DETERMINANTS OF CLIENTS LOAN REPAYMENT: EVIDENCE FROM OMO MICROFINANCE INSTITUTION AT WERABE BRANCH

ABSTRACT Loans usually constitute the largest portion of total asset on balance sheet of micro finance institutions, which is plane to risk of default. It occurs when principal or interest payments are 90 days or more past due. The aim of this study was to examine the factors that influence loan repayment among clients of Omo MFI at Werabe branch. To achieve this objective, explanatory and descriptive research designs were employed on primary data from systematic random sample of 302 borrowers who had borrowed between the year 2018 and 2021. After a univariate analysis of variable in the study, a bivariate analysis was used to test the research hypothesis, which had been formulated, on how natural calamity, demographic, cultural and loan related characteristics associated with loan repayment. Variables that had an association with loan repayment were analyzed by using binary logistic regression model. Based on empirical evidences the study conclude that, educational level, long repayment period, large family size, loan size, and unaffected business by COVID-19 had significantly negative associate with borrowers became defaulter, whereas absence of religious knowledge, being unmarried, interest bearing type of loan, taking for consumption loan, and loan diversion had significantly positive association for risk of a default. Based on findings, the researcher recommended that MFIs provide interest-free loans. Every borrower should know their rights and obligations according to their religion and should fulfill their commitment accordingly. Further this study identified that scope and further study include institutional-related factors.