Evaluation of the factors influencing sme’s poor loan repayment performance in Tanzania:A Case of FINCA Microfinance Bank

Microfinance institutions are very popular to small and medium scale entrepreneurs who have been denied financial service by conventional banks, where the primary objective of MFIs is to provide financial services (credit and saving) to the poor in order to relieve financial constraints and help alleviate poverty. MFIs seek to have a better loan repayment performance which is one of the indicators of effective MFIs. This study aimed at evaluating the factors influencing poor loan repayment performance in MFIs in Tanzania. The study was conducted in Dar es Salaam Tanzania on borrowers of FINCA Microfinance Bank, where data were collected using the closed ended questionnaires and data were coded and entered in the SPSS. A sample of 120 respondents was obtained through a simple random sampling procedure where the systematic sampling was used. The study employed the quantitative research design and the positivism approach was used as the aim was to determine the statistical and cause effect relationship. Descriptive statistics were generated and multiple regression analysis was run to test the influence of four independent variables on poor loan repayment performance. The findings revealed that High Cost of Money, Short loan tenure, Fund Diversion and legislation Issues have positive and significant influence on poor loan repayment performance, where the Fund Diversion seemed to have highest influence compared to the remained three independent variables. This indicates that MFIs has to pay much attention on all four independent variables and seek for the appropriate measure such as Delinquent Management Strategy to control the failure of borrowers to meet their obligations when they fall due.