sector 5as a marginal value of -.$)$ w5ic5 implies t5e probabilit1
of loan repa1ment deceases b1 $.)$ P for t5ose borrowers w5o are engaged in t5e construction sector as
compared to t5ose borrowers w5o are engaged in t5e service sector. 45e same is true for t5e manufacturing
sector( t5e marginal effect for t5e manufacturing sector is -.::9 w5ic5 indicates t5at t5e probabilit1 of loan
repa1ment decreases b1 :.:9P for t5ose borrowers w5o are engaged in t5e manufacturing sector. 45is finding is
similar wit5 t5e result obtained on t5e descriptive anal1sis and wit5 t5e findings of 8oslan and -o5d !2:#.
45erefore t5e 51pot5esis MMSEs that are engaged in the service sector have a higher probability of loan
repayment as compared MSEs engaged in other sectorsN is accepted.
Group Si+e vs& Loan Repayment
Brom c5art ).1 it can be observed t5at more default is witnessed in groups wit5 group si=e ranging from 1 to 1%
members as compared to groups wit5 members greater t5an 1% persons per group. 45is implies t5at( t5ere is no
problem of loan repa1ment even if group si=e increases. 45e possible reason for t5is could be as obtained from
t5e stud1( all t5e contacted groups 5ave internal rules and regulations to guide t5e activit1 of group members.
Hence( t5ere is no communication gap and no information as1mmetr1 ma+ing monitoring effective and less
costl1. Burt5ermore( larger groups 5ave more opportunities to e@ploit scale effects t5roug5 Coint procurement of
inputs and mar+eting of outputs( t5us increasing t5eir negotiation power to obtain more favorable prices. ;lso(
larger groups 5ave a greater scope for diversification of ris+s. Similarl1( t5e same result was obtained from t5e
econometric anal1sis !see table1#. Hence( it implies t5at group si=e 5ave no effect on loan repa1ment
performance. 45is result contradicts wit5 t5e findings of ;rene !1::2#( /5att and 4ang !21#( and -ano5ar and
Eeller !1::7#.
'nitiation vs& Loan Repayment
Brom table ).) it is possible to understand t5at groups formed b1 t5e members t5emselves 5ave witnessed a
better loan repa1ment wit5 an average loan recover1 rate of $$.%P as compared to groups formed b1 an outside
agent t5at registered an average loan repa1ment rate of 9P. 45erefore( from t5is result it can be concluded t5at
screening and selecting of creditwort51 group member is more effective wit5 groups t5at are formed b1 t5e
members t5emselves indicating a lower rate of loan default for t5ese groups. Similar result was obtained from
t5e econometric anal1sis( w5ic5 is( t5e marginal effect of -.9$$ s5ows !see table 1#( ot5er t5ings remain
constant( t5e probabilit1 of loan repa1ment decreases b1 9$.$P for t5ose groups w5o are initiated b1 an outside
agent or promoter as compared to t5ose groups w5o are initiated b1 t5e members t5emselves. 45e result is
consistent wit5 t5e result obtained on t5e descriptive anal1sis and wit5 t5e findings of -ano5ar and Eeller
!1::7#. /ut it contradicts wit5 t5e findings of Eeller !1::7#. Hence t5e 51pot5esis #MSEs formed by the
members themselves have a higher probability of loan repayment as compared to the MSEs formed by an outside
agent$ is accepted.
Group *omposition vs& Loan Repayment
45e surve1 result s5ows t5at %9!$%.)$P# of t5e respondents believe t5at t5ere is 5omogeneit1 among group
members. >5ile t5e remaining :!1).%2P# of t5e respondents believe t5at t5ere is 5eterogeneit1 among t5e group
members. Brom table ).% it can be observed t5e average loan repa1ment for 5omogenous group is 7:.2P and
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77.$P for 5eterogeneous groups. Similar result was obtained from t5e logistic regression !table1# and t5erefore(
group compositions 5ave no effect on t5e loan repa1ment performance of t5e borrowers. 45is result contradicts
wit5 t5e findings of Eeller !1::7#.

