AN ASSESSMENT OF THE EFFECT OF BORROWERS’

CHARACTERISTICS ON LOAN REPAYMENT IN TANZANIA:

A CASE OF CRDB BANK, DAR ES SALAAM

A Research Proposal submitted in partial Fulfillment of the Requirements for the

Degree of Master of Business Administration in Corporate Management
Mzumbe University
2021
 CHAPTER ONE
PROBLEM SETTING

1.0 Introduction

This chapter presents the background of the study, problem statement, research
objectives, significance of the study, and scope of the study as well as organization of
the study.

1.1 Background of the study

The world today has realized potentiality of financial institutions toward poverty
alleviation and firsthand knowledge of the needs and interest of the poor (Quinones and
Remenyi 2014). In developing countries Microfinance institutions (MFIs) become the
main solution for improve wellbeing of the poor in rural and urban areas population
because they provide affordable loans and saving services to small business, farmers and
traders which were excluded from mainstream traditional banks due to lack of
collaterals, low capital and poor repaying capacity (Alhassan, Hoedoafia et al. 2016).

Since MFIs have viable policy options for alleviating poverty among the poor in the
rural and urban centers, therefore are in line with “Millennium development goals
agenda” which seeks to reduce poverty by 50% by the year 2015 (Gebreab 2016).
Although, the growth and sustainability of MFIs depend on the repayment rate of the
loan borrowers. The higher loan repayment among borrowers tend to increase volume of
credits, lower interest rate, and processing costs and consequently increase patronage of
loans. Also reduces subsidy dependence of the credit institutions to help them reach a
better sustainability level thus serves as a positive signal for increasing the volume of
credit availability to various sectors of the economy (Acquah and Addo 2011)

Different studies in relation to loan default particular in developing countries show the
existence of high level of loan default among borrowers. The findings of Makorere
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(2014) in Tanzania, Ochung (2013) in kenya, Acquah and Addo (2011) in Ghana, ,
Okorie (2016) in Ngeria, and Roslan and Hakim (2019) in Malaysia have similar views
that loan default is common problem which weak performances or resulting into
collapse of many MFIs in developing countries. (Acquah and Addo 2011, Ochung 2013,
Makorere 2014).

However, most of prior researcher’s findings show that borrower characteristic is among
of loan default causes. Borrower characteristic includes all attribute or capacity
borrowers shown in order to be acceptable for loan easily (Al-shami, Razali et al. 2018).
Researchers viewed differently constituents of borrower characteristics. Typically
include demographic characteristics (age, gender, education, marital status, experience,
training and number of times an applicant has ever borrowed a loan from MFIs.

Nanayakkara and Stewart (2015) findings in Sri Lanka revealed that loan cycle, gender
and age of the borrower influence loan repayment among borrowers. While findings of
Pasha and Negese (2014) in Ethiopia revealed that, borrower with high education level
tend to repay loan on time with less default compare to non-educated borrowers. The
study of Awunyo (2012) in Nigeria revealed that, the probability of a loan repayment
was higher for males than the females, Contrary, Faizal 201 (2017) in Malaysia argue
that default is higher for male than female. Empirical study of Ifeanyi et al. (2014)
findings in Nigeria revealed that, younger farmers were likely to repay credit than older.
While Eze and Ibekwe (2017) findings in Southeast Nigeria, show that, amount of loan
received, age of beneficiary, household size, and years of formal education and
occupation as important predictors of loan repayment under the system (Awunyo-Vitor
2012, Nanayakkara and Stewart 2015, Faizal 2017).

Generally; variables that comprise of borrower’s characteristics are selected based on the
interest of researchers. Both borrowers’ demographic characteristics, borrowers’
business characteristics and borrowers’ economic characteristics affect loan repayment.

2
This study focuses on these variables because can be of usefully by MFIs in analyses
borrower before provisional of loan.

