Credit utilization and Repayment performance of members of cooperatives in Emba Alaje Woreda, Tigray, Ethiopia

Abstract

Delivering productive credit to the rural poor has been a hotly pursued but problem-plagued undertaking. Providing low-cost, efficient credit services and recovering a high percentage of loans granted are the ideal aims in rural finance. This is because low repayment performance discourages the lender to promote and extend credit. Then investigation of the various aspects of credit used and loan defaults is of great importance both for policy makers and the lending institutions. Therefore, the major concern of this study was to identify the major socio-economic and institutional factors that affect credit utilization and repayment capacity of members of cooperatives of Emba Alaje Woreda in southern Zone of Tigray National State In the course of this study, primary data were collected from156 sample households and secondary data also collected from respective organizations in the study area. The analysis was made using descriptive statistics and logit model. Descriptive statistics such as mean, standard deviation and percentage were used for analyzing the data. In addition, t-test and chi-square test were employed to compare credit use and misuse by borrowers as well as non defaulter and defaulter groups with respect to the hypothesized and other related variables. Logit model was used to identify the factors influencing credit utilization and repayment performance of households. Eight continues explanatory variables and fourteen dummy variables were included in the logit mode. Results of Variance Inflation Factor (VIF) and contingency coefficient showed that the continuous and dummy variables have not multi-co linearity effect between the independent variables and high degree of associated. The binary logit model for credit utilization and repayment the most influential explanatory variables are 13 and14 respectively. Out of which, five variables were significant and the rest were insignificant to explain the dependent variable. The loan repayment model out put variables are supervision and misuse of the loan is highly significant at less than 1 percent and loan from other sources and natural hazard are significant at less than 10 per cent. On the other hand Credit utilization model out put affect by only one variable which is timely credit service significant at less than 10 percent. Based on the findings also included conclusions and recommendation. Therefore, taking this into consideration, these factors as indicator for designing agricultural activity programs may assist cooperatives and policy makers to introduce strategy for alleviating the serious problem and strengthening credit utilization and repayment performance of farmers.