determinants of loan repayment in commercial banks
TRANSCRIPT
2012
Godio RK
Independent Researcher:
8/7/2012
Determinants of Loan Repayment in Commercial Banks: A case of CRDB Bank Plc (Moshi Branch)
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CHAPTER ONE
1.0 INTRODUCTION
1.1 Background to the study
The question of repayment of microcredit is one of an important questions in
microfinance and commercial banks involved in microcredit transactions (Roslan and
Karim, 2009) since the borrowers are predominantly the poor and the lower income
group, where most of them are self-employed and without having any collateral assets.
Their lack of financial records, limited credit history and lack of assets for collateral has
made lending to them not only costly but also very risky since it involves high screening,
monitoring and enforcement costs.
The participation of commercial banks such as CRDB Bank Plc in Tanzania in offering
microcredit services and other types of loans raises the question on how can a
commercial banks ensure good repayment rates of their microcredit program? This is an
important question since the way commercial banks operate is somewhat different from
most microfinance institutions operated by the non-governmental organizations (NGOs).
Roslan and Karim (2009) argued that group lending reduces not only the problems of
moral hazard but also provides the incentive for peer-monitoring or peer-pressure among
members, which leads to good rates of repayment of loan. But unlike most NGO-based
microcredit programs which based their programs on group lending model, commercial
banks such as CRDB Bank Plc lending program to a certain extent different.
Microcredit lending to the lower income group carried out by the commercial banks is
usually based on the perceived outlook of the individual project and without any
collateral requirement.
However, one indicator of effective bank is the loan repayment performance of the
borrowers (Sengupta and Aubuchon, 2008). High repayment rates are associated with
benefits both for the commercial banks and the borrowers (Godquin, 2004). If there is
high repayment rate, the relationship between the bank (such as CRDB) and their client
will be good, as Bond and Rai (2009) argues that high repayment rate helps to obtain the
next higher amount of loan and other financial services. In contrast, if there is low
repayment rate, both the borrowers and the bank will be affected. In this case the
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borrowers will not be able to obtain the next higher loan and the lender will also lose
their clients.
Loans taken from commercial banks vary from country to country, region to region,
sector to sector. But most credits of developing countries were found to share one
common characteristic: suffer from a considerable amount of default rate (the amount of
loans not collected on current and past due loans for the reference period) (Kashuliza,
1993).
Moreover, there are many socio-economic and institutional factors influencing loan
repayment in the banks. The size and maturity of loan, interest rate charged by the lender
and timing of loan disbursement have also an impact on the repayment rates (Oke, et al,
2007). The main factors from the borrower side include socio-economic characteristics
such as, gender, educational level, marital status and household income level and peer
pressure in group based schemes.
Lending program in commercial banks lack forces of group dynamics to ensure good
loan repayment. This in turn, entails the question on what are the determinants of loan
repayment in banks such as CRDB Bank Plc which is a non group-based lending.
It is thus important to investigate and provide empirical evidences on the determinants of
the loan repayment in banks specifically commercial banks, so that we can better
understand the common reasons for good loan repayment and hence provide some
guidelines to increase the probability of success and good performance of lending
program (in terms of repayment of the loan) carried out by the commercial banks like
CRDB Bank Plc. This research study was attempted to offer an insight into this matter.
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1.2 Statement of the problem
Loan repayment in banks has been receiving increasing global focus in Commercial
Banks. The primary objective of these banks like CRDB Bank Plc is to provide financial
services (credit and saving) to the society in order to relieve financial constraints and help
alleviate poverty. Each bank tries to maximize its repayment performance.
The bank also has done a lot in setting determinants to ensure that the loans are repaid
back in time without clashing with the clients so as to maintain the good relation between
the client and the bank (Mboya, Kevin M, 2011).
However, evidence has shown that, despite the efforts done by commercial banks in
ensuring that all loans are recovered on time, a substantial amount of these loans remain
un-recovered. This problem does not only endanger the achievement of objectives, but
also threaten bank’s sustainability and efficiency.
These results stimulated this research to investigate and provide empirical evidences on
the determinants of the loan repayment in commercial banks so that we can better
understand the common reasons for poor loan repayment and hence provide some
guidelines to increase the probability of success and good performance of lending
program (in terms of repayment of the loan) carried out by the commercial banks like
CRDB Bank Plc.
1.3 Research Objectives
The general objective of this study was to analyse and identify the major determinants of
loan repayment in commercial banks with evidence from CRDB Bank Plc (Moshi
Branch), Kilimanjaro region. Specifically research was aimed to;
1. Analyse problems which CRDB Bank Plc face in loan recovery.
2. Assess the factors which eventually lead to poor loan repayment by clients in
CRDB Bank Plc.
3. Identify the major socio-economic factors that influence loan repayment
performance of the loan beneficiaries of CRDB Bank Plc.
4. Find out the businesses and loan related factors that influence the loan repayment
performance of the clients of CRDB Bank Plc.
5. Examine the major problems and challenges faced by the loan beneficiaries in the
repayment process in CRDB Bank Plc.
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1.4 Research Questions
1. What are the problems which CRDB Bank Plc faces in loan recovery?
2. What are the factors which eventually lead to poor loan repayment by clients in
CRDB Bank Plc?
3. What are the major socio-economic factors that may influence loan repayment
performance of the loan beneficiaries of CRDB Bank Plc?
4. Which businesses and loan related factors that influence the loan repayment
performance of the clients of CRDB Bank Plc?
5. What are the major problems and challenges faced by the loan beneficiaries in the
repayment process in CRDB Bank Plc?
1.5 Significance of the Study
Commercial banks such as CRDB Bank Plc are important for poverty alleviation and
creating employment opportunity especially in developing countries like Tanzania. One
of the key factors for profitability and sustainability of commercial banks is the presence
of good timely loan repayment. This study provided information for a better
understanding on the determinants of loan repayment from both side lender and loan
beneficiaries. The primary advantage of this study is to establish a knowledge base that
enables to make a sound decision and take corrective action. Thus, the study is of
important to commercial banks stakeholders, policymakers and the community at large.
The study explores and recommends potential areas that commercial banks need to put
more efforts when demanding loan repayment from its clients. On other hand,
policymakers also benefited in the sense that, the findings will provide informed
suggestions on how policy can be improved, with easy implementation. The Government
also could use the findings of this research study to formulate better approach for country
economy, for instance, to control inflation by setting the maximum and minimum
amounts for all loans that have direct impact to the economy. More the study enables the
community at large to understand the business and loan related factors that influence loan
repayment and hence access and benefit from the services offered by existing commercial
banks. In addition, the information is useful for other lending institutions and
stakeholders. The study also enable the researchers to develop more practical skills on
how to do a research and presented to the university for academic purposes.
