Loan default rates remain high for microfinance institutions (MFIs) globally, and Zambian MFIs are no exception. This study examined the causes of credit default in Zambian microfinance institutions and assessed measures that could be used to control it, using FINCA Zambia as a case study. A purposive sample of forty small and medium enterprise (SME) clients of FINCA Zambia drawn from four Lusaka branches was studied using questionnaires and interview guides, and the resulting data were analysed using a logistic regression model. The findings show that age, education level, high interest rates, lack of supervision on loan utilisation and diversion of loan funds significantly influenced loan default. Borrower age was positively and significantly associated with default at the 5% level. Relative to secondary education, having no formal education or only primary education increased the likelihood of default at the 5% level, while tertiary education reduced it at the 10% level. High interest rates increased default at the 10% level, lack of supervision on loan utilisation increased default at the 5% level, and diversion of loan funds increased default at the 10% level. The study further found that provision of suitable loans, flexible repayment terms, lower interest rates, training of clients, and timely loan disbursement were the measures most likely to reduce loan default. The study recommends that MFIs strengthen supervision of borrowers, apply stricter loan-screening criteria, expand client training, monitor the use of disbursed funds, and that policymakers consider measures to moderate lending interest rates.

Microfinance institutions, loan default, credit risk, small and medium enterprises, logistic regression, FINCA Zambia