FACTORS AFFECTING LOAN REPAYMENT PERFORMANCE: THE CASE OF AWACH SAVING AND CREDIT COOPERATIVE

Abstract

SACOOs are very important in Ethiopia for delivering various services to large number of people who cannot afford to obtain credit service from formal financial institutions such as banks due stringent rules and regulations of formal financial institutions. The critical problem which is facing most of SACOOs in Ethiopia is loan default. Therefore, the study sought to assess Loan disbursement and repayment practice and factors affecting loan repayment performance among one branches of Awach SACOOs in Addis Ababa. The study used descriptive and explanatory research design and sample size of 205 borrowers who were selecting stratifying random sampling. The study used the survey strategy where primary and secondary questionnaires were used to collect data. The collected data was coded, summarized and verified using SPSS computer software version 27 program. The study used a descriptive and multiple linear regression method to analyses the collected data. The findings established that most borrowers use their loans for the purpose what they want, but only a few can pay on time. This shows the purpose for which the loan is being used is not an income generating activity. And the educational status as well as business experience of the borrower’s reveals that borrowers who are relatively endowed with these factors are less likely to default. In other words, these three variables make the borrower to be rich on how to effectively and efficiently manage the borrowed fight fierce competition to have a good market share (more of business experience effect) of which enabling the borrower to pay the loan on time. Finally, the research result assures that frequent follow up and supervision by credit analyst help the borrower not to end up being defaulter that means less likely to be a defaulter. The study recommends that the lending institutions should focus on the repayment challenges which are stated by the borrowers and take corrective actions. In order to solve the internal and external problems of the institution, the main thing might be improving the financial capacity of the institution and expand the services and upgrade the skill of loan officers in line with loan appraisal, loan monitoring and supervision.