Determinants of Loan Repayment Behavior of Tanzanian Microfinance Borrowers

Neema Mori, Lazaro Shauri and Evelyn Richard

Journal of African Business, 2025, vol. 26, issue 4, 749-773

Abstract: Microfinance institutions (MFIs) play a vital role in promoting financial inclusion and reducing poverty by providing credit to marginalized populations. However, sustainability issues arise due to challenges in loan repayment. This study examines the factors influencing loan repayment among microfinance borrowers in Tanzania, specifically the impact of dynamic incentives, joint liability, and regular group meetings. Using survey data from 251 MFI borrowers, we analyzed repayment behavior among individuals in group loans through correlation and multiple regression techniques. The results indicate that dynamic incentives and joint liability improve repayment behavior, supporting information asymmetry and carrot/stick theories by reducing information gaps. Joint liability, in particular, fosters mutual trust and accountability, as members become more involved in monitoring and reporting each other’s activities to lenders. These findings suggest that MFIs should enhance group lending management practices. For regulators, formalizing and legally recognizing community groups would further support their access to financial services. This study highlights the importance of structured group dynamics in improving loan repayment rates, which are crucial for the sustainability of MFIs.

Date: 2025
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DOI: 10.1080/15228916.2024.2423984

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