Determinants of Loan Repayment in Small Scale Enterprises in Developing Countries

Document Type : Research Paper

Authors

1 Research Consultant and Academic, Cape Town, South Africa

2 University of Fort –Hare Alice, South Africa and Visiting Professor University of Lusaka, Zambia

Abstract

This study was conducted with the objective of identifying the major determinants of loan repayment in Small Scale Enterprises (SSEs) with particular reference to SSEs in one of Kenya’s most dynamic informal business hub, Kariobangi Division in Nairobi. In order to achieve this objective, primarily data were collected from 50 randomly selected respondents by using questionnaires. Descriptive statistics were used to analyze data on the socio-economic characteristics of the borrowers. The study found that personal characteristics such as education level, family size, amount of loan applied and business experience of the respondents have a positive relationship to loan repayment. Age, interest rate and change in gender had an inverse relationship to loan repayment.

Keywords


Abafit, J. (2003). Microfinance and Loan Repayment Performance: A Case Study of the Oromia Credit and Savings Share Company (OCSSCO) in Kuyu, Addis Ababa University. Addisu M. N. (2007). Micro-finance Repayment Problems in the Informal Sector in Addis Ababa. Ethiopia Journal of Business and Development. 1 (2), 29-50
Amenya, G. N. (2007). The Informal Sector in Kenya. Youth Micro-Finance Forum, Presentation Paper, University of Nairobi, Nairobi. Aryeetey, E. B. and Udry C. (1997). The Characteristics of Informal Financial Markets in Sub-Saharan Africa. Journal of African Economies. 6 (1), 161-203
Atieno, R. O. (2001). Formal and Informal Institutions’ Lending Policies and Access to Credit by Small-Scale Enterprises in Kenya: An Empirical Assessment, African Economic Research Consortium (AERC), Research Paper 111, University of Nairobi, Nairobi.
Baker, C. B. and Dia, B. (1987). Default Management in Agricultural Lending Program in Ivory Coast. Savings and Development. 11 (2), 160-180
Bhatt, N. and Tang, S. (2002). Determinants of Repayment in Microcredit: Evidence from Programs in the United States. International Journal of Urban and Regional Research. 26 (2), 360-376
Bindra, S. (1998). Banking Crisis, The East African, October 19-25. Brehanu, A. and Fufa, B. (2008). Repayment Rate of Loans from Semi-Formal Financial Institutions among Small-Scale Farmers in Ethiopia: Two-Limit Tobit Analysis. Journal of Socio-Economics. 37 (6), 2221-2230
Breth, S. A. (1999). Microfinance in Africa, Mexico City: Sasakawa Africa Association. Charmes, J. (1997). The New International Definition of the Informal Sector and the Consequences for Systems and Methods of Measurement, Bamako. Godquin, M. (2004). Microfinance Repayment Performance in Bangladesh: How to Improve the Allocation of Loans by MFIs. World Development. 32 (11), 1909-1926
International Labor Office (1991). The Dilemma of the Informal Sector: Report of the Director General. International Labor Conference 78th Session, Geneva.
Kashuliza A. (1993). Loan Repayment and Its Determinants in Smallholder Agriculture: A Case Study in the Southern Highlands of Tanzania. Eastern Africa Economic Review. 9 (1), 219-228
Kitchen R. (1989). A New Approach to Financing Small and Medium Enterprise in Developing Countries. Savings and Development. 13 (3), 287-313 Mathara, K. C. (2007). A Study of the Response of NBK Ltd to the Challenge of Non-Performing Loans, MBA, University of Nairobi 2007 (Unpublished). Mead, D. and Morrison, C. (1996). The Informal Sector Elephant. World Development. 24 (10), 1611-1619
Muasya, B. W. (2009). The Impact of Non-performing Loans on the Performance of the Banking Sector in Kenya, MBA, University of Nairobi (Unpublished).
Norell, D. (2001). How to Reduce Arrears in Microfinance Institutions. Journal of Microfinance. 3 (1), 115-130
Ocholla, J. O. (2009). The Relationship between Credit Risk Management and Non-Performing Loans: The Case of Commercial Banks in Kenya, MBA, University of Nairobi (Unpublished).
Oke, J. T. O., Adeyemo, R. and Agbonlahor, M.U. (2007). An Empirical Analysis of Microcredit Repayment in Southwestern Nigeria. Humanity and Social Sciences Journal. 2 (1), 63-74
Ongweso, A. B. (2006). The Relationship between Interest Rates and Non-Performing Loans in Commercial Banks in Kenya, MBA, University of Nairobi (Unpublished). Reta, F. K. (2011). Determinants of Loan Repayment Performance: A Case Study in the Addis Credit and Saving Institution, Addis Ababa, Ethiopia, Masters’ Thesis, Wageningen University, Netherlands.
Robson, P. N. (1993). Real World Research, a Resource for Social Scientist and Practitioners Researchers, Oxford: Blackwell Publishers. Schmidt, R. H. and Kropp, E. W. (1987). Rural Finance Guiding Principle, GTZ, Eschborn.
Signoriello, V. J. (1991). Commercial Loan Practices and Operations, Bankers Publishing.
Stiglitz J. E. (1993). Peer Monitoring and Credit Market: The Economics of Rural Organizations, Theory, Practice and Policy, Published for the World Bank, Oxford University Press. Wakuloba, R. A. B. (2005). Causes of Default in Government Micro-Credit Program: A Case Study of Uasin Gishu District Trade Development Joint Loan Board, Nairobi.