Cause and Effects of Poor Loan Recovery and Drop Out On Profitability of Oromia Credit and Saving Share Company. Case Of East Shawa Zone

Abstract

Micro finance plays a great role in improving the livelihood of its beneficiaries. The objective of this study was to investigate the cause and effect of poor loan recovery and client dropout on profitability of OCSSCO East Shawa Zone. Descriptive and explanatory research design was employed. in research process and both primary and secondary data was collected. Cluster sampling technique was employed. From a total of 250 population 148 was used as sample population. One Hundred forty eight questionnaires were administered and 95% of questionnaires were completed and returned. Audited financial report of 10 year of East Shawa was collected. The data was analyzed using Statistical Package for Social Sciences (SPSS) and Eview soft ware. Result was reported using descriptive and inferential statistics. The study found evidence that for cause of poor loan recovery Model summary indicate R square value equals 0.72 this means our model which include loan policy reason and loan client reason explain 72% of variance in poor loan recovery. ANOVA indicate significance of model, our model is statistically sign (sig=0.000), this really means P<.0005). To find factor contribute more Regression Coefficients beta standardized coefficient was used to indicate the contribution of each factors to poor loan recovery. Loan policy reason contribute (beta = 0.371) and loan client factors contribute (beta =0.646). Of this two factors loan clients factors makes the largest contribution (beta =0.646).For cause of client drop out Model summary reveal that R square value is 0.691 this means our model which include Program and product policy reason, Group lending reason and Client business reason explain 69.1% of variance in drop out. ANOVA indicate significance of model our model is statistically sign (sig=0.000), this really means P<.0005). To find factor factors more contribute for drop out Regression Coefficients beta standardized coefficient indicate the contribution of each factors to client drop out, Program and Product Policy factors, contribute (beta = 0.149), Group Lending factors contribute (beta =0.311) and client business factors contribute (beta =0.582). Of this factors client business factors makes the largest contributor (beta =0.582) to drop out. To measure effect of Drop out and poor loan recoveryEview soft ware used and the result indicate both poor loan recovery and drop out negatively affect profitability measured by Net profit after tax at p< 0.0005 level of significance. This suggests that a unit increase in provision to loan loss will result in 0.76733 units decrease in net profit after tax. Similarly, a unit increase in cost of drop out will result in 2.16 units decrease in net profit after tax. Further, I recommend other researcher to work on client protection and credit risk appetite level in Oromia Credit and saving share company East Shawa zonal Office.