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Abstract:
Many rural credit schemes have sustained heavy losses because of poor loan collection. And yet a lot more have been dependent on government subsidy to financially cover the losses they faced through loan default. The main objective of the research was to find out the causes of loan default within micro finance institutions in Trincomalee district. 100 loan borrowers were picked using stratified simple random sampling for each stratum, which enable every member of the population have an equal and independent chance of being selected as respondents and also simplest, most convenient and bias free selection method. The data was collected by use of self -developed questionnaire issued to the microcredit borrowers, in depth interviews had with microcredit group leaders and MFIs' Manager and staff. The data was analyzed by using statistical software (SPSS V 21) and tabulated by use of tables and figures. The findings revealed that most borrowers did not spend the loan amount on intended and agreed purpose, study found out that loan repayment default was as result of inadequate return to repay the loan.
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