1.2 Statement of the problem

Recently, borrower’s characteristic become one of potential factor to be considered by
MFIs in provisional of loan and have greater effect on loan repayment. Both
demographic, business and economic characteristic of borrowers affect loan repayment
(Nanayakkara and Stewart, 2015; Eze and Ibekwe, 2017; Ifeanyi et al. 2014). In spite
the fact that, MFIS screening their clients and improve collection strategies, loan default
is still a problem in Tanzania. National bank of Commerce (NBC) 2008 were reported to
reduce loan provisional by twenty-seven percent (27%), similarly Trust Fund by 29
percent (Trust Fund, 2008) and National Microfinance Bank Report by 26 percent
(NMB, 2008) due to the failure of borrowers to repay loans on time (Makoreore, 2014).
This is a problem that requires the urgent attention of policy makers and all stakeholder
in Tanzania microfinance industry due to the high loan default tend to affect negative
level of private investment, reduce MFIs capital and accumulation of losses to
compensate loan losses. (Ochung 2013, Makorere 2014, Nanayakkara and Stewart 2015)

Despite the looming evidence of high loan delinquency rate and adverse effects resulting
from delinquencies, there are few or no empirical studies have done in Tanzania context
focus on assess effect of borrowers’ characteristics on loan repayment specifically on
examine how borrower’s demographic, business and economic characteristic affect loan
repayment behaviour of MFIs borrowers. Thus, this study is of paramount important as
it aimed on bridging the gap of knowledge and raise fresh perspective among scholars.

1.2 Statement of the problem

Recently, borrower’s characteristic become one of potential factor to be considered by

MFIs in provisional of loan and have greater effect on loan repayment. Both
demographic, business and economic characteristic of borrowers affect loan repayment
3
(Nanayakkara and Stewart, 2015; Eze and Ibekwe, 2017; Ifeanyi et al. 2014). In spite
the fact that, MFIS screening their clients and improve collection strategies, loan default
is still a problem in Tanzania. National bank of Commerce (NBC) 2008 were reported to
reduce loan provisional by twenty-seven percent (27%), similarly, Trust Fund by 29
percent (Trust Fund, 2008) and National Microfinance Bank Report by 26 percent
(NMB, 2008) due to the failure of borrowers to repay loans on time (Makoreore, 2014).
This is a problem that requires the urgent attention of policy makers and all stakeholder
in Tanzania microfinance industry due to the high loan default tend to affect negative
level of private investments, reduce MFIs capital and accumulation of losses to
compensates loan losses. (Makorere 2014, Nanayakkara and Stewart 2015).

Despite the looming evidence of high loan delinquency rate and adverse effects resulting
from delinquencies, there are few or no empirical studies have done in Tanzania context
focus on assess effect of borrowers’ characteristics on loan repayment specifically on
examine how borrowers demographic, business and economic characteristic affect loan
repayment behaviour of MFIs borrowers. Thus, this study is of paramount important as
it aimed on bridging the gap of knowledge and raise fresh perspective among scholars.

1.3 Objectives of the study

1.3.1 General objectives

The study main focus on assess the effects of borrowers’ characteristics on loan
repayment in Tanzania MFIs

1.3.2 Specific objectives

i. To examine effect of borrowers’ demographic characteristics on loan

repayment at CRDB bank

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 ii. To examine influence of business characteristics on loan repayment at CRDB
bank
iii. To explore the extent at which borrowers’ economic characteristics affect
loan repayment at CRDB bank

1.5 Research Questions

i. To what extent do borrowers’ demographic characteristics affect loan
repayment at CRDB bank?
ii. To what extent do business characteristics affect loan repayment at CRDB
bank?
iii. To what extent do borrowers’ economic characteristics affect loan repayment
at CRDB bank?

1.6 Significance of the Study

The study may raise awareness to both borrowers and financial institutions on the extent
to which borrowers’ demographic characteristics, borrowers’ business characteristics
and borrowers’ economic characteristics affect loan repayment. In addition to that, the
study may contribute to the academic field since it will establish the basis on the effects
of borrowers’ characteristics on loan repayment in financial institutions in Tanzania. The
study may be cited as the reference for the new researchers who will carry researches in
the same field and through that, they may use in creating gaps in their respective studies
and being part of literature review.

