A Dissertation Submitted in Partial Fulfillment of the Requirement for the Degree
of Masters of Science in Project Planning and Management of Mzumbe University
The study on determinants of loan defaults in Microfinance Institutions in Tanzania was
carried in Dodoma Municipality in two selected branches namely PRIDE and FINCA.
Specifically, the study intended to: assess the default rate of the selected MFIs for the
period between 2004 and 2014; determine factors influencing the likelihood of loan
default and identify effects of loan defaults to borrowers and MFIs. The study used
cross-sectional design to gather information at the study area. Non-purposive (simple
random) sampling technique was applied to select 196 respondents. Purposively, Microfinance
institutions and key informants were selected. Primary data were collected
directly from the respondents using structured interview and semi - structured interview
whereas secondary data were collected through a documentary review of sources
including published and unpublished materials. Data obtained were analyzed by
descriptive statistics and logistic regression using SPSS version 11.5. Logistic regression
model estimated the factors influencing the likelihood of borrowers to default. The
results of the Logistic regression model shows that age of borrowers and interest rate
charged by MFIs were significant at (P<0.05) and business type, business management
education and loan uses were found to be significant at (P<0.01). Majority of
respondents identified loss of collaterals and denial of future loan as major effects of
loan default. Loss of Interest incomes, reduction of operating profit through provision
for bad debts and reduction of lending capacity are effects reported by MFIs. Further,
this study recommends MFIs should involve borrowers in reviewing loan repayment
terms, effective monitoring of loans, credit training programs and where necessary the
use private debt collectors.