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1.6 Limitations encountered in the Study
Time was a major constraint in this study. As a result of limited time within which to
complete this work, the study was carried out using a case study approach. There was
therefore the possibility that some issues regarding the topic might not come up if such
issues are irregular to some banks that were not covered in the study. This limitation was
dealt with by conducting the study on CRDB Bank Plc Moshi Branch one of the
commercial banks with diversified loan portfolio in almost all major sectors of the
economy.
The study was further narrowed down to some loan officers and some management staff
of the bank, from whom primary data was obtained. This also caused a limitation since
there could be some biases regarding the information obtained. In dealing with this
limitation, the study adopted objective questionnaires and interview guides for all
respondents to reduce their personal perceptions. Again, respondents were assured of
their confidentiality in order to give information that represented the facts and figures on
the ground.
Accessibility to data was also a constraint in view of the confidentiality of information in
banks. This limitation was minimized by relying on published annual reports and
financial statements of the bank, both in the print and electronic media.
The researcher’s association with the bank was also very helpful in this direction.
As an important measure to these limitations, time and resources were judiciously
managed to achieve the objectives of the study within the stipulated time frame for
completion of the work.
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CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 Introduction
In this context the literature review analysed the work done by other researchers
concerning the determinants of loan repayment. The review comprises theoretical
literature and empirical studies.
2.2 Theoretical Framework
2.2.1 Loan Pricing Theory
Banks cannot always set high interest rates, e.g. trying to earn maximum interest
income. Banks should consider the problems of adverse selection and moral hazard
since it is very difficult to forecast the borrower type at the start of the banking
relationship (Olokoyo, 2011). Therefore setting determinants for loan repayment is
very crucial to determine the borrowers’ capacity to repay loans. Once these
borrowers receive the loans, they may develop moral hazard behaviour or so called
borrower moral hazard since they are likely to take on highly risky projects or
investments (Chodechai, 2004). From the reasoning of Olokoyo, it is usual that in
some cases we may not find that the interest rate set by banks is corresponding with
the risk of the borrowers.
2.2.2 Firm Characteristics Theories
These theories predict that the number of borrowing relationships will be decreasing
for small, high-quality, informational opaque and constraint firms, all other things
been equal. (Godlewski, 2008). Therefore the determinants of loan repayment could
be set basing on this theory.
2.2.3 Credit Market Theory
A model of the neoclassical credit market postulates that the terms of credits clear
the market. If collateral and other restrictions (covenants) remain constant, the
interest rate is the only price mechanism. With an increasing demand for credit and
a given customer supply, the interest rate rises, and vice versa. It is thus believed
that the higher the failure risks of the borrower, the higher the interest premium and
the poor loan repayment (Ewert et al, 2000).
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2.2.4 National Microfinance Policy
Tanzania National Microfinance Policy (2000) clearly emphasis the vision for
developing a sustainable microfinance industry. As a strategic plan for sectoral
development, the Policy advanced a step further by defining more clearly how the
Commercial Banks, SACCOs and financial NGOs will be integrated into the
emerging microfinance regulatory framework. It further asserts that maintenance
and active use of accurate up-to-date information on portfolio status (at various
levels of the organization) including aging of arrears, implementation of appropriate
provisioning and write off policies and delinquency management that involves
prompt and active follow-up with delinquent clients is one of the best practices in
getting loan repaid.
2.3 Empirical Studies on Loan Repayment
Regarding to the loan repayment determinants in banks several studies have been
conducted in many countries by different authors. Some of the studies are summarized
below.
2.3.1 Studies in Tanzania
Sakilu, S (2006) conducted a study to investigate Factors Influencing Default in a
group Lending Model used by Micro-finance Institutions (MFIs) in Tanzania. Three
objectives guided the study, namely, to investigate whether or not transaction costs
incurred by MFIs’ clients result to default, to examine multiple membership in relation
to loan repayments and to investigate if the default in MFIs has any impact on client
population. The study was conducted in Dar es Salaam region. Findings from the study
reveal that transaction costs do not have an impact to loan repayment. Likewise, the
study concluded that both MFIs and their clients had a vital role to play in order to
improve loan repayment. The study recommended that in order to assure good
repayments, MFIs should train their clients, provide them a grace period as well visit
their business before providing the loan.
Luasha, Edmund (2009) in his study analysed the factors that impede repayment of
microfinance loans in commercial banks with evidence from National Microfinance
Bank (NMB) came up with the findings which indicate that, the speed of loan
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repayment was low and borrowers failed to meet conditions stipulated in loan contract
forms by delaying to pay loans. Findings also indicate that, loan defaults were due to,
poor business performance, high interest rate, cheating by customers on purpose of the
loan and poor loan supervision.
Mraba, M.G (2009) made an assessment of the factors that cause non-repayments of
loans in commercial banks the case of national microfinance bank. 50 respondents
participated. Findings indicated that lenders employed various methods to provide
services to borrowers and that involved a provision of education borrowers in order to
access and the department was established for effective coordination. Findings
indicated that those who timely paid their loans were those who were doing better in
business. It was revealed from the study that they were able to get profit which they
used to pay loans either annually, quarterly or monthly. Findings also indicated that
pre-loan training increased the number of borrowers and the rate of loan repayments.
2.3.2 Studies in East African Countries
Mayada El-Zoghbi (2008) carried a research study in Burundi with the purpose of
addressing the drivers of ethnic conflict within the model of financial services delivery
and its impacts in loan repayment. The findings indicated that unlike many other high
profile conflict countries that have received significant amounts of donor assistance
once a peace agreement was signed, Burundi has generally fallen outside the radar
screen and has not benefited from large donor projects. As such, traditional donors
that promote financial services after conflicts have by and large been inactive in
Burundi. As such, the microfinance sector in Burundi is still relatively young and
underdeveloped. There are three types of actors allowed by the Central Bank to
engage in microfinance in Burundi: savings and credit cooperatives (SACCOs),
microfinance institutions and multi-sector projects. Most recently, some commercial
banks are beginning to explore the microfinance market. As already briefly touched
above, Mayada indicated that the lending modality is one reason influencing loan
repayment. His research study revealed that there are more factors that have an effect
on settling loans, e.g. inadequate loan follow-ups by the management, inadequate
collateral verification, bad repayment system, members’ failure to honour their
obligations and insider dealings.
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Richard, O (2011) conducted a study to evaluate the effect of credit management
policy implemented by Centenary Rural Development Bank (CERUDEB) Lira
Branch in Uganda on loan recovery. The study revealed that a combination of factors
affected loan recovery; these included natural calamities, and high interest rate which
made loan repayment difficult. It also observed that credit terms such as interest rate,
size of the loan and credit period could affect profitability of the firm; he further
stated that there must be an established stable and optimal credit term in order to
ensure certainty of funds flow as well as profitability. Findings also indicated that, the
efforts by the bank to collect the loan were weak which increases bad debts. The
study recommended that the bank should revise its credit terms to clients; it should
not be so lenient to make the client reluctant to pay back the loan. The bank should
emphasize the right credit screening and collection efforts instead of employing
loosened credit screening procedures and later resorting to aggressive credit
collection efforts and procedures which are costly. In order to minimize the loans that
are not recovered; the bank should put much emphasis on its risk management policy,
close supervision to the client’s investments and monitor the activities that may cause
poor loan recovery.
