Determinants of loan repayment of rural women in Ethiopia: The case of Dire Dawa Rural Women Financed by Dire Microfinance Share Company

Due to lack of collateral, poor people in most cases have no credit access from formal financial institutions. The aim of micro financing is, reducing poverty and vulnerability of poor households by increasing agricultural productivity and incomes, diversifying off farm sources of income, and building household assets. Nevertheless, low repayment performance discourages the lender to promote and extend credit to the poor. A thorough investigation of the various aspects of loan defaults is of great importance for policy makers and the lending institutions. This study is mainly concerned with identifying the major determinants of loan repayment performance of rural women in Dire Dawa, benefiting from Dire saving and credit Share Company. To achieve this objective, primarily data were collected from 264 randomly selected borrowers residing in eight kebeles and secondary data from relevant organizations and pertinent documents. Descriptive statistics employed to analyse data on the socio-economic characteristics of the borrowers. Moreover, t-test and chi-square analyses were employed to compare the defaulters and non-defaulters group. For detail analysis and investigation on the determinants of loan defaulting, the researcher used a binary logit model on the socio, demographic, economic institutional factors that influence loan repayment. Twenty-four explanatory variables were included in the regression. Out of these, eight variables were found to be significant for the probability of being defaulter. These are marital status, suitability of repayment period, frequency of loan repayment, number of livestock holding (TLU); total loan received, total voluntary saving, per capita income and percent of full time on farmworkers. Regarding the sign of the significant variables, marital status, per capita income and total voluntary saving have a positive significant effect on loan repayment status of the borrower while the remaining five variables have a significant negative effect.