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Detereminats of loan repayment performance of smallholder faremers: the case of kalu district, south wollo zone, Amhara National regional state.


Smallholder farmers require improved agricultural technologies, knowledge and inputs such as fertilizer, improved seeds, pesticides and others that help to increase production and productivity thereby transforming their farm structure and capacity. Large investment cannot be made by the farmers out of their own funds because of their low level of incomes. Even though there are attempts to solve these rural financial difficulties by the government through extending rural financial institutions, because of social, economicand institutional factors, a number of farmers turned out to be defaulters. When such difficulty arises, the lending institution faces a problem. This study focused on the analysis of determinants of loan repayment performance of smallholder farmers in Kalu district, Amhara National Regional State. In this study, primary data were collect from 130 randomly selected borrowers using semi-structured questionnaire. In addition, secondary data were collected from different organizations and pertinent publications. A two-limit tobit regression model was employed to identify factors influencing loan repayment and intensity of loan recovery among smallholder farmers. A total of 14 explanatory variables were included in the empirical model and out of these, six variables were found to be statistically significant. These are total land holding size of the family (hectare), total livestock holding (TLU), expenditure on social festivals, number of years of experience in agricultural extension services, purpose of borrowing and source of credit. Regarding the sign of the significant variables, expenditure on social festivals has a negative and significant effect on loan recovery rate while the remaining five variables have a significant and positive effect. Variance inflation factor were calculated to detect multicollinearity and association among all explanatory variables. Therefore, onsideration of factors affecting loan repayment performance is vital because it provides information that would enable to undertake effective measures with the aim of improving loan repayment performance and hence helped lenders such as microfinance institution, NGOs and policy makers to have knowledge as to where and how to channel efforts to minimize loan defaults.

Corporate Author: 
Ethiopia Economics Association (EEA)
Ethiopia Economics Association (EEA)
Primary Descriptors: 

Loan repayment

Secondary Descriptor: 

two-limit tobit

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Cataloge Date: 
Broad Subject heading: 
Finacial – creadit - Ethiopia
Call Number: 
Serial Key Title: 
Proceedings of the Fifth Regional Conference of the Amhara Regional State Economic Development
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Content type: 
Publication date: 
2014-08-04 00:00:00
Place of publication: 
Addis Ababa
Type of material: 
Current frequency: 
Chapter conference: