Study on factors affecting Agricultural input loan repayment of members Of cooperatives at Kilteawulalo Wereda, 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 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 loan repayment capacity of members of multi-purpose cooperatives of Kilteawulalo wereda in Eastern Zone of Tigray National State. In the course of this study, primary data were collected from130 sample households and secondary data also collected from respective organizations in the study area. Moreover discussions were held with concerned bodies. An 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  2 test were employed to compare nondefaulter and defaulter groups with respect to the hypothesized and other related variables. Logit model was used to identify the factors influencing loan repayment performance of smallholder farmers in the study area. Twelve explanatory variables and four dummy variables were included in the logit mode, out of which, six were significant and the rest were insignificant to explain the dependent variable. Results of Variance Inflation Factor (VIF) and contingency coefficient showed that the continuous and dummy variables have no serious problem of multi-collinearity and high degree of associated. The Amount of input credit of the household is highly significant at less than 1 percent. Educational status, Experience of the household in credit utilization, off-farm and non-farm activity of household, suggestion of household on appropriateness of the repayment period are significant at less than 5 per cent. The number of livestock of the household is also another variable which is significant at less than 10 percent significant level. Farther more respondents suggest that government, cooperatives and other NGOs to play their own role in reducing the price of input. Therefore, taking this into consideration, these factors and suggestions in designing agricultural programs may assist cooperatives and policy makers to introduce strategy for alleviating the serious problem and strengthening the loan repayment performance of smallholders.