An Analysis of Loan Repayment Performance in Government Microcredit Programs: A Case of Small Enterprises Development Corporation (SEDCO) in Zimbabwe (2009-2012).

Abstract

The*study*endeavoured*to*analyse*loan*repayment*performance*of*government* microcredit* programs.* The* study* was* motivated* by* the* fact* that* government* microcredit* programs* perform* poorly* because* of* slow* repayment* and* high* defaults.* Loan* repayment* performance* of* Small* Enterprises* Development* Corporation* (SEDCO)* for* the* period* 2009* to* 2012* was* reviewed* checking* whether* the* institution's* credit* policy* was* being* effectively* implemented* to* ensure*a*positive*repayment*performance.*A*case*study*approach*was*adopted,* and* questionnaires* were* administered* to* thirty* Small* to* Medium* Scale* Enterprises* (SMEs)* in* Harare,* Zimbabwe* and* ten* to* SEDCO* staff* working* directly* with* loans* and* also* top* management* was* interviewed* to* provide* information*on*loan*repayment.*The*study*revealed*that*most*borrowers*fail*to* make* repayment* on* time* or* default* because* of* poor* business* performance,* having* many* dependents* to* take* care* of* and/or* diversion* of* funds* to* unprofitable* use.* On* screening* potential* borrowers,* it* was* found* that* clients* with* fixed* assets* to* pledge* as* collateral,* project* and* business* plan* were* given* high*priority.*It*was*also*found*that*credit*policy*implementation*was*poor*as*a* result* of* lack* of* working* capital.* It* was* recommended* that* loan* screening* process* should* be* revised,* repayment* period* should* be* revisited* for* it* to* be* client* specific* than* a* "oneTsizeTfitTall"* policy* for* financially* viable* projects* which* require* a* higher* repayment* period,* client* follow* ups* should* be* intensified* and* improvement* of* the* loan* management* information* system.* Finally* SEDCO* has* to* educate* borrowers* that* government* microcredit* programs* are* not* extended* to* them* as* grants* but* loans* which* should* be* paid* back*to*the*lender.