1.7 Scope of the Study

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This study focuses on assessing effects of borrowers’ characteristics on loan repayment
in financial institutions in Tanzania. There are so many financial institutions in banking
sector that are engaged in loan provision, however, the study is restricted to CRDB bank
head office in Dar es Salaam. In addition to that, the study will be confined to variables
namely borrowers’ demographic characteristics, borrowers’ business characteristics and
borrowers’ economic characteristics.

1.8 Organization of the study

The study will organize in three chapter one which cover background of the study,
problem statement, study objectives, research questions, significant of the study and
organization of study. Chapter two cover theoretical reviews, empirical reviews and
conceptual framework. Chapter three cover research design, study area, study population
sample size and sampling techniques, data collection instrument, data validity and
reliability, data management and analysis.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction
Chapter two cover conceptualization and definition of key terms, theoretical literature
reviews, empirical literature reviews and conceptual frame work. The researcher visits
different book, journals and other previous researcher which relate to the study objective
for increasing understand to the topic under investigation.

2.1 Operational Definitions

The following are the meaning of the study variables used in this study. The definitions
of variables used in this study provides insight that will help in generalization of the
conclusions and discussion of findings.

2.1.1 Borrowers’ Characteristics

Borrowers’ characteristics refers to the attribute or capacity borrowers shown in order to
be acceptable for loan easily(Al-shami, Razali et al. 2018). Bank provide loan to the
borrowers which meet minimum qualifications attached by bank as the condition for
loan provisional. (Stewart 2015). For instance, borrowers who own assets will easily
access credit since it reduces the risk of the banks losing its funds. (Ssekiziyivu,
Bananuka et al. 2018). For the purpose of this study, borrowers’ characteristics is
considered on how the borrowers behave on the loans provided to them for the business
purpose. Borrowers’ characteristics is determined by demographic characteristics,
business characteristics and economic characteristics.

2.1.2 Loan Repayment

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Loan repayment defines as an act of paying back load borrowed from the lender. The
loan provided by commercial bank normally attached by terms (agreement) and interest
rate. The agreement also show the time and series of payment schedule (Rieffel 2003).
Generally, loan repayment in this study revealed as an act of making payments towards a
loan or the payment themselves.

2.1.3 Financial Institutions

Financial institutions include all business organizations providing financial service. It
includes both bank and non-bank institutions. The main monetary services given
includes providing loans, serving of money, and other financial services like stocks and
bonds (Cheng and Degryse 2010, Adomako-Ansah 2012). In context of this study
financial institutions includes all institutions with the mandate of dealing with financial
and monetary transactions and these institutions are considered as the commercial banks
operating business in Tanzania

2.2 Theoretical Review

In this section the researcher reviews different theories in relation to the study, impact of
borrowers’ characteristics on loan repayment in Tanzania. The main theory used
includes planned behavior theory.

2.3.1. Planned Behavior Theory

The theory of planned behavior (TPB) explain that human action is guided by control
belief, normative beliefs and behavior belief (Ajzen 2011). It further holds that behavior
belief tend to create either favorable or unfavorable altitudes toward behavior. The
normative belief resulting into subjective norms while a rise on perceived behavioral
control (PBC) is always a result of control beliefs (Ajzen 2020).

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All these together resulting into behavior intension. The further emphasis on absolute
relationship between behavioral intention and actual behavior, but still intention can be
employed to measure the behavior of a person in the theory of planned behavior
relatively (Cloutier and Roy 2020). The theory is directly relating to this study as it
considers behavioral beliefs normative beliefs and control beliefs as borrowers’
behavior. It further argues that loan repayment is the function of borrower behavior,
financial institution, business character and regulation and policy guide financial
institution (Dolan, Elliott et al. 2012).

