Abstract:
Financial institutions all over the world have experienced significant default in loan repayment resulting into decrease in employment levels and cash flow problems. This study was carried out in order to establish the factors that lead to low repayments among Small and Medium Enterprises at Indebank Ltd. The study used both primary and secondary data and an interview based questionnaire was administer at the respondents’ business places. Data were analysed using Statistical Package for Social Sciences (SPSS). Internal data was also used to support the findings. A sample of 9 Indebank outlets (2 service centres and 7 agencies) was used as a representative of 16 outlets. A total of 91customers were interviewed out of 117 that were targeted representing 78% response rate. The study revealed that Indebank customers were heavily affected by adverse weather, regulatory changes, high interest rates, diversion of funds and poor management. The study also revealed that the bank introduced three major debt recovery strategies namely legal, debt management and relationship management strategies after suffering from low repayment rates. The study concludes that Indebank ought to devise a strong loan underwriting policy that ensures that loans and overdrafts are given to deserving customers only. The study recommends that Indebank ought to consider SME specific constraints and develop strategies to surmount both financial and technical challenges faced by SMEs. This will ensure that the bank reduces default cases. As a complementary strategy, the study further recommends that manager and loan officers need to be trained in loan origination, monitoring and debt recovery.