Sangoro, Ochieng and Bureti (2012) in their study to assess the determinants of loan
repayment among women-owned enterprise in Kenya with evidence from Eldoret
Municipality, they found that loan repayment is very crucial issue to the financial and
non financial institutions. The study also elaborated on the various determinants of
loan repayments which is vital to women entrepreneurs. These determinants are
classified into three broad categories; first are the institutional factors secondly are the
business factors and lastly are the entrepreneurial factors. The study findings revealed
that the main factors affecting loan repayment includes social responsibilities such as
the feeding of children, paying of rent, hospital bills, and the number of households
members. The study recommended that the banking sector should review the interest
rates, the terms and conditions, the loaning requirements and the repayment duration
to help in timely repayment of available loans. The individuals seeking loans should
be trained based on the proper loan management and utilization to avoid
misappropriation of the desired loans.
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2.3.3 Studies in Other Countries
Berhanu (2005) studied on the determinants of loan repayment performance of
smallholder farmers in North Gondar, Ethiopia. In order to analyze the factors that
affect loan repayment, he employed the tobit model. A total of 17 explanatory variables
were considered in the econometric model. Out of these seven variables were found to
significantly influence the repayment performance. These were land holding size of the
family, agro-ecology of the area, total livestock holding, number of years of experience,
number of contacts, sources of credit and income from off-farm activities. The
remaining variables (family size, distance between main road and household residence,
purpose of borrowing, loan amount and expenditure for social festivals) were found to
have insignificant effect on loan repayment performance of smallholder farmers.
Bhatt and Tang (2002) studied the determinants of loan repayment in microcredit
evidence from programs in the United States. Their study showed that women has low
repayment rate because some women entrepreneur in the study might have been
engaged in high risk and low return activities. Godquin (2004) also examined the
microfinance repayment performance in Bangladesh. His result showed female
borrowers did not prove to have a significant better repayment performance. The size of
loan and the age of the borrower showed the negative impact on the repayment
performance. Olagunju and Adeyemo and Oke et.al. (2007) also analysed the
determinants of repayment decision among small holder farmers in southwestern
Nigeria. The result showed that the number of visits made by loan officers to the
borrowers, higher level of education, and time of loan disbursement would have a better
repayment performance. Moreover, borrowers with lower number of household
members would meet their repayment obligation better than those with high number of
household members. And having access to business related information and providing
training to the clients are increasing the loan repayment rate of the borrowers.
Mohd Noor Shariff (2010), in his paper tried to review the determinants of repayment
performances in microcredit programs which he divided the study into four factors
namely borrower characteristics, firm characteristics, loan characteristics and lender
characteristics. He found that the agency problem, adverse selection and moral hazard
that appear as a result of information asymmetries are the main reason for poor loan
repayment. This is because the lenders cannot observe the behaviours of their clients
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either they are honest and dishonest. The lenders can only observe the outcome of their
loans either the clients repay or not. Therefore, to mitigate the repayments problems, a
close relationship between lender and borrower can be applied through monitoring,
business adviser and regular meeting. Besides that, the lender can introduced reward
system to those that paid on time such as rebate or discount.
Reta, F.K (2011), conducted a study with the objective of analyzing and identifying the
factors that influence the loan repayment performance of the beneficiaries of Addis
Credit and Saving Institution, Addis Ababa, Ethiopia (AdCSI). In order to achieve this
objective, primarily data were collected from 200 randomly selected clients (100
defaulters and 100 non-defaulters) by using structured interview. Moreover secondary
data were obtained from the record of AdCSI. For the data analysis, descriptive
statistics including mean, frequency and percentages were used to describe the socio-
economic characteristics of the borrowers. Moreover, t-test and chi-square analyses
were employed to compare the defaulters and non-defaulters group. A binary logit
model was used to analyze the socio-economic factors that influence loan repayment. A
total of twelve explanatory variables were included in the regression. Out of these, six
variables were found to be significant for the probability of being defaulter. Age and
five business types (baltina & petty market, kiosk & shop, services providing, weaving
& tailoring and urban agriculture) were important in influencing loan repayment
performance of the borrower. In addition, sex and business experience of the
respondents were found to be significant determinants of loan repayment rate.
Khieu, H and Mullineaux, D (2009), conducted a study to determine bank loan
recovery rates. In their study they measured recoveries using the “Ultimate Recovery
Database” supplied by Moody’s and model the recovery rate as a function of variables
reflecting loan and borrower characteristics, industry and macroeconomic conditions,
and several recovery process variables. The result showed loan characteristics, such as
the presence of certain types of collateral, are significant determinants of recovery
rates, whereas many of the borrower characteristics before default generally are not.
Industry and macroeconomic conditions also are relevant, as are certain process factors
such as prepackaged bankruptcies. Since trading prices on loans approximately 30 days
after default are often used by practitioners (and in some academic studies) as proxies
for the recovery rate, they also examined whether this proxy provides a rational
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estimate of actual recoveries. They found that the process that drives the 30-day trading
price after default differs significantly from the actual settlement recovery process.
As mentioned above, various studies were conducted on the determinants of loan
repayment performance in different countries. Most of these studies were focused on
the credit associated with agricultural activities and they identified the socio-economic
factors that affect the loan repayment rate of rural household and to the less extent
about the urban household. However, in the literature review nothing was indicated
about the determinants of loan repayment in banks specifically commercial banks.
Thus, this research focused on investigating the determinants of loan repayment in
banks particularly commercial banks with evidence from CRDB Bank Plc (Moshi
Branch) Kilimanjaro Region in Northern Tanzania.
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CHAPTER THREE
3.0 METHODOLOGY
3.1 Introduction
This chapter discusses the methods used in collecting required information for the study.
The chapter was organized in six sections. Section 3.1 is introduction and it followed by
section 3.2 which is on research design. Section 3.3 discusses a study area and section 3.4
covers sampling techniques while data collection is in section 3.5 and section 3.6
comprises data analysis techniques.
3.2 Research Design
In undertaking this study, a case study design was adopted which aimed at finding out the
determinants of loan repayment in commercial banks. CRDB Bank Moshi Branch in
Kilimanjaro Region was chosen as a case study for this research study. CRDB Bank
Moshi Branch was chosen because the researcher wants to establish a definitive cause
and effect relationship, since this research was keen on describing more factors that were
undoubtedly causing the problem.
