Determinants of Smallholder Farmer’s Loan Repayment Performance: The Case of Assosa District, Benishangul-Gumuz Regional State, Western Ethiopia

Abstract

The study examined determinants of smallholder farmer’s loan repayment performance in Assosa district, Western Ethiopia. The study used both Purposive and simple random sampling technique in order to select sampled kebeles and households, respectively. Hence, from 111household credit users in the district, 94 households were selected randomly followed by probability proportional sample from Assosa district. Both primary and secondary data were collected for this study. Primary data were collected through direct interview of sample respondents; whereas, secondary data were also collected from published and unpublished documents. Descriptive statistics were employed in order to summarize and describe the socio-economic characteristics of the respondents. Furthermore, t-test and chi-square test analyses were employed to compare defaulters and non-defaulters in relation to the explanatory variables. In addition, binary logit econometric model was employed in order to identify the factors that influence loan repayment performance of the selected sampled household farmers. The result showed that out of 94 selected respondents, 40 were defaulters and 54 were non-defaulters. A total of thirteen explanatory variables were included in the empirical model and out of the total hypothesized explanatory variables included in the model, livestock ownership, age, family size, income from crop product, get extension agent, off farm income and sex of the respondent were found to be statistically significant (at 1%, 5% and 10%) in determining loan repayment performance of smallholder farmers. The econometric result revealed that the male headed household increases the probability of being default. On the other hand, the probability of non-default increases as off farm income, income obtained from selling livestock and crop product, contact with the extension agents and family size increases, respectively. Therefore, the study recommended that the identified significant variables have to be a spring board for further interventions by financial cooperatives, stakeholders and policy makers so as to come with a breakthrough to significantly decrease or even avoid defaulting problems.

Keywords: Binary logit, loan repayment, defaulters and non-defaulters, Assosa