2.2.1 Lending Policy and Regulatory Framework

The regulatory requirement for loan ratio to be deposit is 80% and the movable asset
ratio is 20% while collateral required is 125 % of loan value. If loan is secured it
required 5 % and also 5 % of the core capital (De la Torre, Gozzi et al. 2017). Credit
facilities provided by consider the amount for determine objective and time required for
complete the project while overdraft provided for working capital not more than a year
(Makorere 2014). Consideration of borrower capacity in fulfill its loan requirement is
the main consideration in loan provisional by commercial banks. Therefore, statement of
borrower assets, liability and income statement is required to be shown to the bank for
verification borrower income flow. Also report in relation to the business transaction,
resource own, balance sheet and cash flow will also have audited in line with tax
statement (Chen, Chen et al. 2010).

The policy further holds that credit investigation and financial position analysis of
borrower is the task of all financial institution before provisional of loan to applicant. If
applicant does not have required qualification on loan shall be granted(Hassan, Ilyas et
al. 2014). It also explained by Muganyizi (2015) that sound and realistic asset own by
borrower should be submitted by loan applicant which is equal value to the loan applied
(Mrisho 2015).

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Unsecured credit shall not be granted unless unanimously approved by all its directors
and notified in advance to the financial institution (Barasinska and Schäfer
2014).Borrower also required to explain the purpose of loan. It approval that the loan
was not used as predetermined objective, is the task of the financial institution to
terminate the disbursement of loan and demand immediate repayment until the borrower
provide satisfied reason for diversification of loan provided to other purpose (Ahamad
2016).

2.4 Empirical Literature Reviews

This is the part of literature review which focuses on reviewing different previous
studies in relation to the topic under investigation. The researcher reviewed different
books, journal and research studies which had been conducted within and outside
Tanzania.

2.4.1 Borrowers demographic characteristics and loan repayment

Ojiako, Idowu et al. (2014) conduct study on (Ojiako, Idowu et al. 2014). The study
findings revealed that age is negative relate with loan repayment. Younger farmers were
more likely to repay credit than older ones. Baklouti (2013) findings revealed that
probability of default decreases with the increases in borrower’s age. It is
understandably since the older is assumed wiser, more responsible, more risk adverse as
well as more knowledgeable than the young, which lead them to be less likely to default.
(Ojiako, Idowu et al. 2014)

(Alnawah, Huimin et al. (2018) identify the factors affecting repayment performance in
Microfinance banks in Yemen and the data analyzed using binary logistic model. Their
major findings suggest that, the borrowers of large amounts default over the borrowers
of small amounts and older borrowers are more defaulted. Also, compared to public

10
sector employees, private sector employee borrowers are defaulted more in the study
(Alnawah, Huimin et al. 2018).

Mokhtar, Nartea et al. (2012) in Malaysia found that older borrowers would be more
responsible in repaying their loans than younger borrowers. Other scholar explains that
borrowers in old age group might have higher financial commitments to their family and
business expenses. Thus, with higher financial obligations, they could have difficulty in
repaying their loans (Mokhtar, Nartea et al. 2012).

AwunyoVitor (2012) carried out a research on determinants of loan repayment default

among farmers in Ghana. The study findings show that male are more energetic, hard
workers hence their possibility of hard work may raise their productivity and thus
increase the non-defaulting. It further show that male borrowers had experience in
accessing microcredit than their female counterparts. Though empirical findings of
Roslan and Karim (2009) in Malaysia have different result that male have high
probability of default than female borrowers. Similarly, findings of Ozdemir and Boran
(2004) in Turkey observed that female borrowers have low default than male (Roslan
and Karim 2009, Awunyo-Vitor 2012).

Kibrom (2010) investigate effect of borrower and loan characteristic on loan repayment
in Ethiopia development bank. Data was collected from 100 respondents through survey
to bank branch in North Region. The study findings revealed that educational level of
the borrowers, repayment period of the loan, availability of other source of income,
sector, purpose of the loan and type of labor determine successful loan repayment
performance of the borrowers positively and significantly. Other variables such as,
gender and household size have positive sign, but are not statistically significant.
(Kibrom 2010).