3.3 Study Area
The study will be carried out at CRDB Bank Moshi Branch located in Moshi Municipal
Kilimanjaro. The selection of the study area was based on various reasons. First, almost
all data concerned loan repayments in banks are almost the same to all kinds of
commercial banks exist in the country. Also, CRDB Bank is actively involved in the field
of microcredit and micro savings in Tanzania.
3.4 Sampling Techniques
Under this section of the study, sampling consists of sampling unit, sample size and
sampling methods.
3.4.1 Sampling Unit
In this research study, just one bank (CRDB) was chosen for the purpose of
generating required information. The respondents were staff members and loan
beneficiaries of the bank under investigation (CRDB).
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3.4.2 Sample Size
A sample of 50 respondents were involved in the study where by 40 were CRDB
clients while 10 were CRDB staff members. CRDB clients were involved both loan
and non-loan beneficiaries.
3.4.3 Sampling Methods
In this study, both simple random and purposive sampling methods were used to
select the research study respondents. Simple random sampling was employed to
obtain loan beneficiaries of the CRDB while purposive sampling was used to get
CRDB staff members particularly branch director, credit manager, loan officers and
old loan beneficiaries of CRDB Bank Plc. These methods were used by a researcher
so as to get responses necessary to the study.
3.5 Data Collection
The section reviewed the type of data to be collected, their sources and techniques that
was employed to collect them. The section comprises types of data, sources of data and
data collection techniques.
3.5.1 Types of Data
The types of data collected for the successful of this study comprised both primary
and secondary data by using questionnaires, interviews, direct observations and
bank’s documents.
3.5.2 Sources of Data
The data collected came from loan beneficiaries as well as old loan beneficiaries,
staff of CRDB Bank particularly branch director, loan officers, credit analyst were
also source of data. Bank’s documents such as credit reports were also used to
gather necessary information for this study.
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3.5.3 Data Collection Techniques
In this research primary data were gathered by using questionnaires, interviews and
direct observations. The secondary data were gathered through documentary
reviews.
Questionnaires
The questionnaires were focused on findings information relevant to this
study and were administered to some units of investigations.
Interviews
Semi structured interviews were conducted by the researcher to gather
relevant data for this research study.
Direct Observations
The researcher also participated in some of the day to day activities of
CRDB Bank working with employees and loan beneficiaries as part of the
data collection process which provided an opportunity to record facts as
they observed, listened or experienced.
Documentary Reviews
Secondary data were gathered from bank’s documents particularly those
concerned with credits. This source also involved obtaining information
that was collected by other researcher but in line with this particular study.
This involved use of text books, departmental reports and bank annual
reports.
3.6 Data Analysis Techniques
In order for the research to be materialized, the researcher made the analysis and
interpretation of the findings. The data analysis was based on qualitative and quantitative
techniques. The researcher adopted qualitative technique so as to formulate a better
understanding of the problems while quantitative was adopted so as to present the necessary
data for this study in numerical. By applying these methods by the researcher, data was
presented through tables, charts, percentages and interpretation followed. This allowed the
researcher to summarize, organize and present data in a meaningful way and bring clear
meaning to the users.
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CHAPTER FOUR
4.0 FINDINGS AND DISCUSSION
4.1 Introduction
This section presents the study findings and discussions, whereas the data collection was
based to answer five specific objectives of this research study. First, to analyse problems
which CRDB Bank Plc face in loan recovery. Second, to assess the factors which
eventually lead to poor loan repayment by clients in CRDB Bank Plc. Thirdly, to identify
the major socio-economic factors that influence loan repayment performance of the loan
beneficiaries of CRDB Bank Plc. Fourthly, to find out the businesses and loan related
factors that influence the loan repayment performance of the clients of CRDB Bank Plc.
And fifthly to examine the major problems and challenges faced by the loan beneficiaries
in the repayment process in CRDB Bank Plc.
The section begins with the description of findings and discussions in relation to research
objectives. This is followed by a discussion about the problems which CRDB Bank Plc
face in loan recovery; factors which lead to poor loan repayment by clients in CRDB
Bank Plc follows; then socio – economic factors that influence loan repayment by clients
in CRDB Bank Plc follows; and then businesses and loan related factors that influence
loan repayment performance follows and finally it ends with the discussion on findings
about challenges faced by loan beneficiaries in loan repayment process.
4.2 Findings and Discussion in Relation to Research Objectives
This part covers the problems which CRDB Bank Plc face in loan recovery the factors
which lead to poor loan repayment by its clients in CRDB Bank Plc, the socio –
economic factors that influence loan repayment by clients in CRDB Bank Plc, the
businesses and loan related factors that influence loan repayment performance and the
challenges that are faced by loan beneficiaries in loan repayment process.
4.2.1 Problems which CRDB Bank Plc face in loan recovery
The most typical challenges faced by any commercial bank (including CRDB
Bank Plc) in loan recovery are credit risk which includes lost of
principal and interest, disruption to cash flows, and increased collection costs to
the bank. The loss can either be complete or partial and can arise in a number of
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circumstances. For example, a borrower fails to make a payment due on a loan. In
addition to this CRDB Bank Plc as a commercial bank has many challenges in
loan recovery process, such as: presence of natural calamities as well play a part
in making the borrower unable to repay his/her loan in time. Some customers
were genuine in their projects and may be doing well but a natural calamity may
strike unexpectedly and render the project destroyed leaving the customer unable
to repay the loan invested. The study also revealed that some clients failed to
repay their loan in time because of establishing other projects while still have the
other burden of loan to accomplish. The installments allocated to them were
defaulted because the amount to be taken to the Bank was used to fund the new
projects. It is also found that defaulting of loan repayment was contributed by
fraudulent situation that faced the client. Other clients fail to perform well in the
business because their businesses fall in the hands of fraudulent people who may
lead to loss of the funds which were extended to him/her by the CRDB Bank Plc.
4.2.2 Factors for poor loan repayment by clients in CRDB Bank Plc
Several reasons were advanced by the respondents regarding the causes of poor
loan repayment in the bank. Most of the responses given by 45 respondents (39
clients and 6 CRDB staff) as the causes of poor loan repayment are similar and in
some cases the same factors were given by all respondents as the causes. The
main causes as identified by the interviewees include delayed loan approval,
inadequate financing, and diversion of loan, ineffective monitoring, and
ineffective appraisal of credit request, market problems, and poor weather
conditions among others. The reasons and causes of poor loan repayment are
presented in Table 4.1.
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Table 4.1: Factors for Poor Loan Repayment by Clients of CRDB Bank Plc
S/N Perceived Causes of Poor Loan Repayment Frequency Percent
1
Ineffective monitoring 8 16%
Poor credit appraisal 8 16%
2
Diversion of loans 6 12%
Under financing 6 12%
Delayed loan approval 6 12%
Poor weather conditions 6 12%
Market problems 6 12%
3 Lack of business management knowledge 4 8%
Total 50 100%
Source: Field data, 2012.
