Analyzing the Cause of Failure of Projects Financed by Development Bank of Ethiopia

Abstract

Development Bank of Ethiopia is a bank which provides finance for investment projects. According to the annual performance report of (2017), DBE reported a significant decline in net profit for a second year in a raw as the Non-performing Loans(NPLs) ratio of the bank increased from 16% to 25% as June 2017.This indicate public money is in danger. Hence the purpose of this study is to identify the major causes of failure of projects financed by DBE. The study employed descriptive research approaches to achieve the intended objective. The study applied the method of non-probability purposive sampling design to extract sample member from the target population. The non-probability sampling method is suitable to handle the descriptive research with qualitative data. It also helps to choose the respondents that are suitable for the study plan. Analysis were conducted on both primary and secondary data collected. The questionnaires analyzed quantitatively using SPSS version 20 software to determine percentage. The result revealed that diversification of the fund allotted for the project to other unintended purpose by the customer without the knowledge of the bank is found to be the major problem of the bank. Second, the poor follow up of the projects financed by the bank in other words not having strict and tight control on the progress of the projects where as in some cases not even know site of projects are in did found to be the other major cause of project failure concluded from the study. Poor project planning leads to wrong credit decision and to unrealistic loan repayment schedule. This means, insufficient funding halts the project progress. Unrealistic loan repayment which the project cannot generate, are main causes of project failure as concluded from the findings. I also conclude from the study that training of credit officers is an important factor that enable officers to handle big project and protect public fund from failed projects.