Determinants of loan defaults in microfinance institutions in Tanzania: A case of two selected microfinance institutions in Dodoma Municipality

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Mzumbe University
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 effects of loan defaults to borrowers and MFIs. The study used cross-sectional design to gather information at the study area. Non-purposive (simple random) 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interview whereas secondary data were collected through a documentary review of sources including published and unpublished materials.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 results of the Logistic regression model shows that age of borrowers and interest rate charged by MFIs were significant at (p <0.05) and business type, business management education and loan uses were found to be significant at (p <0.01) Majority of respondents identified loss of collaterals and denial of future loan as major effects of loan default. Loss of Interest incomes, reduction of operating profit through provision for bad debts and reduction of lending capacity are effects reported by MFIs. Further, this study recommends MFIs should involve borrowers in reviewing loan repayment terms, effective monitoring of loans, credit training programs and where necessary the use private debt collectors.
A dissertation submitted in partial fulfillment of the requirement for the Degree of Masters of Science in Project Planning and Management of Mzumbe University
Loan defaults, Microfinance Institutions in Tanzania, Microfinance and microcredit