From Table 4.1, respondents ranked poor credit appraisal and ineffective
monitoring as the most important factors affecting the quality of loan recovery.
Delayed loan approval, diversion of loans, under financing, marketing problems
and poor weather for agricultural activities were cited as the second ranked causes
of poor loan repayment of the bank. Lack of business management knowledge is the
third ranked cause of poor loan repayment of the bank.
The explanations given by respondents for the causes of bad loans in the bank have
been explained below:
1. Poor Credit Appraisals and Ineffective Monitoring
Table 4.1 above reveals that poor credit appraisal and ineffective monitoring are
ranked the most important factors with a score of 8 responses (16%) for each of
these two factors. The respondents indicated that poor appraisal of credit
requests by credit officers result in wrong credit approval decisions that lead to
loan repayment problems. The reason is that ineffective analyses of financial
ratios, cash flow statements, credit risks analyses among others, usually give
misleading information to the approving authority on the customer’s financial
position and ability to repay the loan. According to the respondents poor credit
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screening also result in delayed loan approval which results in loan problems.
The table further shows that ineffective monitoring of loans is a major cause of
poor loan repayment as indicated by a score of 8 shown in table 4.1 above. The
respondents explained that monitoring of loans requires keeping track of the loan
customers’ activities in relation to the loan on regular basis to ensure that the
terms and conditions of the facility are complied with as contained in the loan
agreement. This includes on-sight and off-sight monitoring. It came up that
mostly credit officers ignore on-sight monitoring which has to do with field
visits to determine how customers are handling their activities and their ability to
repay loans promptly. Other reasons given by respondents are ineffective
supervision by management and lack of access roads to customers’ projects
sites. It can be concluded that since these resources are very essential for
monitoring, banks that are inadequately resourced, face the problem of
ineffective monitoring and hence loan repayment problems.
2. Delayed Loan Approval, Diversion of Loans, Under financing, Poor Weather
and Marketing Problems
The respondents believed that delayed loan approval (see table 4.1 above) is
one of the second major factors that accounts for bad loans. Key respondents (6
clients) indicated that this has serious consequences for time-bound projects like
agriculture sector projects, construction and some trading activities as a result
projects failed to yield enough income to repay the loan simply because the
projects were taken late as consequences of loan delay.
Table 4.1 also shows that inadequate financing is a second major cause of poor
loan repayment. It was found out that 50% (4 respondents – all clients) show that
poor credit appraisal and low account turnovers result in inadequate financing
while 37.5% (3 respondents – all CRDB staff) and 12.5% (1 respondent –
client) for inadequate collateral and liquidity problems respectively, account for
inadequate financing of customers’ projects affects loan repayment. Besides, due
to inadequate loan amount customers plough back proceeds generated by the
project that are meant for servicing the loan, into the business. According to the
respondents, diversion of loans into activities other than the agreed purpose also
20
accounted for poor loan repayment. It was found that 66.7% (4 respondents – 2
clients and 2 CRDB staff) point that loan diversion is caused by ineffective
monitoring, while 33.3% (2 respondents – all clients) show that customers
anticipation of higher gains in other activities result in the problem of loan
diversion and hence failure to repay their loan in CRDB Bank Plc. The other
major factors that account for poor loan repayment are poor weather
conditions, natural disasters and marketing problems. These are caused by
poor rain patterns, flooding, crop and animal diseases among others. According
to respondents (8 clients and 4 CRDB staff), lack of ready market, lack of
storage facilities among others, have caused marketing problems for farmers
which resulted in loan repayment problems over the years. This unavoidably
resulted in repayment problems of their loans contracted from the CRDB Bank
Plc.
3. Lack of Business Management Knowledge
The respondents also indicated that inadequate business management knowledge
on the part of customers, which is ranked third in table 4.1. It was found out that
lack adequate business management knowledge resulted in loss of sales income
through poor records keeping on stocks and sales, and other activities of
customers businesses. Some respondents held the view that inadequate business
management knowledge accounts for overtrading which results in loan
repayment problems.
4.2.3 Impact of socio – economic factors for loan repayment performance in CRDB
Bank Plc
The average age of the whole respondents was 38 ± years, ranging between 19 and
80 years old. As we see from the table below (Table 4.2), more than half of the
respondents were in the first and second age category, showing that most of the
borrowers were young age groups. The proportion of youngsters in the defaulter group
was a little bit higher than that in the non-defaulter group.
On the basis of sex distribution, half of the respondents were female and the rest
half were males both in the defaulters and non-defaulters group. Regarding to the
21
saving behaviour of the clients, about 55% (22 clients) out of the 40 respondents
saved their money for future use and more than half of the saving service users
were non-defaulters, while most of the defaulters were not saving service users.
Zeller (1996) also agree with the importance of saving to influence the repayment
rate. The study result revealed that most of the respondents’ residence and
business place were near to the lender office. This helps to make continuous
follow-up and supervision for loan officers of the bank. According to the study
result, 47.5% (19 clients) out of the total respondents (40 clients) had only one
sources of income which is from the business financed by the loan.
Table 4.2: Socio – economic characteristics of the sample respondents
Age range Defaulters Non–
defaulters
Sex Total Sample
Male Female No. Percent
19 – 29 9 2 10 1 11 27.5%
30 – 39 3 6 2 7 9 22.5%
40 – 49 2 2 1 3 4 10%
50 – 59 2 4 1 5 6 15%
60 – 69 2 5 5 2 7 17.5%
Above 70 1 2 1 2 3 7.5%
Total 19 21 20 20 40 100%
Source: Field Data, 2012.
4.2.4 Businesses and loan related factors for loan repayment performance
As indicated in table 4.3, clients of CRDB Bank Plc are engaged in various
business activities. Large numbers of borrowers were involving in petty market,
kiosk & shop and service providing activities with significant difference. Service
providing includes beauty salon, barbers, computer maintenance, consultancy and
secretarial services.
22
Table 4.3: Business Types of Defaulters and Non-defaulters
Types of business Defaulters Non-defaulters Total
No. Percent No. Percent Sample
Animal husbandry 2 10.5% 2 9.5% 4
Horticulture 1 5.3% 1 4.8% 2
Tailoring 1 5.3% 1 4.8% 2
Food processing 1 5.3% 1 4.8% 2
Construction 2 10.5% 2 9.5% 4
Petty market 3 15.8% 5 23.8% 8
Kiosk & Shop 4 21% 3 14.3% 7
Service provider 5 26.3% 6 28.5% 11
Total 19 100% 21 100% 40
Source: Field data, 2012
With regard to information, most of the non-defaulters were able to access
business information. According to them, the sources of information were friends
and media like TV and radio. From the market assessment perspective, more than
half of the respondents did not assess the market before they were doing business.
