Factors Influencing Repayment Of Loans To Micro-Finance Institutions: A Case Of Repayment By Small Business Customers To Pride Dodoma Branch

ABSTRACT

The main objective of this study was to investigate the factors influencing repayment of loans to micro-finance institutions by small business customers taking as a case of PRIDE Dodoma branch. A cross-sectional survey method was adopted to carry out the study. Both primary and secondary data were collected. The study used a sample size of 110 respondents who were customers (Borrowers) and employees (loan officers and some managers) of PRIDE Dodoma branch. Focus group discussions, interviews and questionnaire were used to obtain primary data whereas secondary data were obtained through documentary review method. Qualitative and quantitative data were analyzed by using Statistical Package for Social Sciences (SPSS) computer programme version 16. Triangulation of information was done to ensure reliability and validity of the data collected. Text, tables and statistical charts have been used to present the findings. PRIDE Dodoma branch uses group lending programs whereby loans are disbursed to its clients via groups. Group members guarantee the repayment of each other‟s loans. When one of the group members failed to pay; the whole group is obliged to pay for her. Interest rates on group loans tend to be higher than interest rates on individual loans. Group lending has lower closing costs but higher maintenance costs and higher overall costs than individual lending. The required weekly reporting to the PRIDE office was very high (i.e. one day in every week where they spend almost the whole day). The amount of first loans in PRIDE Dodoma branch ranged between Tsh 50,000/= to 100,000/= depending on the size of business. The study concluded that late or non-repayment of loans by small business customers in PRIDE Dodoma branch is directly related to borrowers‟ characteristics, business characteristics, bank characteristics and Policy and regulatory issues. The study recommends that PRIDE Dodoma branch should continue training their clients so as to acquire business knowledge, importance of keeping business records and techniques of valuing business capacity. PRIDE should consider the possibility of increasing the grace period and reducing the frequency of repayment.