-& *onclusion
4o articulate about loan repa1ment( out of 72 groups ):!7:.9P# groups are found to be non-defaulters w5ereas
t5e remaining 19!2.:7P# are defaulters.
In identification of t5e most important e@planator1 variables t5at affect loan repa1ment b1 t5e group
owned -SEs is conducted using binar1 logistic regression model. 45e model reveals t5at among four
e@planator1 variables w5ic5 were 51pot5esi=ed to influence loan repa1ment b1 borrowers( 2 variables were
found to be statisticall1 significant. 45ese variables are2 initiation and sector. 45e remaining two variables were
found to be statisticall1 insignificant in affecting loan repa1ment performance of t5e group owned -SE. 45e
two variables are group si=e and group composition.
>5en triangulating t5e findings of t5is researc5 wit5 findings of different researc5ers described t5e
same result was also obtained wit5 8oslan and -o5d !2:# wit5 regard to sector. 45at is( service sector is
positivel1 related and 5ave significant effect on loan repa1ment b1 t5e -SEs as compared to construction and
manufacturing sectors. 45e possible reasons w51 service sector 5as performed better t5an construction and
manufacturing sectors is t5at( service sector ma1 be less e@posed to ris+ and uncertaint1 t5an construction and
manufacturing sectors and also construction and manufacturing sectors face fre6uent fluctuation in price of input
materials and also unsustainable suppl1 of input materials and t5is could affect loan repa1ment b1 t5e -SEs
operating in construction and manufacturing sectors. ?roups operating in construction and manufacturing
sectors 5ave witnessed lower loan repa1ment performance as compared to groups engaged in service sector.
45ese two sectors !construction and manufacturing# 5ave lower loan repa1ment due to s5ortage of mar+et for
t5eir production output and fre6uent increase in price of input materials t5ese two sectors use. 45erefore(
especial attention is needed b1 t5e concerned sta+e5olders !DE.SI( /4I( and 8egional -SEs development
agenc1# in providing t5ese two sectors wit5 mar+et lin+age to sell t5eir output and t5ere s5ould also be
continuous suppl1 of input materials for t5ese two sectors use in t5eir production until t5ese two sectors build
capacit1 to operate on t5eir own. Especial attention is needed for two t5ese sectors because t5ese two sectors can
pla1 decisive role in reducing unemplo1ment level in t5e cit1 since t5ese two sectors are labor intensive
>it5 regard to variable initiation( groups t5at are formed on t5eir own were found to be better loan
repa1ment pa1ers as compared to groups t5at are formed b1 an outside agent. 45is mig5t be because of( for
groups t5at are formed b1 t5e members t5emselves selecting and screening of creditwort51 group member is
more effective since group members can access comple@ and sensitive information about t5e group member.
Hence( group members can easil1 identif1 t5e creditwort5iness of group member. 45is result concurs wit5 t5e
findings of -ano5ar and Eeller !1::7# but it contradicts wit5 t5e result of Eeller !1::7#.
;s discussed above 29 groups or -SEs were found to be defaulters. 45ese 29 group owned -SEs
5ave disappeared wit5out repa1ing loan. -ost of t5ese groups were engaged in construction sector. ;s per
discussion 5eld wit5 one loan officer of DE.SI( one reason for low loan repa1ment b1 -SEs is t5e wrong credit
perception of borrowers. 45at is borrowers consider loan as donation and opted-not-to pa1 bac+. 45erefore( t5is
s5ows t5e environment is contaminated and DE.SI s5ould create awareness among clients before disbursing
loan to clients t5at t5e loan 5as to be repaid so t5at DE.SI can 5ave sustainable and viable operation and t5is
enables DE.SI to reac5 millions of poor people in t5e region t5ereb1 eradicating povert1 from t5e region.
/1 strengt5ening its I4 s1stems( DE.SI can easil1 facilitate t5e suppl1 of up-to-date loan repa1ment statements
and enable earl1 detection of potential slow loanees and defaulters. 45is will facilitate appropriate action
including( follow-up( counseling or serving demand notices.

Reference
;de( S. &. !1:::#. Determinants of small 5older loan repa1ment performance2 Evidence from Nigerian micro
Binance s1stem. Savings and %evelopment( 1( :%-1$.
;Ca1i( .. ;. !1::2#. ;n anal1sis of default factors in residential mortgages of t5e federal mortgage ban+ of
Nigeria. &frican 'evie( of Money )inance and *an+ing( 2( 29-21%.
;rene( .. J. !1::2#. <oan repa1ment and tec5nical assistance among small 5older mai=e farmers in Nigeria.
&frican 'evie( of Money )inance and *an+ing( 1.
;rmendDri= de ;g5ion( /.( A ?ollier( .. !2#. "eer group formation in an adverse selection model. Economic
,ournal( 11- !1#( 792-7)9.
/5att( N.( A 4ang( S. !21#. Delivering microfinance in developing countries2 .ontroversies and polic1
perspectives. .olicy Studies ,ournal( 2/!2#
/ruce( H. D.( A ,ofi( Q. D. !1:::#. 45e determinants of loan default and delin6uenc1 in rural credit programs in
?5ana. .olicy Studies ,ournal( %)!1)#2 %$-79.
Journal of Economics and Sustainable Development www.iiste.org
ISSN 2222-17 !"aper# ISSN 2222-2$%% !&nline#
'ol.%( No.1% 21)