The finding of the study indicates that the reasons for not conducting market
study before starting business are:
they started business when they had no choice of income generation, and
no idea about market study.
About 63.1% (12 defaulters out of 19) business was successful but due to many
reasons they were not willing to pay their loan. On the contrast 23.9% (5 non-
defaulters out of 21) business was not successful; however they were paying their
loan from the other income sources. About 66.6% (14 out of 21) of non-defaulters
repaid their loan in full amount on the due date and 33.4% (7 out of 21) of them
paid their loan partially on time. According to non-defaulters, they benefited by
fully and timely paying their loan. Some of the benefits are:
access to the next higher loan – 9 clients out of 21 (42.8%),
23
to make the family stable – 7 clients out of 21 (33.3%),
build good relationship with the loan provider - 3 clients out of 21
(14.3%) and
freedom from penalty - 2 clients out of 21 (9.6%).
On the other hand, according to CRDB credit records the reasons for loan
beneficiaries not repaid their loan are:
cost of doing business is higher than revenue/ loss – 9 defaulters out of 19
(47.3%),
low supervision by the loan officer of the institution - 2 defaulters out of
19 (10.5%),
personal problem of borrowers like illness – 4 defaulters out of 19
(21.1%),
improper use of loan – 2 defaulter out of 19 (10.6%) and
shortage of working capital and problem in working place – 2 defaulters
out of 19 (10.5%).
On the other basis, the sample respondents were borrowing money from CRDB
Bank Plc for the purpose of either expanding already existing business or doing
new business. More than half of non-defaulters were borrowing for the purpose of
expanding existing business and the study result indicates that borrowing for the
purpose of running the existing business is relatively better loan repayment
performance. Borrowers who didn’t divert the loan had a better loan repayment
performance than the loan diverter. Out of the total 24 respondents who diverted
their loan, only 4 used it for productive purpose.
The study result indicates that, only 15 out of 40 respondents were trained on
business and financial management and different microfinance aspects like
saving, repayment and insurance. The average number of visits made by loan
officers per 3 months was about 1. Some of the borrowers stated that nobody
came to their business and residence place since loan disbursement time.
According to respondents the main reasons for unsuitability of repayment period
are starting time to repay is too early (24 respondents), monthly repayment (10
respondents), and repayment period is short (6 respondents). The reasons for lag of
loan disbursement are long procedure and borrower’s problems.
24
4.2.5 Challenges faced by loan beneficiaries in loan repayment process
The sample respondents identified many problems that hinder the loan repayment
process. The summary of most frequently mentioned challenges are the following:
About 31 respondents said that there is high interest rate in the bank.
Insufficient loan size
No grace period
Weak in following up to retrieve loans and on business
Delay of loan disbursement
Third party services tend to interfere with their primary services because
employees becomes busy
No training is given
Some of the above challenges are associated with the insufficient employees specially
loan officers.
25
CHAPTER FIVE
5.0 CONCLUSION AND RECOMMENDATIONS
5.1 Summary of key findings
Credit risk was the main problem which faced CRDB Bank Plc in loan recovery.
This risk is associated with lost of principal and interest, disruption to cash flows
and lastly increased costs of collection to the bank.
The main causes for poor loan repayment by clients in CRDB Bank Plc as
identified by the researcher include delayed loan approval, inadequate financing,
diversion loan, ineffective monitoring, and ineffective appraisal of credit request,
market problems and poor weather conditions.
Most of the young age group were defaulters.
Large numbers of CRDB Bank borrowers were involving in petty market, kiosk,
shop and service providing activities. Higher cost of doing business, low
supervision by loan officer, personal problem of borrowers, shortage of working
capital and improper use of loan are the main reasons for loan beneficiaries not
repaid their loan.
High interest rate, insufficient loan size, delay of loan disbursement, third party
interference and absence of loan training by the bank are the main challenges
faced by CRDB Bank loan beneficiaries in loan repayment process.
5.2 Conclusion
Based on the findings of this study a number of conclusions can be drawn; firstly, on the
basis of economic situations which involve weather conditions and markets situation, it
was observed that poor rain patterns, flooding, crop and animal disease, lack of ready
market and lack of storage facilities have caused loan repayment problems among loan
beneficiaries of CRDB Bank Plc. Secondly, on the basis of social situations, it was also
observed that, most of the borrowers were young age group and on the basis of sex
distribution, half of the respondents were female and the half were males both in the
defaulters and non-defaulters group. Thirdly, on the basis of business situations which
involve types of projects undertaken by borrowers of CRDB Bank Plc and how each
type, skills and experience in business assists the borrower to repay the loan. For
26
instance, it was found that business experience helps to enhance the loan repayment rate
of the borrowers since the borrower become more familiar with the business conditions.
The cumulative effect of borrower’s experience has a positive contribution on the success
of business and also loan repayment. Petty market, kiosk & shop, service providing and
tailoring, urban agriculture business types were found to significantly enhance the loan
repayment performance compared to construction business. Age of the borrowers is also
significant determinant of loan repayment performance as explained earlier. The elder
borrowers have taken responsibility to repay their loan on timely basis as elaborated
earlier. Lastly, it was noted that, the borrowers who save their money have good
repayment performance.
5.3 Recommendations
The following are recommended as an attempt to provide solutions of the problems
found:
5.3.1 Policy recommendations
CRDB Bank Plc should compare loan size with the business proposal of the client
before loan disbursement and should revise the rule and regulation of the bank
based on the current economic condition of the country. This will minimize the
number of default loan.
Loan officers should update themselves on the trends of markets and government
policies. E.g. economic downturns, planning activities of the government, this
will increase understanding to the loan officers on new ways to set affordable
standards for issuance of loans that will increase repayment performance of
borrowers
.
5.3.2 General recommendations
The bank should also focus on the repayment challenges which are stated by the
borrowers and take corrective actions (For instance, setting a reasonable interest
rate, increasing loan size and grace period). In order to solve the problems of the
bank, the main thing might be improve the financial capacity of the bank.
The bank should also think to employ one recovery agency (who will be
responsible for the collection and follow up bad loans from loan beneficiaries) to
27
collect a bad and loss loan. This will increase the efficiency of the bank in loan
recovery.
Customers have to be advised on proper management of funds (For instance
keeping records for receipts and payments as well as ensure banking of cash is
done daily) extended to them so as to help them be able to meet repayment
requirements. Some customers may be blinded by good performance of their
business and misuse funds while forgetting their responsibility to repay the funds
extended to them by the Bank.
Clients should be advised to insure their business against disastrous events like
fire, road accidents for cars. This will reduce risk/losses that may result from
these causes and render the client unable to repay his/her loan.
