Determinants of Loan Defaults in Microfinance Institutions in Tanzania: A case of two Selected Microfinance Institutions in Dodoma Municipality
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ABSTRACT: The study on determinants of loan defaults in Microfinance Institutions in Tanzania was carried in Dodoma Municipality in two selected branches namely PRIDE and FINCA. Specifically, the study intended to: assess the default rate of the selected MFIs for the period between 2004 and 2014; determine factors influencing the likelihood of loan default and identify measures that have been taken to reduce loan defaults problems. The study used cross-sectional design to gather information at the study area. Non-purposive sampling technique was applied to select 196 respondents. Purposively, Micro-finance institutions and key informants were selected. Primary data were collected directly from the respondents using structured interview and semi - structured interview whereas secondary data were collected through a documentary review of sources including published and unpublished materials. Data obtained were analyzed by descriptive statistics and logistic regression using SPSS version 11.5. Logistic regression model estimated the factors influencing the likelihood of borrowers to default. The findings show that, the loan default existed in both branches. However, the rate of loan default has been decreasing from year 2004 to 2014 . In addition, Logistic regression model shows that age of borrowers and interest rate charged by MFIs were significant at (P<0.05) while business type, business management education and loan uses were found to be significant at (P<0.01). Majority of respondents and key informant reported that holding of defaulters’ property, rejection of borrowers to the next loan opportunity, frequent communication and capacity building were measures undertaken by MFIs to reduce default problem. Further, this study recommended that MFIs should involve borrowers in reviewing loan repayment terms, effective monitoring of loans, credit training programs and where necessary the use private debt collectors.