ABSTRACT
Poor loan repayment performance experienced by many development finance institutions (DFIs) has placed an increasing financial burden on these agencies and governments, with default rates ranging from 27 to 60 per cent in African countries such as Ghana and Nigeria. Credit markets involve an exchange of money for a promise of repayment later. Consequently, there is a risk involved in such a transaction, with the risk being related to the level of information possessed by the two parties. An agency problem arises because the lender (principal) has insufficient information on borrower (agent) characteristics and the outcome of their investments. More stringent client monitoring and enforcement of loan contract provisions could reduce loan arrears and default at the institution studied. Business type is another factor for loan officers to consider, as ploughing contractors and broiler producers tended to repay in arrears and default.
