Assessment of Loan Repayment Performance of Smallholder Farmers: The Case of Gubalafto District, North Wollo Zone, Amhara National Regional State, Ethiopia

Abstract

The main objective of this study was to assess loan repayment performance of smallholder farmers in Gubalafto district of North Wollo Zone. A two-stage sampling technique was employed to select a total of 140 sample borrowers. The two-limit Tobit model and descriptive statistics were used to analyze the data collected from the sample respondents. The descriptive statistics result indicates that about 27 percent of the sampled households are low performer and the remaining 73 percent were high performers of loan. In addition, the descriptive statistics results revealed that there were significant mean differences between the low and high repayment performance group in the study district with respect to age of the borrowers, sex, distance from credit source, education level, total land size, Loan amount received, livestock holding and purpose of borrowing. The maximum likelihood estimate of the two Limit Tobit model results indicate that 13 variables were considered in the econometric model out of which, 7 variables were found to significantly influence loan repayment rate among the farm households at less than 5 percent level of significance. Age of borrowers, Educational level of borrowers, land size, total livestock holding and Off-farm income positively and significantly influenced the intensity of loan repayment while, Distance to credit source and Loan amount received negatively influenced the loan repayment rate of small holder farmers in the study area.

Keywords: Loan repayment performance, Tobit model, Gubalafto District

DOI: 10.7176/JBAH/10-7-03

Publication date: April 30^th 2020