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Studies conducted by Acquah and Addo (2011) and Onyeagocha, Chidebelu et al.
(2012), at different environment of Ghana and Nigeria respectively found that loan
repayment increased with years of education. They explained their finding that
entrepreneurs with higher educational level tend to have more knowledge and skills in
such areas of basic mathematics and accounting which enables them to avoid losses
emanating from poor calculations (Acquah and Addo 2011, Onyeagocha, Chidebelu et
al. 2012)

Kibrom, (2010) conduct a study on the successful loan repayment performance of

private borrowers in Development Bank of Ethiopia. Data was collected by DBE North
Ethiopia. The findings of the study revealed that educational level of the borrowers,
repayment period of the loan, availability of other source of income, sector, loan
purpose, experience and type of labour determine loan repayment performance
positively and significantly while others are insignificant.(Kibrom 2010).

Bhatt and Tang (2002) investigate determinant of loan repayment among Microcredit in
USA. The findings of the study show that, education level of borrowers have impact on
loan repayment. It further revealed that borrowers with high education level tend to pay
loan than borrowers with low education. This finding is in line with Pasha and Negese
(2014) findings in Ethiopia which revealed that education level of borrowers has
positively and significantly influencing loan repayment. The borrowers with high
education level tend to pay loan on time compare with those with low education level.
While Tanga (2011) findings revealed that education level is directly relate to the loan
repayment practice. Higher educated borrowers tend to pay on time and default level is
low compare to low educated borrowers. (Bhatt and Tang 2002, Ssekiziyivu, Bananuka
et al. 2018).

12
Nawai and Shariff (2012) determine factors affecting repayment performance in
Malaysia MFIs. The study was used multinomial logit regression model in which survey
of 309 respondents was done to obtain data. The study findings indicated that
demographic factors like gender, age, religious education level, distance to lender office
have impact on loan repayment. It also revealed that absence of strong measures by
MFIs resulting into loan delay. Misuse of loans also contribute loan default it was also
observed (Nawai and Shariff 2012)

2.4.2 Business characteristics and loan repayment behavior of borrowers

A study conducted by Ongori, Iravo et al. (2013) in Kenya on seeking factors
influencing loan repayment in MFI, found that the number of employees in a business
was a factor which was negatively correlated to loan repayment performance. Nawai and
Shariff (2013) findings revealed that, business with high sales volume tend to earn more
profit and thus repayment rate is higher than business with less sales volume. (Ongori,
Iravo et al. 2013).

Business experience also was observed to be one of the factor that influence loan
repayment behaviors of borrowers. The findings of Wongnaa and Vitor (2013) revealed
that borrowers with high experience in farming business activities tend to repay loans
than those with low experiences farmers. The findings of Onyeagocha, Chidebelu and
Okorji (2012) also show the existence of positive relationship between business
experience and loan repayment rate. That is higher experience in business resulting into
high loan repayment. (Kibrom 2010).

Okurut and Kinyondo, (2009) findings revealed that experience in business activities is
positive related to loan repayment practice. Entrepreneurs with experience in business
expected to have more stable financial flow, reliable sales and high business skills which
will enable to risk which resulting into losses (Ndiege, Mataba et al. 2016).

13
Reta (2011) in Ethiopia, explore the determinants of loan Repayment Performance. The
findings of the study revealed that, borrowers with existing business tend to repay loan
compared to new business, most of non-defaulters were borrowing for the purpose of
expanding existing business. Similar result was found by Onyeagocha, Chidebelu et al.
2012) that business existed for at least one year on the owner’s equity, the loan from
microfinance should be a lower risk than if the business is a start-up, because businesses
are most likely to fail within the first year of operation. This apparently indicates that
borrowing for the purpose of running the existing business is relatively better loan
repayment performance (Reta 2011, Onyeagocha, Chidebelu et al. 2012)

Saparila (2001) explore factors contributing to credit repayment behavior among the
clients of MFIs in East Java-Indonesia. The study was used descriptive and inferential
statistic to investigate relationship of association between the probability of respondents’
loan repayment performance and the borrower characteristics. The main variables
include was lender borrower’s characteristic. The study findings revealed that gender,
marital status, business experience and distance have strong relationship with loan
repayment practice. Similarly the findings of Makorere (2014) have similar views that
farmers with experience in farming activities tend to have good management and yield
which can influence their loan repayment practice (Wongnaa and Awunyo-Vitor 2013,
Makorere 2014).

