This study was conducted with the aim of analyzing the factors that affect microfinance loanrnrepayment performance, evaluating the loan rationing mechanism and also assessing the impactrnof the program on the livelihood of borrowers, using primary data collected through structuredrnquestionnaire from 203 respondents.rnThe estimation results of the descriptive statistics and the probit model show that education,rnincome, loan supervision, suitability of repayment period, availability of other credit sources andrnlivestock are important and significant factors that enhance the loan repayment performance,rnwhile loan diversion and loan size are found to significantly increase loan default. In additionrnfemale borrowers were found better in terms of loan repayment. According to these findings therninstitution is recommended to see into these factors with care and design a better lendingrnstrategy.rnRegarding the loan rationing, borrowers who are literate, loan diverters, support morerndependents and earn more income, were disfavored; while those who are older, male, apply forrnlarger loan amounts, own livestock of higher value, perceive supervision as adequate and thernrepayment period as suitable were favored.rnThe credit scheme was also found to have positive impact in improving the income, education,rnhealth and nutritional status of the borrowers as evidenced by the Wilcoxon test that comparesrnthe situations before and after participation in the credit scheme.rnKey Words: microfinance, loan repayment performance, loan diversion, loan rationing, impact,rncreditworthy