Assessing the Factors Affecting Loan Repayment among Members of Village Community Banks (VICOBA): A Case of Ubungo Municipality.

Mbilinyi,, Izack (2025) Assessing the Factors Affecting Loan Repayment among Members of Village Community Banks (VICOBA): A Case of Ubungo Municipality. Masters thesis, The Open University of Tanzania.

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Abstract

This study investigated the factors affecting loan repayment within Village Community Banks (VICOBA) in Ubungo Municipality, Tanzania. The study was motivated by the alarming default rates that persist despite the regulatory measures introduced by the Microfinance Act of 2018. The motivation for this research was based on the need to understand the underlying factors contributing to these high default rates, which threaten the sustainability of community-based financial systems. A significant research gap exists in the literature regarding the specific influences on loan repayment behaviours in this context, particularly in relation to individual, group, and sociocultural factors. To achieve main objective, the study aimed to fulfil several specific objectives which sought to examine individual factors, such as borrowers' attitudes and social ties, affecting loan repayment; (ii) evaluate group factors, including meeting frequency and compliance with group rules; and (iii) investigate sociocultural influences, such as household consumption patterns and educational levels. Grounded in the Grameen Bank Theory, which emphasizes the importance of social networks and community engagement in microfinance, the study adopted a quantitative research design. Data were collected from 240 VICOBA members via structured questionnaires, achieving a response rate of 98.3%. The findings revealed that individual factors, particularly strong social ties and a sense of moral obligation, significantly enhance loan repayment commitment, with 91.1% of participants recognizing the importance of these social connections. Group dynamics also emerged as crucial, with regular meetings and adherence to group rules positively influencing repayment behaviour. Sociocultural factors, while relevant, demonstrated a weaker correlation with repayment commitment compared to individual and group influences. The study highlighted financial knowledge and personal accountability to be vital at improving financial literacy among VICOBA members, fostering stronger group cohesion, and adapting loan terms to better align with members' circumstances. Recommendations for policymakers included ensuring robust group dynamics during VICOBA registration processes and enhancing regulatory frameworks to support sustainable lending practices. Practitioners should focus on effective communication of group rules and provide training to improve record-keeping and financial management skills. Keywords: Factors, Loan Repayment, Village Community Banks

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