Evaluation of the Impact of Loan Tenure on Loan Repayment: A Case Study of Budadiri Microfinance Centre Limited

This research investigated how the length of loan repayment periods affects repayment outcomes at Budadiri Microfinance Centre Limited. The primary aim was to evaluate the influence of varying loan-tenure structures on borrowers' repayment capacity. The study specifically examined short-term, medium-term, long-term, and optimal loan tenures and their effects on repayment performance. A quantitative approach was employed, drawing data from 350 clients of Budadiri Microfinance Centre Limited. Primary information was gathered using structured questionnaires and analyzed using descriptive statistics alongside correlation analysis. Results indicated a very weak positive association between short-term loan tenure and repayment performance (r = 0.073, p = 0.406), and a similarly weak positive association for long-term loan tenure (r = 0.098, p = 0.262); neither relationship reached statistical significance. Conversely, the analysis found that optimal loan tenure was moderately and negatively correlated with default risk (r = -0.488, p = 0.000), a relationship that is statistically significant, suggesting that appropriately determined loan durations substantially lower default likelihood. The study infers that while loan tenure by itself may not be a strong predictor of repayment outcomes, tailoring tenures to borrowers' financial realities is crucial to enhancing repayment rates and curbing defaults. Recommendations include that Budadiri Microfinance Centre Limited adopt more flexible tenure frameworks, improve borrower evaluation procedures, promote client financial literacy, and strengthen loan monitoring systems to bolster repayment performance.