Biblio

Delivering productive credit to the rural poor has been a hotly pursued but problem-plagued undertaking. Providing low-cost, efficient credit services and prompt recovery are the ideal aims of rural finance. Low repayment performance discourages the lender to promote and extend credit. Thorough investigation of the various aspects of loan default is of great importance both for policy makers and the lending institutions. Hence, the major concern of this study is to identify the major socio-economic and institutional factors that affect loan repayment capacity of small farmers in Kilteawulalo wereda of Tigray National State. For this study, primary data was collected from 130 sample farmers and secondary data gathered from respective organizations in the study area. The analysis was made using t-test and X2test to compare non-defaulter 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 the farmers. Twelve explanatory variables and four dummy variables were included in the logit model of which, six were significant and the rest were insignificant to explain the dependent variable. Variance Inflation Factor (VIF) showed that the continuous explanatory variables were not strongly associated. The amount of credit is highly significant at less than 1 percent. Educational status, experience in credit utilization, off-farm and non-farm income, follow-up and the repayment period are significant at less than 5 per cent. Livestock ownership of the household is also another variable which is significant at less than 10 percent level. It is suggested that government, cooperatives and other NGOs are to play their own role in reducing the price of farm inputs as well as diversification of non-farm and off-farm activities for additional income of the family. As livestock are sources of income and serve as security during crop failure, more attention should be given to the livestock sector in the areas of feed resource improvement and management, genetic resource improvement, control and/or prevention of animal diseases and parasites, as well as development of marketing facilities for animal and animal products. Considering these factors and suggestions, designing programs may assist cooperatives and policy makers to introduce strategy for alleviating the serious problem and strengthening the loan repayment performance of borrowers and efficiency of Cooperatives as well.