| Abstract: | Loan is related to a type of debt, and like all debt instruments, a loan entails the redistribution of financial assets over time between the lender and the borrower. Thus, the study sought to assess the loan default of micro and small enterprises in Addis Ababa. The present study targeted owners of various micro and small enterprises in Bole sub city, Addis Ababa in Ethiopia. 273 usable questionnaires were returned from the total 358 with the response rate of 76 %. This study mainly used descriptive research design, primary data and self-administrated questionnaire. A pilot study was undertaken with various MSEs to test the reliability and validity of the questionnaire. This study used stratified sampling technique using the type of business that the owned MSEs were operating. This comprised of manufacturing, trade, service, agri-business and construction. As result, this study revealed that the male gender could be dominating the micro and small enterprises sector and there is a possibility of loans diverted to unplanned purposes because of many responsibilities resulting from meeting the needs of many members of the family. This study also found that there are inconvenience loan payment scheduling and occurred lack of standardize collateral requirements (mean = 3.98) and repayment option (mean = 4.06) by MFIs. The major causes of loan default included failure to tie lending to creative investment; imperfect loan policies [loan disbursement procedures (4.18) and complex loan disbursement procedures (4.08)] and delayed loan disbursement, too much or too little credit and misuse and exploitation of loans [corruption in case of loan disbursement (4.09)]; and discipline on the part of borrower. MSE’s lenders do not have a well-organized collection system and lack of electronic payment system (mean =4.360) like mobile banking. The study found out that large family size and poor personal characteristics, corruption, business experience, age, interest rate and longer duration of business - loan characteristics are allude to as the loan default problems. This study suggests that banks may implement a well-organized electronic payment and collection system and like core banking database and mobile banking. |
