This study assesses the determinants of successful loan repayment performance of project financing in the case of Development Bank of Ethiopia. The study uses explanatory design and quantitative research approach. Secondary data was used. The collected data were taken from individual borrowers’ files. Hence, the total sample size was seventy-five (75), of which 40 (53%) were successful financed projects (non-defaulters), whereas the rest 35 (47%) were non-successful ones (defaulters).
The data was analysed via correlation followed by logistic regression model using SPSS version 20. The independent variables used in the study are accessibility of market, amount of loan, availability of raw material, distance from project location to raw material destination, distance from project location to output product market, educational level, equity debt ratio, loan processing time, managerial experience of project manager, number of project follow-up, project implementation period, type of management and type of market for the commodity financed. In the study, a logistic regression model was used to identify variables which determine successful loan repayment performance. The paper reveals that the managerial experience of project managers, loan processing time, educational level, number of project supervisions/ follow-ups by the bank, delay in project implementation period and type of management for the financed projects were statistically significant determinant of loan repayment performance of DBE’s financed projects.
This study suggests that Development Bank of Ethiopia better intensify its project monitoring and follow-up work in order to make well-informed decisions and provide technical assistance for its credit-assisted projects; give due attention to minimize the bureaucracy that delays the loan processing time; critically analyse the project implementation period at the time of appraising projects and enhance its project implementation capacity; identify and redress the root causes of project delays; and improve its efficacy of customer recruitment system by giving special considerations to educational level of borrowers, managerial experience of project managers and type of management, among others.
Table of Contents
1. INTRODUCTION
1.1. Background of the study
1.2. Statement of the problem
1.3. Objectives of the study
1.3.1. General objectives
1.3.2. Specific objectives of the study
1.4. Hypothesis of the study
1.5. Operational Definition Term
1.5.1. Dependent (Explained) Variable
1.5.2. Independent (Explanatory) Variables
1.6. Significance of the Study
1.7. Delimitation/Scope of the study
2. LITERATURE REVIEW
2.1. Theoretical review
2.1.1. Theory of project
2.1.2. Theory of project management
2.1.3. Weber’s Least Cost Theory
2.1.4. Experiential Learning Theory
2.2. Credit (project financing)
2.3. The Nature and Role of Credit Market
2.4. Criteria for Successful Loan Repayment
2.5. Determinant of loan repayment performance
2.5.1. Loan processing time
2.5.2. Due diligence Assessment
2.5.3. Credit appraisal study
2.5.4. Credit approval
2.5.5. Credit Documentation
2.5.6. Project Implementation period
2.5.7. Credit follow-up/ supervisory visits
2.5.8. Output product market access
2.5.9. Management skills
2.5.10. Distance from project location
2.6. Empirical Studies
2.6.1. Empirical Evidence in the World
2.6.2. Empirical Evidence in Africa
2.6.3. Empirical studies in Ethiopia
2.6.4. Knowledge Gap
3. RESEARCH DESIGN AND METHODOLOGY
3.1. Research Design
3.2. Population and Sampling Technique
3.3. Types of Data and Tools/Instruments of data collection
3.4. Procedures of data collection
3.5. Methods of Data Analysis
3.5.1. Descriptive statistics
3.5.2. Logistic Regression model
4. RESULTS AND DISSCUSSION
4.1 Mean of Demographic and Socio-Economic Characteristics of the Financed Project
4.1.1 Educational Level of the Project Manager
4.1.2 Managerial Experience of Project Manger
4.1.3 Delayed Project Implementation Period
4.1.4 Input Raw Material Availability
4.1.5 Accessibility of Output Product Market
4.1.6 Type of Management
4.1.7 Distance from Project Location to Input Raw Material
4.1.8 Distance from Project Location to Output Product Market
4.1.9 Type of Market for the Commodity Financed
4.2 Institutional Factors
4.2.1 Loan Processing Time
4.2.2 Loan Amount
4.2.3 Number of Project Follow-Up
4.2.4 Equity to Debt Ratio
4.3 Correlation (Relationship) between Dependent Variable with Explanatory Variables
4.3.1 Educational Qualification of the Project Manager
4.3.2 Managerial Experience of Project Management
4.3.3 Delayed Project Implementation Period
4.3.4 Raw Material Availability
4.3.5 Output Product Market Accessibility
4.3.6 Type of Management
4.3.7 Type of Market for the Commodity Financed
4.3.8 Loan Processing Time
4.3.9 Number of Project Follow-Up
4.3.10 Equity-to-Debt Ratio
4.3.11 Distance from Project Location to Raw Material Availability
4.3.12 Distance from Project Location to Output Product Market
4.4 Determinants of loan repayment in project financing
4.4.1 Discussion of the Significant Explanatory Variables
5. CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusion
5.2. Recommendation and Policy implication
Research Objectives and Core Themes
This study aims to analyze the determinants of successful loan repayment performance in project financing by utilizing secondary data from the Development Bank of Ethiopia. The research seeks to identify key institutional, demographic, and socioeconomic factors that influence whether a project qualifies as a successful repayment case or a default, ultimately providing evidence-based strategies for improving loan collection efficiency.
