Factors Determining Loan Repayment in Microfinance Institutions: The Case of Dar Es Salaam Clients

Microfinance Institutions (MFIs) are important for poverty reduction and creation of employment opportunity in developing countries including Tanzania. MFIs in Tanzania have suffered challenges on loan repayment problems and consequently decreasing employment levels and cash flows problems in Microfinance Institutions. This study explored contextual local determinants of loan repayments problems by clients in MFIs. Both quantitative and qualitative methods were used to collect data and analysis. Purposive sample was drawn from business premises where persons operating on business financed by microloans from MFIs were found. Qualitative analysis captured additional contextual determinants of loan repayment problems being corruption among loan officers, failure of loan disclosure within families, unfair business tax estimation, proxy business supervision, diverting loan money to different purpose, having been operating business into an informal premises which leads to confiscation of business products and demolishing structures at business sites by polices of municipal council and unforeseen situation like falling into sickness by loan client or his/her family member, death of relative, theft of business product, road traffic accidents, catastrophes such as fire and flood were implicated factors. This study recommends that each MFI is supposed to put control measures which prevent loan officers to abuse their position in asking bribes from borrowers and make client risk check list analysis which will correctly earmark a possible loan defaulter. Borrowers Training on entrepreneurial skills and practice are equally important to increase the possible loan repayment