2.4.3 Borrowers’ social economic characteristics and loan repayment behavior of

borrowers

Mamun, Wahab, Malar and Mariapun, (2011) conduct a study in Malaysia focus on
determine loan repayment problem among borrowers. The study used a structure
equation model in which it revealed that, there is negative linear relationship between
repayment problem with uses of loan in income generating activities, household income,

14
 number of gainfully employed members, and number of sources of income. Ozdemir
and Boran (2004) determined factors influencing the credit default risk of borrower of
one of the biggest banks in Turkey in individual lending scheme. The results found that
female borrower, married clients, and older borrower likely to pay their installment on
time. The study also showed that income had a negative and statistically significant
effect on client’s payback performance. It also detected that the bigger the loan the better
the repayment (Mokhtar, Nartea et al. 2012).

Table 2. 1 Summary of Empirical Literature Reviews

Author & Coun Nature of study Methodology Results
Year try technique

Ifeanyi et al. Niger Determinants of Loan Descriptive The study findings revealed
Repayment Behaviour of statistics,
(2014) ia that age is negative relate with
Smallholder Cooperative correlation,
Farmers in Yewa North Local and loan repayment. Younger
Government Area of Ogun State, multivariate farmers were more likely to
Nigeria regression
analytical repay credit than older ones

techniques
Alnawah, et Yeme Analysis of factors affecting loan binary logistic findings suggest that, the
al (2018) n repayment performance in model. borrowers of large amounts
Yemen Microfinance default over the borrowers of
small amounts and older
borrowers are more defaulted.
Also, compared to public
sector employees, private
sector employee borrwers are
defaulted more in the study
Suraya et al. Mala Determinants of Microcredit The findings of the study
(2011) ysia Loans Repayment Problem logistic revealed that older borrowers
Among Microfinance would be more responsible in
15
 Borrowers in Malaysia regression repaying their loans than
younger borrowers.
model,
Awunyo- Ghan determinants of loan repayment Probit model The study findings show that
partly
Vitor (2012) a default among farmers in Ghana male are more energetic, hard
workers hence their
possibility of hard work may
raise their productivity and
thus increase the non-
defaulting. It further show
that male borrowers had
experience in accessing
microcredit than their female
counterparts
Roslan and Mala Determinants of microcredit Probit and Results showed that male
Karim (2009) ysia repayment in Malaysia: The case logit models have high probability of
of Agro bank. default than female borrowers

Kibrom Ethio Effect of borrower and loan Probit model Outcome revealed that
(2010) pia characteristic on loan repayment educational level of the
borrowers, repayment period
in Ethiopia development bank of the loan, availability of
other source of income,
sector, purpose of the loan
and type of labor determine
successful loan repayment
performance of the borrowers
positively and significantly.
Bhatt and USA Determinant of loan repayment logistic The findings of the study
Tang (2011) among Microcredit in USA regression show that, education level of
Value in Manufacturing firms model borrowers have impact on
loan repayment. Borrowers
with high education level tend

16
 to pay loan than borrowers
with low education
Pasha and Ethio Performance of loan Descriptive findings revealed that
Negese pia repayment determinants in statistics and education level of borrowers
(2014) Ethiopian microfinance – An tobit has positively and
analysis. regression significantly
influencing loan repayment.
The borrowers with high
education level tend to pay
loan on time compare with
those with low education level
Nawai and Mala Factors affecting repayment Multinomial The study findings indicated
that demographic factors like
Shariff ysia performance in Malaysia MFIs logit
gender, age, religious
(2012) regression education level, distance to
model lender office have impact on
loan repayment.
Munene Keny Factors influencing loan descriptive The findings of the study
(2013) a repayment in Kenya MFIs and inferential found that the number of
statistic employees in a business was a
factor which was negatively
correlated to loan repayment
performance
Wongnaa Ghan Factors affecting loan repayment multinomial The outcomes pointed out that
and Vitor a performance among yam farmers logit borrowers with high
2013) in the Sene district, Ghana regression experience in farming
model business activities tend to
repay loans than those with
low experiences farmers

