Innovations in Business and Strategic Management

The objective of this study was to assess of loan provision practice of microfinance and loan utilization behavior of borrowers of microfinance institutions in Ethiopia, a case from Grand MFI institution. To this end, the researcher employed a mixed research approach with a descriptive research design to achieve the objective of the study. Primary data were collected through a structured questionnaire. A total of 267 respondents were taken as a sample and data were analyzed using descriptive statistics.  The result indicates that MFI generally has good loan provision practices; however, advising the borrowers and creating awareness received less attention. Loan diversion among borrowers was commonly observed.  The primary factors leading to loan diversion include borrowers’ perception of loan diversion, urgent needs, diverted for domestic purposes or family needs of money, institutions less follow up with their clients, and advice given to clients during the provision of loans, and the size of loan delivered to borrowers. Therefore the institution should maintain and improve continuously the loan provision practice. It should place greater emphasis on advising borrowers, training them in the utilization of loans, and continuously following up on the clients’ operation regarding loan usage.