Determinants of loan repayment performance in microcredit institutions: Evidence from TanzaniaAsia-African Journal of Economics and Econometrics (2009)
AbstractThis study investigated the key factors that influence loan repayment performance among group clients of microcredit institutions (MFIs) in Tanzania. This was motivated by the fact that sustainability of MFIs is critical for poverty reduction among the poor through sustainable access to credit. Sustainability of microcredit institutions is greatly influenced by the loan repayment performance of their clients. High repayment rates enable MFIs to recover interest income and minimize loan losses which enhance profits. In turn, these profits enhance the capital base which enables microcredit institutions to increase their outreach and reduce their dependence on donors. The study was based on a sample of 150 respondents from PRIDE3 and FINCA4 in Kariakoo Division, Dar Es Salaam, Tanzania. The logit model regression results suggest that experience, training time, and sanctions have positive and significant effects on loan repayment performance among group clients of MFIs. However transaction costs and group size have negative and significant effects on loan repayment performance. The policy options to improve loan repayment performance among group clients of MFIs in Tanzania include: encouraging long term relationship with groups (i.e. client retention), adequate training of groups, establishing lasting social sanctions within the groups and by the microcredit institutions, cutting down transaction costs incurred by groups and encouraging more coordination amongst MFIs through the creation of a credit reference bureau.
Citation InformationAbel A Kinyondo and Nathan Okurut. "Determinants of loan repayment performance in microcredit institutions: Evidence from Tanzania" Asia-African Journal of Economics and Econometrics Vol. 9 Iss. 2 (2009)
Available at: http://works.bepress.com/abel_kinyondo/1/