Reta (2011) Ethio Exploration of the determinants structure The findings of the study
pia of loan Repayment Performance equation revealed that, borrowers with

17
 model existing business tend to
repay loan compared to new
business, most of non-
defaulters were borrowing for
the purpose of expanding
existing business.
Norell (2011) How to reduce arrears in descriptive The study findings revealed
microfinance institutions’, and inferential that business existed for at
least one year on the owner’s
journal of microfinance. statistic equity, the loan from
microfinance should be a
lower risk than if the business
is a start-up, because
businesses are most likely to
fail within the first year of
operation.
AlMamun, Mala Investigation of loan repayment structure The study findings revealed
Wahab, ysia problem among borrowers in equation that, there is negative linear
Malar and Malaysia model relationship between
Mariapun, repayment problem with uses
(2011) of loan in income generating
activities, household income,
number of gainfully employed
members, and number of
sources of income

2.5 Conceptual framework

The research study is guided by the following conceptual framework that explains the
relationships among the variables that is independent variable and dependent variable.
Figure 2.1 stipulates that there are various factors affecting borrowers’ characteristics on
loan repayment in financial institutions. These factors are regarded as the independent
variables which are borrowers’ demographic characteristics, borrowers’ business
characteristics and borrowers’ economic characteristics while dependent variable is loan
repayment.

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 Borrowers Demographic characteristic
Age
Gender
Education level

Business characteristics Loan Repayment

Among Borrowers
Business types/ Nature of business
Experience in business

 Social
Location of the business
Economic Characteristic
Income
Interest rate

Source; Researcher Conceptualization (2021).

CHAPTER THREE

3. 0 RESEARCH METHODOLOGY

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3.1 Introduction
This chapter presents the methodology in which the study will use to collect data from
respondents. It includes research design, study area, study population, sample size and
sampling techniques, data source and types, validity, and reliability and data
management and analysis.

3.2 Research Design

The study will use a case study as the research design to assess impact of borrowers’
characteristics on loan repayment in Tanzania where by CRDB bank will used as the
case of the study. The selection of the case study deigns based on the fact that is allow
gathering data from various sources including documentary reading, questionnaires and
interviews which relate to them (Farthing 2015).

3.3 Study Population and sample size

A population define as the group of individuals that have more characteristics in
common and that are of interest to the researcher. For the case of this study, the target
population includes both CRDB bank staff, head of department who are 230 people and
360 loan beneficiaries (Nayak 2010)

3.4 Sample Size and sampling techniques

3.4.1 Sample Size

The study will use a sample of 162 whereas CRDB staff will be 69 respondents and 92
will be loan beneficiaries. The selection of sample considers issue of time and financial
constrain because it was difficult to obtain a comprehensive list of all borrower from
CRDB bank to the entire county. However, a researcher assumed a 162 respondents
from CRDB head quarter will be reasonable. The respondents will select randomly in
order to give equal and independent chance of being selected as part of the sample for
all.

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Table 3.1: The distribution of sample size

Category of respondents Frequency Percentage

(%)
CRDB staff 69 42.9
Loan beneficiaries 92 57.1
Total 161 100
Source; Researcher, (2021).

