Factors affecting loan repayment rate among smallholder farmers got loans from the Amhara Credit and Saving Institution: In the case of Habru District, Amhara Regional State, Ethiopia

Abstract

The aim of this paper was to examine factors affecting loan repayment rate among smallholder farmers in the Habru District, Ethiopia, who had taken loans from the Amhara Credit and Saving Institution. In this study, both primary and secondary sources were used. The study employed a combination of multi-stage purposive and stratified sampling techniques in the selection of 384 borrowers from smallholder farmers in the study area. The Tobit model result found that a total of 10 out of the total 15 explanatory variables involved in the model were found to be statistically significant. According to the result demographic factors (age and household size), socio-economic factors (educational level, land size, livestock size, nonfarm income, purpose of borrowing), and institutional factors (road distance, contact with development agents, training received on loan use) were among the factors that influenced loan repayment rate of smallholder borrowers in the study area. Education level, land size, livestock size in tropical livestock unit, nonfarm income, purpose of borrowing, contact with agricultural extension agents, and training received on loan use were found to determine loan repayment rate of borrowers positively and significantly, while age, family size, and road distance were found to negatively and significantly determine loan repayment rate in the study area. Therefore, the overall results of this study underlined the great importance of the significant factors to profoundly achieve high repayment rate on borrowed funds from the Amhara Credit and Saving Institution in the studied area.