Causes of Loan Default by Small & Medium Enterprises in Tanzania

Mwanjejele, Henry (2024) Causes of Loan Default by Small & Medium Enterprises in Tanzania. Masters thesis, The Open University of Tanzania.

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Abstract

The general purpose of this study is to determine the causes of loan default by the small and medium enterprises in Tanzania: Case of Kahama Municipal. Kahama Municipal found in the Shinyanga Region on the lake zone part of Tanzania. Specifically, the study aimed to: determine the relationship between loan interest rate and loan application cost charged to SMEs and loan default by SMEs in Kahama Municipal; establish the relationship between funds utilization practices and loan default by SMEs in Kahama Municipal; determine the relationship between loan appraisal practices and loan default by SMEs in Kahama Municipal and to determine the relationship between SMEs owner’s business management competence and loan default by SMEs in Kahama Municipal. The Causal Credit Default Theory guided the study. The study used a mixed research approach. To determine the cause of the loan, default this study uses both cross-sectional and descriptive survey designs. The sample of 240 SMEs categorized under the portfolio of the non-performing loans were interviewed and the sample size was derived from a scientific approach called the Cochran formula. The information and data obtained were coded and analyzed by using SPSS to produce frequencies, percentages and cross tabulations which were presented in tables, and graphs. Based on the findings, it was concluded that the loan interest and loan application cost, fund utilization practices, and loan appraisal practices have influences on loan defaults and SMEs owner’s competence has a high influence on loan defaults among the SMEs in Kahama municipal. Keywords: Loan default, SMEs, loan interest rate, loan application cost, Kahama Municipal

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