There should not be regular changes on the loan officers at different Branches,
because:
This will increase performance as the present officer has a good
understanding of the peoples’ behaviour at a particular place and he/she
knows how to reduce the risks of repayment problem.
Moreover, it reduces the possibility of the customer to twist the agreement
blaming on the previous officers that he/she has made different
agreements other than those known by the bank.
The bank should strengthen checklist for giving loans so that those who meet the
minimum conditions are offered the loan.
28
Bibliography and references
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Smallholder Farmers: The Case of North Western Ethiopia”. North Gondar. M.Sc. Thesis.
Alemaya Univeristy, Ethiopia.
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, Volume
26.2, pp.360–76.
Bond, P. and Rai, A. (2009). “Borrower runs”. Journal of Development Economics. Vol. 88
(2009) 185 – 191.
Chodechai, S. (2004). “Determinants of Bank Lending in Thailand: An Empirical Examination
for the years 1992 – 1996, Unpublished Thesis”. International Journal of Financial Research,
Vol. 2, No. 2; July 2011.
Ewert, R., Szczesmy, A. & Schenk, G. (2000). “Determinants of Bank Lending Performance in
Germany”. Schmalenbach Business Review (SBR), 52, pp. 344 – 362.
Godlewski C. J. & Ziane, Y. (2008). “How Many Banks Does it Take to Lend? Empirical
Evidence from Europe”. Working Paper, Laboratoire de Recherche en Gestion & Economie.
Godquin, M. (2004). “Microfinance Repayment Performance in Bangladesh: How to Improve
the Allocation of Loans by MFIs”. World Development. Vol. 32, No. 11, pp. 1909–1926.
Kashuliza, A. (1993). “Loan Repayment and its Determinants in Smallholder Agriculture: A
Case Study in the Southern Highlands of Tanzania”. East Africa Economic Review. Vol. 9,
No.1.2002.
Khieu, H and Mullineaux, D (2009). “The determinants of Bank Loan Recovery Rates”. Southern
Indiana University Working Paper. Pp 2 – 56.
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Luasha, Edmund. (2009). “Analysis of Factors That Impede Repayment of Microfinance Loans
in Commercial Banks: The Case of National Microfinance Bank (NMB)”. University of Dar es
Salaam.
Mayada El – Zoghbi. (2008).”Burundi Case Study: Addressing the Drivers of Ethnic Conflict
Within the Model of Financial Services Delivery and its Impact in Loan Repayment”. Banyan
Global Publishers. Bujumbura.
Mboya, Kevin M. (2011). “Assessment of the Factors That Contribute to Poor Loan Repayment
to the Banks”. A Research Report Mzumbe University”.
Mohd Noor Shariff. (2010). “Determinants of Repayment Performance in Microcredit Programs:
A Review of Literature”. International Journal of Business and Social Science, Vol. 1, No. 2;
November 2010. Pp 4 – 7.
Mraba, M.G. (2009). “Assessment of the Factors That Cause Non-Repayments of Loans in
Commercial Banks: The Case of National Microfinance Bank”. UDBS.
Olokoyo, Felicia Omowunmi. (2011). “Determinants of Commercial Banks’ Lending Behaviour
in Nigeria”. International Journal of Financial Research, Vol. 2, No. 2; July 2011. Pp 4-12.
Oke, J.T.O., Adeyemo, R. and Agbonlahor, M.U. (2007). “An Empirical Analysis of Microcredit
Repayment in Southwestern Nigeria”. Humanity & Social Sciences Journal 2 (1):63-74, ISSN
1818-4960.
Oscar Onyango Sangoro, Pamela Ochieng and Philemon Bureti (2012), “Determinants of Loan
Repayment Among Women-owned Enterprise in Kenya: A case of Eldoret Municipality”.
Lambert Academic Publishing.
Reta, F.K (2011), “Determinants of loan Repayment Performance: A case study in the Addis
Credit and Saving Institution, Addis Ababa, Ethiopia”. Development Economics Group,
Wageningen University, Wageningen, Netherlands.
30
Richard, O. (2011). “Credit Management and loan Recovery by Commercial Banks: Case Study
Centenary Rural Development Bank (CERUDEB) Lira Branch”. Makerere University.
Roslan, A.H. and Karim, M.Z. (2009). “Determinants of Microcredit Repayment in Malaysia:
The case of Agrobank”. Journal of Humanity & Social Sciences. Vol. 4, No. 1:45 – 52.
Sakilu, Suzana. (2006). “Factors Influencing Default in a Group Lending Model Used by
Microfinance Institutions in Tanzania: A Case Study of Pride (T) & PTF”. UDBS.
Sengupta, R. and Aubuchon, C.P. (2008). “The Microfinance Revolution: An Overview”.
Federal Reserve Bank of St. Louis Review, January/February 2008, 90(1), pp. 9-30.
URT (2000). The National Microfinance Policy. Government Printers. Dar es Salaam.
Zeller M. (1996) “Determinantes of Repayment Performance in Credit Groups: The role of
Programe desigh, Intra-group Risk Pooling, and Social Cohesipn in Madagascar’, Economic
Development and Cultural Change, Vol. 46, No. 3, pp. 599-620.
Annual Report (2011) – CRDB Bank
[www.crdbbank.com/index.php?...annual-report...annual-reports]
Site Visited on 5 June, 2012.
31
APPENDIX 1.
QUESTIONNAIRES (CRDB – STAFF)
Dear respondent(s),
Your response to this Questionnaire will serve as source of information to the research paper to
be done for thesis purpose. Any response you provide here is strictly confidential and will be
used solely for the research purpose. Your honesty in responding the right answer is very
important for the research outcome to be reliable.
1. What is your position at the Bank? …………………………..
Mark with a tick [√] where appropriate;
2. Do the clients fulfill the agreement stipulated in your agreement in as far as repayment
period is concerned?
Yes [ ] No [ ]
If no, why don’t they fulfill the agreement?
i. ………………………………………………………………………………
ii. ………………………………………………………………………………
iii. ………………………………………………………………………………
iv. ………………………………………………………………………………
3. At what loan application do the clients default?
First application [ ]? Or preceding application [ ]?
4. What are the reasons given by your clients when the defaults arise?
i. ………………………………………………………………………………………
ii. ………………………………………………………………………………………
iii. ………………………………………………………………………………………
iv. ………………………………………………………………………………………
v.
5. Is the number of clients who defaults?
Increasing [ ] Decreasing? [ ] Constant [ ]
6. If increase, by how many percentage?
1 – 10 [ ] 11 and Above [ ]
7. What are the challenges CRDB Bank face in loan recovery?
i. ………………………………………………………………………………………
ii. ………………………………………………………………………………………
iii. ………………………………………………………………………………………
32
iv. ………………………………………………………………………………………
v.
8. Do you have the ability to demand payment of the loan when the conditions for
repayment have deteriorated or the principle of the original loan had been falsified?