- Statistical analysis of borrower characteristics and project performance data.
- Investigation of institutional factors such as loan processing time and supervision frequency.
- Assessment of the relationship between project management experience and loan repayment success.
- Evaluation of the impact of technical and logistical variables, including raw material availability and market accessibility.
Excerpt from the Book
2.5.2. Due diligence Assessment
This first steps of analysis of the borrower characteristics to go to the next step. Through conducting in-depth analysis of the creditor the credit officer either accept or reject the credit application based on the Bank criteria set. This is due to potential risk involved in a potential investment, a due diligence assessment is essential to the pre-funding commitment. The biggest investment a lender or creditor can make in a business is taking the time to determine the key aspects of the business environment, from the day-to-day operations practices, to human resource considerations, to the necessary practices to maintain customers. A due diligence assessment provides the answers to these questions, allowing creditors and lenders to decide if they are willing to proceed given the existing factors. As such, it is a helpful tool in making a more informed credit or investment decision.
Due diligence assessments also provide information which can be used when crafting lending or investment instruments for the benefit of lending or investing entities. Although the structure of each engagement is unique, projects typically focus on answering the following questions:
• Market positioning, including competition, capabilities, market dynamics by segment
• Execution capabilities, including strategy, management capabilities, cost structure, customer service, quality, product innovation
• Attainability of business plan and projections
• Cash flow forecast, quality of earnings and debt service capabilities
Summary of Chapters
CHAPTER ONE: Provides the foundation for the research by contextualizing the role of the Development Bank of Ethiopia and outlining the problem of loan repayment performance.
CHAPTER TWO: Reviews the theoretical and empirical literature related to project management, credit financing, and factors affecting loan repayment in various geographical contexts.
CHAPTER THEREE: Details the research methodology, including the design, data collection procedures from secondary sources, and the logistic regression model used for analysis.
CHAPTER FOUR: Presents the findings and statistical discussions regarding the determinants of loan repayment performance based on the collected borrower data.
CHAPTER FIVE: Concludes the study and provides policy recommendations for the Development Bank of Ethiopia to enhance its loan recovery and project monitoring efforts.
Keywords
Project financing, Development Bank of Ethiopia, Loan repayment performance, Logistic regression, Credit appraisal, Project management, Borrower characteristics, Institutional factors, Financial sustainability, Debt equity ratio, Non-defaulters, Defaulters, Credit supervision, Loan processing time.
Frequently Asked Questions
What is the core focus of this research?
The research investigates the primary determinants of successful loan repayment performance for projects financed by the Development Bank of Ethiopia, aiming to understand why some projects succeed in repayment while others default.
Which sectors and variables does the study analyze?
The study analyzes various projects financed by the bank and examines independent variables such as loan processing time, number of project follow-ups, managerial experience, educational level of the manager, and market accessibility.
What is the primary objective of this thesis?
The primary objective is to identify and statistically measure which specific factors significantly influence the likelihood of a project borrower successfully repaying their loan according to contractual agreements.
What scientific method is employed?
The study utilizes a quantitative research approach, specifically employing a logistic regression model (using SPSS software) to analyze secondary data collected from the individual files of project borrowers.
What does the main body of the work cover?
The main body covers a comprehensive review of project and credit theories, the methodology for data collection and analysis, and a detailed discussion of the demographic and institutional factors impacting loan repayment outcomes.
Which keywords best describe this study?
Key terms include Project financing, Loan repayment performance, Logistic regression, Credit appraisal, and Institutional factors in Ethiopian banking.
How does project management experience affect repayment?
The study indicates a positive and statistically significant relationship between the managerial experience of the project manager and the likelihood of successful loan repayment.
What role does the bank's follow-up play?
Frequent project follow-ups and supervisory visits by credit officers are identified as critical institutional factors that positively correlate with the borrowers' ability to adhere to loan repayment schedules.
How does loan processing time impact success?
The research finds that prolonged loan processing times have a negative impact on repayment performance, as delays can interrupt the planned production cycles and operational viability of the financed projects.
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- Ayal Kebede (Autor:in), 2018, Determinants of Successful Loan Repayment Performance in Project Financing, München, GRIN Verlag, https://www.grin.com/document/962972
