WHAT INFLUENCES LOAN PERFORMANCE OF MICROFINANCE INSTITUTIONS? A CASE FROM OMO MICROFINANCE INSTITUTION DURAME DISTRICT (SOUTH ETHIOPIA)

Abstract

This study aimed to find out the influencing factors of loan performance (LP) in microfinance institutions (MFIs) particularly Omo Microfinance Institution (OMFI) Durame district. The study employed quantitative research approaches. A multi-stage sampling method was chosen to collect data. Primary data were collected from 360 credit clients through personally administered questionnaires and from credit officers and branch managers through semi-structured interviews. Moreover, secondary data were collected from the District office. Descriptive statistics and multiple regression models were used to analyze data. Loan repayment rate was taken as proxy for LP, dependent variable and nine explanatory variables were chosen after intensive literature review. The study found that five variables such as gender, loan diversification, training, age of business, and suitability of loan disbursement schedule have been found to be positively and significantly affect LP whereas the age of respondents and number of dependents affect LP negatively and significantly. The predicting power of the explanatory variables was 59.6 percent, so it is recommended that further study must focus on the other variables that were not included in this study. Moreover, MFI and its stakeholders should take proper measure with significantly affecting variables found in this study in order to excel the LP of the organization.