)7
.5irwa( E. >. !1::7#. ;n econometric anal1sis of t5e determinants of agriculture credit pa1ment in -alawi.
&frican 'evie( of Money )inance and *an+ing Supplement of the Savings and %evelopment
,ournal( 1!2#( 17-11:.
?uus5( /. 4. !2)#. 8is+ matc5ing be5avior in credit group formation and implications for repa1ment2
Evidence from 4igar1( !-asterFs 45esis#( >ageningen 0niversit1( Net5erlands.
Jemal( ;. !29#. -icrofinance and loan repa1ment performance2 .ase Stud1 of t5e &romia .redit and Savings
S5are .ompan1 !&.SS.&# in ,u1u( !-aters 45esis#( ;ddis ;baba 0niversit1( ;ddis ;baba(
Et5iopia.
,as5uli=a( ;. !1::9#. <oan repa1ment and its determinants in small5older agriculture2 ; case stud1 in t5e
Sout5ern Hig5lands of 4an=ania. East &frica 'evie(( /!1#.
-ano5ar( S.( A Eeller( -. !1::7#. 8epa1ment performance in group-based credit programs in /anglades52 ;n
empirical anal1sis. 0orld %evelopment( 21!1#( 1791-17)2.
-ead( D. ..( A <ied5olm( .. !1::$#. D1namics of micro and small enterprises in developing countries. ,ournal
of 0orld %evelopment( 22!1#( 71-7).
NCo+u( J. E.( A &dii( -. ;. !1:::#. Determinants of loan repa1ment under t5e special emergenc1 loan sc5eme
!SE;<S# in Nigeria2 ; case stud1 in Imo State. &frican 'evie( of Money )inance and *an+ing( 1(
9:-%1.
Nor5a=ia5( N.( A -o5dnoor( -. !21#. Determinants of repa1ment performance in microcredit "rograms.
3nternational ,ournal of *usiness and Social Science( 1!2#.
8oslan( ;. H.( A -o5d( E. ;. !2:#. Determinants of micro credit repa1ment in -ala1sia2 45e case of ;gro
ban+. ,ournal of Humanity and social sciences( "!1#( )%-%2.
'igano( <. !1::9#. .redit scoring model for development ban+s2 ;n ;frican case stud1. Savings and
%evelopment( 14!)#( ))1-)$2.
Eeller( -. !1::7#. Determinants of repa1ment performance in credit groups2 45e role of program design( intra-
group ris+ pooling and social co5esion. Economic %evelopment and 5ultural 5hange( "2!9#( %::-
721.
"nne.:
4able ).1 Summar1 result of logit model on factors affecting loan repa1ment
'ariables &dds 8atio 8obust
Std. Err.
E "KR=R S:%P .onf. IntervalT d1Gd@
?roup
composition
7.7:)7% $.1711:$ 1.%7 .11: .712%2 - 79.22797 .9$%9
Initiation .)79 .177% -2.$ .97II 9.977 - .797)7)7 -.9$77:$7
?roup si=e 9.9:12 7.2$11 -1.)9 .1%) %.::2$ - 1:2%.$$ -.297)17
>it5 reference to service sector
.onstruction 7.277 :.$17 -1.)7 .III %.1)$ - .19 -.$)$92$9
-anufacturing ).71$ %.19$ -1%.1$ .III %.21: - ).$7 -.::99$7
Source2 S4;4; output from surve1 data !212#.
III Significant at 1P( IISignificant at %P( ISignificant at 1P
d1Gd@ is a marginal effect after logistic w5ic5 is discrete c5ange of dumm1 variable from to 1

4able ).2 H1pot5esis Decision
No H1pot5eses p-value Decision
1 ?race "eriod 's <oan 8epa1ment .III 8eCect H1pot5esis
2 Initiation 's <oan 8epa1ment .97II ;ccept H1pot5esis

9 8epa1ment "eriod 's <oan 8epa1ment .III ;ccept H1pot5esis
) Service Sector 's <oan 8epa1ment .III ;ccept H1pot5esis
% 4imeliness of <oan 8elease 's <oan 8epa1ment .:)I ;ccept H1pot5esis
Source2 S4;4; output from surve1 data !212#.
III Significant at 1P( IISignificant at %P( ISignificant at 1P

Journal of Economics and Sustainable Development www.iiste.org
ISSN 2222-17 !"aper# ISSN 2222-2$%% !&nline#
'ol.%( No.1% 21)

)7
4able ).9 Summar1 of loan repa1ment b1 Sector
Sector o& / Defaulters / on0
Defaulters
/ Mean S&D
;griculture ) 7.%P ) 1P - -
.onstruction 21 99.:P % 29.$P 17 77.2P .772 .)97
-anufacturing 1: 9.7P ) 21.%P 1 7$.:P .$7% .9)1
Service 1$ 2:.9P 2 11.1P 17 $$.:P .$$$ .929
Source2 S4;4; output from surve1 data !212#

4able ).) Summar1 of loan repa1ment b1 initiation
'nitiation o& / Defaulter / on0Defaulter / Mean S&D
/1 ?roup %2 $9.$7P 7 11.%)P )7 $$.%P .$$% .922
/1 "romoter 1 17.19P 7 7P 9 9P .9 .)$9
Source2 S4;4; output from surve1 data !212#

4able ).% Summar1 of loan repa1ment b1 group composition
?roup .omposition &bs. -ean S.D
Bor >5ole respondents 72 .$%)$ .9%%1
Bor 5eterogeneous : .7777 .)):
Bor Non-defaulters %9 .7:2) .):)
Source2 S4;4; output from surve1 data !212#
.5art ).1 ?roup si=e vs. loan repa1ment

Source2 Surve1 result !212#
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