Credit Repayment Problem on Business Activities: The Case of Sude Hamda Primary Cooperative, Diksis, Arsi, Oromia, Ethiopia

Abstract

In Ethiopia, among other things, lack credit of is one of the fundamental problems hampering production, productivity and income of rural farm households. Since access to institutional finance is very limited, because of the repayment problem the majority of the poor are forced to repayment problem. The study was sought to ascertain determinants that affect credit repayment ability and also to investigate the perception of borrowers on credit in the study area. A two stage sampling method was employed to select one out of 8 rural peasant associations and 60 sample households. Structured interview schedule, questionnaires and observation was developed, pre-tested and used for collecting quantitative and qualitative data for the study from the sampled farm households and employees. Descriptive statistics were used for analyzing quantitative data. The output from the study indicates that 23 (38.33%) of the borrowers were non-defaulter, whereas the remaining 37 (61.67%) were defaulter. It was also found out farmers perceived differently to the repayment idea in the study area. Farmers acknowledge that finding a possible solution to those factors contribute to the misuse of borrowed funds and minimizes the risk of default and they also recognize the provision of saving services by MFI, while strongly criticizing the isolation of very poor farmers from the group formation. Moreover, the smaller loan size and complicated lending procedures were among the critical problems. Age, Sex of household head, educational level, Experience in credit use from the formal sources, Contact with extension agents, Attitude toward risk and others were highly important in influencing credit repayment ability use as evidenced by the descriptive statistics. Therefore, policy aimed to accelerate agricultural development in the area could be successful if these factors and problems are taken into consideration to improve payment ability of the borrowers.

Keywords: Credit, Repayments, Cooperative, Diksis