TITLE:
Socio-Economic Determinants of Loan Repayment Capacity of Somali Microfinance Clients in Kebridahar Town, Somali Regional State, Ethiopia
AUTHORS:
Abduselam Abdulahi, Melaku Charkos, Abdikani Haji
KEYWORDS:
Microfinance, Loan Repayment, Client, Determinant, Logistic Regression
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.11 No.3,
September
28,
2022
ABSTRACT: 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.