Determinants of Loan Repayment Performance of Micro and Small Enterprises (MSEs) in the Case of Dire Dawa City Administration

The study was conducted in Dire Dawa City Administration and aimed to analyze the extent of loan repayment and the determinants of loan repayment performance of MSEs that were financed by Dire Microfinance Institution. This is because the loan repayment performance of MSE for the successive past ten years analyzed and the last year loan repayment status indicated that 10.2% default rate and averagely the last ten years loan performance indicated that 22.16% default rate in the study area. In the study the determinants of loan repayment were categorized as enterprises, lender and the external related factors and that were analyzed separately in the study. Descriptive and explanatory research designs with quantitative and qualitative data were used. The sample of 367MSEs leaders were selected by random sampling method and grouped by stratified sampling method from each sectors. Questionnaires were used in order to collect primary data whereas secondary data were collected by reviewing different literatures regarding the research subject. All the sampled MSE’s leaders were filled the questionnaire properly. The collected data were analyzed by descriptive statistics and binary logistic regression model. This result indicates that out of fourteen predicted variables used eleven variables were found being significant. These significant variables are; enterprises leaders age, marital status, education level and enterprises business experience, saving habit, training offered by institution, loan follow up or supervision and market accessibility were positively influence loan repayment performance while enterprises leaders gender, enterprises member size and loan interest rate were negatively influenced the loan repayment performance of MSEs in the study area. Based on the findings, the enterprises that attained higher educational level able to pay better than the enterprises that were in lower educational level therefore, DMFI should motivate the involvement of educated enterprises. Building the capacity of enterprises through a comprehensive package of skill trainings, close supervision, and follow –ups enhance the loan repayment performance of enterprises, Dire Microfinance should develop follow up or supervision and provide a comprehensive package of trainings that includes entrepreneurship, business skill development, financial management and bookkeeping. The existence of market access results the higher probability of getting profit and the greater level of enterprises loan repayment performance. Therefore, MSEs should work hard to have market demand for their products and services by preparing of different market exhibitions, which help enterprises to get market access and market linkages for their products and services as well as share good habits of work among them that leads enterprises to sustain in the business. Keywords: Dire Microfinance institution, loan repayment, Micro, and Small Enterprises DOI: 10.7176/RJFA/13-21-01 Publication date: November 30th 202