A Dissertation Submitted in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Business Administration in Corporate Management (MBA-CM) of Mzumbe University.
The study on causes of loan default in microfinance institution was conducted at Tanzania Postal bank in Dar es Salaam City. The main objective of the research was to find out the causes of loan default within micro finance institutions in Tanzania. Specific objectives aimed to assess how non supervision of borrowers influence loan repayment, identification of factors responsible for loan default by clients of MFIs, assessment of causes of loan default in microfinance institution and analyze diversion of loan funds by borrowers leading to default in loan repayment to MFIs.
The target population comprised a total of 60 loan borrowers and 10 TPB staff. Out of this a sample of 40 respondents were picked using simple random sampling for each stratum to provide every member of the population an equal and independent chance of being selected. The approach was used because it is simple and most convenient and bias free selection method.
Primary data collection method was employed using Questionnaires, Interview and Observation. Secondary data method was also applied on deducing data from various documentary sources. The study found that inadequate supervision of borrowers by the MFIs staff on loan utilization and loan repayment lead to default of repayment. It was further found that default in loan repayments was a result of borrowers having inadequate assets value. The study also found that a good number of the borrowers did not use the loans received from TPB for the intended projects/ and or agreed purposes.
The study recommends that, in order to minimize the rate of loan repayments, TPB needs to have mandatory supervision to borrowers on loan utilization and repayment done on a quarterly basis. Such supervision will enable TPB monitor performance of borrowers closely. There is also a need to train borrowers before and after receiving loans. This should focus on areas of business management, book keeping and savings. With such measures in place it is believed that default rate will drop down if not entirely eliminated and become a history.