The factors affecting loan default in micro deposit taking institutions in uganda: A case study of Pride Micro Finance Limited

Abstract

ABSTRACT This study aimed at finding out the factors affecting the loan default rate in micro deposit taking institutions in Uganda using a case study of Pride Micro finance. The study dwelled on establishing the effect such socio-demographic characteristics of the borrower as age, sex, education, income loan type, multi borrowing and occupation on loan default. For a period of five years (2009-2013). The estimation of this effect was done using a logistic modeling technique. The results of the regression analysis indicate that: age, occupation, education and income had a negative and statistically significant effect on loan default. An increase in any of these variables would reduce loan default. However multi borrowing had a positive and statistically significant sign on loan default. Also salary loans are less defaulted on than micro loans. The effect of sex was not found significantly related to loan default. Based on these findings, the study recommends that: Borrowers from the formal sector and high income earners be more encouraged into the credit market since they are likely to facilitate the growth of the credit market in Uganda through their potential to payback. Financial institutions should design a special loan assessment criterion for the low income earners and those from the informal sector to suit their ability to pay given their special economic conditions. The institution should ensure that borrowers obtain financial card before loans are disbursed to limit multi borrowing and its associated effects which has been proved to be more eminent among educated borrowers