Determinants of MFIs Group Loan Repayment Performance: A Case of MSEs’ Service Sector in Mekelle City, Ethiopia

Dedebit Credit and Saving Institution (DECSI) has been facing increase in loan default rate from time to time on group owned MSEs for the past five years. Thus, the aim of this study was to identify and analyze the factors that influence group loan repayment performance of the clients of DECSI operating in the service sector as group owned MSEs. This study applied descriptive and explanatory research approach, cross-sectional primary data, stratified sampling techniques, and finally employed binary logistic regression model to identify and analyze the impact of each independent variable on the loan repayment performance. A total of eleven explanatory variables were included in the binary logit regression model test. The binary logistic regression result revealed that among the variables hypothesized to affect loan repayment social ties, business experience, group formation (screening), internal rule and regulation, saving, suitable loan repayment period (loan term), and supervision have statistically significant effect on loan repayment of the group borrowers. Therefore, among others, DECSI should encourage self-screened group borrowers; enhance saving programs, and revise loan term by considering the time required for the service sector to generate income, and regular supervision for borrowers should be in place to increase loan repayment performance of the clients. Keywords: Binary Logit, DECSI, Determinant, Ethiopia, Group Loan, Mekelle, MFIs, MSEs, Service Sector