Abstract

Interest rate is an impact on demand for credit because the higher the cost of loan is leads to inability to repay the loaned amount by customers. Again the lower the interest rate by itself also have impact on the development of investment in the country, again saving is not takes place. So it is clear that must manage properly for economic development. From the lenders perspective, the interest rate is considered as the premium paid to savers for making surplus funds available to financial intermediaries. From the borrower’s point of view, the interest rate is the user cost of capital incurred by using funds for investment. This paper focuses on to identify on impact of interest rates on credit and loan repayment in Ethiopia with reference to credit cooperative unions. To achieve this objective the study was employed by using both descriptive and explanatory research design with quantitative and qualitative methods, the type of sampling techniques applied is simple random sampling, which is used to select sample cooperatives and members. Since the members of the cooperatives are homogenous in nature, then 100 samples are selected for the study. To these end the main findings of the study, the result shows that the percentages of defaulter respondents decrease from youngsters group to elders group. Proportion of defaulting group was higher in respondents who were illiterate and obtained elementary school level, whereas, the percentages of non-defaulters increases as their level of education increases. The highest proportion of defaulters respondents were found in the service providing. Whereas, better repayment performance had shown, who engaged in the businesses of provision shop, and small restaurant? However, respondents were due to other reasons they were not willing to pay. The descriptive statistics findings shows that there were significant association between dependent variable with respect to education level, loan diversion, loan size, training, time laps between loan application and disbursement, repayment period and all business types. Researcher found the significance difference between defaulters with respect to age, family size, and number of dependent’s, business experience, repeatedly borrowing, and supervision.

Key words: Interest rates in Ethiopia, impact of interest rates in Ethiopia, Interest rates impact on credit and loan repayment, credit and loan repayment in credit cooperative unions. Credit cooperative unions in Ethiopia.