Loan Repayment And Its Determinants In Small Scale Enterprises Financing In Ethiopia Case Of Private Borrowers Around Zeway Area

One of the most crucial and leading factors constraining Small Scale Enterprises (SSEs)rndevelopment in developing countries like Ethiopia is limited access to financial capital andrncredit especially from the formal lending agents. This is because on the one hand, thesernenterprises couldn’t fulfill the bank’s lending requirements and on the other, the bankingrnsector considers these enterprises as involving high credit risk. This study is conducted withrnthe aim of identifying the major factors behind the loan default problem of SSEs withrnparticular reference to Development Bank of Ethiopia (DBE).rnIn an attempt to analyze the determinants of loan repayment status of borrowers and tornidentify the criteria employed to ration credit two equations-loan repayment and rationingrnequations were estimated using survey data. The estimation result employing tobit modelrnreveals that having other source of income, education, work experience in related economicrnactivity before the loan and engaging on economic activities other than agriculture arernenhancing while loan diversion, being male borrower and giving extended loan repaymentrnperiod are undermining factors of the loan recovery performance of projects.rnWith regards to the loan rationing mechanism, it is found that borrowers who secured highrnvalue of collateral and those with relatively longer repayment period were favored althoughrnthey tend to be more risky while those with higher equity share and extensive experience inrnrelated activity were disfavored. This leads to the conclusion that the bank’s rationingrnmechanism didn’t much with the repayment behavior of borrower.rnThe result leads to the suggestion that, the bank’s rationing technology should be revised inrnsuch a way that Small Scale Entrepreneurs who have the managerial and entrepreneurshiprncapacity but don’t have sufficient credit access due to stringent collateral requirement couldrnmake use of the financial resource of the country and thereby contribute towards thernenvisaged development target as well as the bank to get out of the loan default problem

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