Yes [ ] No [ ]
9. Do clients receive training/guidance on evaluating their own debt capacity?
Yes [ ] No [ ]
10. Do the loan contracts explain what the borrower should expect in case of the late
repayment or default?
Yes [ ] No [ ]
Thank you for your great contribution on completing my research study on this subject.
33
APPENDIX 2.
QUESTIONNAIRES (CRDB – CLIENTS)
Dear respondent(s),
Your response to this Questionnaire will serve as source of information to the research paper to
be done for thesis purpose. Any response you provide here is strictly confidential and will be
used solely for the research purpose. Your honesty in responding the right answer is very
important for the research outcome to be reliable.
Mark with a tick [√] where appropriate;
I. Loan Repayment related questions
1. Is the repayment scheme set by CRDB Bank Plc suitable? [ ] Yes [ ] No
2. If No, what are the reasons?
[ ] The starting time to repay is too early
[ ] The repayment period is short
[ ] The amount of repayment in each month is too much
[ ] Others __________________________________________________________
3. What do you suggest to make the repayment scheme suitable?
[ ] To give enough time before starting to repay
[ ] To make the repayment period longer
[ ] Others ___________________________________________________________
4. Interest rate for credit set by CRDB Bank Plc is:
[ ] High
[ ] Medium
[ ] Low
5. Is Interest Rate for credit favours’ your loan repayment ability?
[ ] Yes
[ ] No
6. Do you know any people who are not repaying the loan? [ ] Yes [ ] No
7. If yes, what are the characteristics?
[ ] Business borrower OR [ ] Consumption borrower
8. Why would someone not repaying the loan?
[ ] Lack of follow up by loan officer
[ ] Weak legal enforcement for defaulters
[ ] Improper use of the loan
[ ] Lack of interest for doing business
[ ] Others _______________________________________________________
34
II. Business and Loan related questions
1. In which types of business currently engaged?
A. [ ] Urban Agriculture
[ ] Animal husbandry
[ ] Horticulture
[ ] Poultry
[ ] Bee farming
[ ] Others _____________________________________________________
B. [ ] Small enterprise
[ ] Textile
[ ] Food Processing
[ ] Metal work
[ ] Construction
[ ] Others _________________________________________________
2. How long have your business experiences?
[ ] 1 year [ ] 2 years [ ] 3 years [ ] 4 years [ ] others ___________
3. Did you conduct market study (survey) before starting your business?
[ ] Yes [ ] No
4. If No, why? _____________________________________________________
5. Are you able to get (access) business information related to your business?
[ ] Yes [ ] No
6. If Yes, how did you get this information?
[ ] From various media (TV, radio, newspaper, etc.)
[ ] From friends
[ ] From the loan provider (Addis microfinance institution)
[ ] Others __________________________________________________________
7. Is your business successful? [ ] Yes [ ] No
8. If No, what do you use to repay your loan?
[ ] From my personal asset (building, equipment...)
[ ] From other income source
[ ] Don’t want to repay
[ ] Others ________________________________________________________
9. How many times the loan officer visits your business and checks your repayment status?
[ ] Two times a month
[ ] Once a month
[ ] Once within two month
[ ] Once within three month
[ ] Others __________________________________________________________
35
10. Is your business assist you in repayment of loan?
[ ] Yes [ ] No
11. If No, why? _______________________________
12. How many times did you borrow from CRDB Bank Plc?
[ ] 1 [ ] 2 [ ] 3 [ ] 4 [ ] Others _______________________
13. How long it takes the first application and loan collection?
[ ] One week [ ] Two week [ ] One month [ ] other ______________________
14. What is/are the reason(s) for these?
[ ] loan officers are qualified
[ ] Speedy procedure (short process)
[ ] Due to long procedure (process)
[ ] Many people apply for credit at one time
[ ] The loan officers are not willing to finish within short time
[ ] Others ___________________________________________________
15. Did you spend the entire loan for running your business? [ ] Yes [ ] No
16. If No, for what purpose do you spent?
[ ] Consumption
[ ] Education for children
[ ] Health
[ ] Others _______________________________________________________
17. Is the amount of loan taken from CRDB Bank Plc enough for doing all your business?
[ ] Yes [ ] No
18. If No, what solution do you take?
[ ] Borrow from other formal Banks
[ ] Borrow from family or friends
[ ] Borrow from informal money lenders
[ ] Others_____________________________________________
19. Do you borrow from other sources for various purposes (consumption, emergency...)?
[ ] Yes [ ] No
20. If Yes, from where do you borrow?
[ ] Borrow from other formal banks
[ ] Borrow from family or friends
[ ] Borrow from informal money lenders
[ ] Others_____________________________________________
36
21. Which loan do you repaid first and why?
[ ] Loan from CRDB Bank Plc?
[ ] Loan from other formal banks
[ ] Loan from family or friends
[ ] Loan from informal money lenders
[ ] Others_____________________________________________
22. Are you repaying your loan? [ ] Yes [ ] No
23. If Yes, what is your repayment status?
A. Fully repaid
[ ] On time [ ] Too late
B. Partially repaid
[ ] On time [ ] Too late
24. Are you benefited by fully repaying your loan? [ ] Yes [ ] No
25. If yes, what are the benefits?
[ ] Access to the next higher loan
[ ] Build good relationship with the loan provider
[ ] To make the family stable
[ ] Others___________________________________________
26. If your answer is No for # 25, what is/are the reason(s)?
[ ] The cost of doing business is higher than the revenue
[ ] Weak legal enforcement for defaulters
[ ] Low supervision by the loan officer of CRDB Bank Plc
[ ] personal problem (like sick.....)
[ ] Improper use of the loan
[ ] Others____________________________________________
III. Socio – Economic Factors related questions
1. Why do you borrow from CRDB Bank Plc?
[ ] For doing new business
[ ] For expanding already existing business
[ ] Others ________________________________________________________
2. Is your and loan officer age lies in similar age range? [ ] Yes [ ] No
3. If Yes or No, is this matter on the interaction? [ ] Yes [ ] No
4. If Yes, what is/are the impact(s)?
[ ] Easy to communicate
[ ] Easy to understand each other
[ ] Others _________________________________________________________
5. If No, is it [ ] Above [ ] Below
37
6. What is/are the impact(s) of this age gap? _____________________________________
7. Do you have the same gender (sex) with the loan officer? [ ] Yes [ ] No
8. If Yes or No, is this matter on the interaction? [ ] Yes [ ] No
9. If Yes, what is/are the impact(s)?
[ ] Difficult to communicate
[ ] we have different perception
[ ] Others__________________________________________________________
IV. General questions
1. If you face any difficulties and challenges during the repayment process, please mention the Major challenges
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
_________________________________________________________________________
Thank you for your great contribution on completing my research study on this subject.