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 “one-size-fit-all” 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.

 Key words: Government Microcredit programs, Loan repayment and collateral