Author(s)

Abduselam Abdulahi^*, Melaku Charkos, Abdikani Haji

Department of Agricultural Economics and Agribusiness Management, Kebri Dahar University, Kebridahar, Ethiopia.

Somali microfinance finance institute (SMFI) was established to provide inclusive financial services to rural and urban poor households with the ultimate goal of poverty alleviation in the Somali regional state. Even though SMFI is working better to upgrade itself to a licensed bank-Shabelle Bank and is showing livelihood improvement for poor households in the Somali region so far, loan repayment problems are currently the major challenge facing the institute, which can discourage it from promoting and extending credit to poor people in the future. Therefore, this study intended to assess the determinants of the loan repayment capacity of borrowers in the Kebridahar District of Korahey Zone. Out of the total 4330 borrowers received from the SMFI Kebridahar branch, 188 representatives were selected by dividing the borrowers into two strata, in terms of loan payment status defaulters and non-defaulters. Data were collected from both primary and secondary sources. The primary data was collected from a sample of 188 borrowers using a two-stage sampling method. Descriptive statistics and an econometric model were used to analyze the data. The result of descriptive statistics revealed that Education level, household head experience in credit, family size, marital status, loan diversion, occupation type, and getting trained were shown significant differences between defaulters and non-defaulters. According to the logistic regression model result out of nine variables included in the model, Age, education level, and access to training of household head positively and significantly affected the loan repayment capacity of the borrowers while marital status (get-married) and loan size were found to be negative and significantly affecting the repayment capacity of the borrowers. Therefore, this study recommends that the microfinance and other regional concerning offices should give attention to these significantly affecting variables for further strategic and policy decisions.

Microfinance, Loan Repayment, Client, Determinant, Logistic Regression

Abdulahi, A. , Charkos, M. and Haji, A. (2022) Socio-Economic Determinants of Loan Repayment Capacity of Somali Microfinance Clients in Kebridahar Town, Somali Regional State, Ethiopia. Journal of Financial Risk Management, 11, 658-676. doi: 10.4236/jfrm.2022.113032.