The sample size of loan beneficiaries is determined by Slovin’s (1960) formula with a
confidence level of 91% and margin of error of 9% (1-0.09), the formula is expressed as
hereunder;

n=N÷ (1+Ne2)

Where: n= is number of sample (required)

N = Total population (360) and

e = Error tolerance (level) or margin of error (0.09)

Using above formula, the sample size is calculated as indicated below;

360/ (1+360(0.09)2) = 360/3.916

= 91.9305

Therefore, the sample size for the loan beneficiaries is 92 respondents. Meanwhile the
sample size of CRDB staff is justified by Mugenda (2010) concept which states that, a
sample size of 10% - 30% of the total population is adequate for a study in research
(Mugenda and Mugenda 2010). From that point of view, 30% of the total population

21
(230) of the CRDB staff has been taken which is 69 respondents. Therefore, the total
sample size for this study will be 161 respondents.

3.5.2 Sampling Techniques

The study will use purposive, convenience and simple randomly sampling techniques in
collection of primary data. A non-probability sampling involves researcher in choosing
subjects for a particular reason(Vehovar, Toepoel et al. 2016). A purposive approach is
well-suited to small-scale and in-depth studies (Denscombe 2017).

3.5.1.1 Simple randomly sampling technique

The study will used simple randomly sampling techinques to collect data from CRDB
borrowers specifically those took loans with in one year and above, also staffs which
have deal with loan activities includes loan and accounting officers.

3.5.1.2 Purposive sampling technique

The purposive sampling techniques will be used in data collection from head of
departments and top credit manager in collection relevant and potential information in
relation to loan released.

3.5.1.3 Convenience sampling technique

The convenience sampling technique will be used by researcher in collection of data
from study respondents by consider their willing and availability. The researcher will
use this techniques to collect information from loan beneficiaries where by questionnaire
will distributed to them and requesting for their opinion in relation to subject matter.

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3.6 Data collection method and instrument
A study will collect both primary and secondary data. Primary data are those data which
have been collected for the first time such as questionnaire and interview while
secondary data are those data that has been collected by someone else and exist
somewhere (Alshenqeeti 2014). The primary data will be collected by using interviews
and questionnaires

3.6.1 Primary data collection method

The study will use both questionnaire, interviews as the techniques for collection of
primary data. Researcher will prepare structure and unstructured interview to collect
data from respondents at CRDB bank. The uses of interview will be aimed on provide
more clarification in relation to the research question and to allow more clarification
from responders in relation to the problem under investigation.

The interview will be conducted in Kiswahili language for purpose of solving language
problem to bank borrowers particular those which does not familiarity with English
language. Kitzinger 1995 notes that “language barrier and the role of the research
assistant are in focus when evaluating the relevance of the data collection”. Choosing
informants who were all fluent in English would have severely restricted the choice of
informants, so Swahili language will used for purpose of getting response from the bank
borrower(Kitzinger 1995).

3.6.2 Secondary Data Collection Method

The researcher will collect secondary data through documentary review. Saunder (2003 )
argue that, the uses of this source of data saves particular time and money for the
researchers, it allow the researcher to analyse far and larger data sets and give the
23
researcher opportunity to think about the theoretical aspirations and substantiate issues,
as there is more time to analyse and interpretation of data. For the present study a
number of documents will be reviewed by researcher(Saunders, Lewis et al. 2003).

3.7 Validity and Reliability

3.7.1Validity

The study validity will beachieved by uses of triangulation strategy by researcher in

which different data collection techniques willbe used for purpose of enhancing study
validity. The uses of interview, questionnaire and documentary review in collection of
data will increase the study validy (Heale and Twycross 2015).

3.7.2 Reliability

A number of measures used to ensure study reliability. Lysons (1999) define reliability
as a measure of the ability of a product to function successful when required for the
period required under specified condition. Reliability in current study will achieved
through recording of all interviews to present more reliable evidence and avoid any bias
which might happen if the researcher attempted to remember the conversation (Potter
and Levine‐Donnerstein 1999)

3.8 Data Management and Analysis

Since a study will both qualitative and quantitative analysis techniques, the descriptive
statistical techniques, mainly frequencies and percentages will used in analysis of data .
Also researcher will also use SPSS and then transferred to Microsoft Excel to create

24
some charts and diagrams. With the use of these package the researcher will able to
analyze the information from the findings quickly. The analysis will guided by research
objectives and research questions.

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