Loan Repayment Practice of Borrowers and Its Determinants: Smallholder Farmers Level Analysis

Abstract

Loan is the money borrowed and must be paid back with or without interest within the time period and under the terms as agreed upon between borrower and lender. This study aimed to investigate and analyze loan repayment practice of farmers and its determinants in Amigna Gesgar Districts. To achieve the objectives of the study mainly primary data was collected from 211 respondents among 602 target population of smallholder farmers and 3 microfinance institutions officials of the district were included and some extent secondary data was incorporated; in analyzing the collected data descriptive and econometric approach were used. The results of the study shows that about 30.34% and 69.66% sample borrowers were defaulters and non-defaulters respectively.  Additionally, the binary logit regression model result reveals, the purpose of the loan, experience the farmers, dependency ratio, and wealth the farmers were the determinants that affect the probability of loan repayment significantly at 5% probability level. Finally, it was strongly recommended that, the smallholder farmers should use the money borrowed only for productive economic activities in order to repay the loan on time and the government and private financial institutions should improve services of credit and saving institutions at the rural area of the study area.

Keywords: Dependency Ratio, Loan Repayment, purpose of loan, Smallholder Farmers

DOI: 10.7176/JESD/11-11-05

Publication date:June 30th 2020