Analysis of factors influencing loan repayment under the "Entandikwa" credit scheme in Mpigi district

Abstract

The Government of Uganda introduced the "Entandikwa" (Start up capital) credit scheme in the 1994/95 budget as a revolving fund with the objective of improving the incomes of the rural and urban poor. The repayment period was one year. However, by the end of the first round of loan disbursement in 1996, only 21.5% of the total disbursement had been recovered. This study sought to understand the reasons at the borrower level that had influenced loan repayment. Data collected from a systematic sample of 80 beneficiaries was used to determine the key factors responsible for this loan recovery performance. A chi square test and logistic regression models were used to analyse the data. Results indicated a weak relationship (insignificant) between loan repayment and the economic activities financed. The regression results indicated that lack of experience in the financed economic activity, tertiary level education, sex of borrower, brick and tile making, bakery, knitting, tailoring and transport as sources of income had negatively influenced loan repayment. The vigilance of the intermediary agencies positively influenced loan repayment while the fungibility of credit and political preference of the borrowers were statistically insignificant. The poor repayment performance could also be attributed to the way the scheme was implemented: hurriedly and mainly through the political organs of the government. Loans were thus viewed as political handouts and taken by many without any intention of paying back. The need to operate the credit scheme through private micro-finance institutions with expertise in rural credit and Government's continued provision of a conducive economic policy environment for economic growth appear as key to operate any such credit schemes.