FACTORS INFLUENCING BORROWER'S LOAN REPAYMENT IN THE FINANCIAL INSTITUTIONS

Abstract

ABSTRACT This study investigates the factors that impact borrowers' loan repayments in financial institutions in Zanzibar. The research is guided by three main objectives: firstly, to explore how borrower characteristics influence loan repayments in Zanzibar's financial institutions; secondly, to identify social traits that contribute to enhanced loan repayment in these institutions; and thirdly, to estimate the extent of loan default within Zanzibar's financial institutions. The study utilizes the Moral Hazard Theory and Loan Doctrine Theory, employing a survey design as the research methodology. The study employed a questionnaire method to get data for quantitative analysis and an interview guide for qualitative analysis. The quantitative analysis includes correlation analysis and regression approaches. The regression analysis reveals that the model is significant (β = 1.753), with a p-value of less than 0.001 and a t-value of 5.247. The regression also indicates that both variables have a positive and significant influence on loan repayment. The unstandardized coefficient for borrower characteristics is β = 1.076, with a standard error of 0.381, a t-value of 2.824, and a p-value of 0.005 (p < 0.01). The unstandardized coefficient for social traits is β = 1.623, with a standard error of 0.387, a t-value of 4.190, and a p-value of 0.000 (p < 0.001). The qualitative analysis suggests that there is an average level of loan default within Zanzibar's financial institutions. The study provides valuable insights for managers regarding the factors influencing borrowers' loan repayments in these institutions. It also contributes to the ongoing debate on loan default within Zanzibar's financial institutions. Lastly, the study offers managerial and policy implications including encouraging the development and adoption of comprehensive borrower assessment frameworks that incorporate the evaluation of borrower characteristics, social traits, and other pertinent factors that impact loan repayment behavior not only in Zanzibar but also in Tanzania as a whole.