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Repayment rate of loans from semi-formal financial institutions among small-scale farmers in Ethiopia: Two-limit Tobit analysis

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  • Brehanu, Amare
  • Fufa, Bekabil
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    Abstract

    Improving small-scale farmers' access to credit is one of the ways of achieving increased agricultural productivity to reduce poverty in Ethiopia. In this study, a two-limit Tobit model was used to analyze the determinants of repayment rate of loans from semi-formal financial institutions among small-scale farmers in Ethiopia. Small group lending, was found to be related to the loan repayment rate of the farmers positively and significantly. Furthermore, agro-ecology, total land holding size, total livestock holding, experience in the use of agricultural extension services, contact with extension agents and income from off-farm activities were found to affect the loan repayment rate of the households significantly. Consideration of these factors would reduce default rates on borrowed funds from semi-formal credit sources in the area.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

    Volume (Year): 37 (2008)
    Issue (Month): 6 (December)
    Pages: 2221-2230

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    Handle: RePEc:eee:soceco:v:37:y:2008:i:6:p:2221-2230

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    Web page: http://www.elsevier.com/locate/inca/620175

    Related research

    Keywords: Loan repayment rate Semi-formal financial institutions Two-limit Tobit model;

    References

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    1. Besley, T. & Coate, S., 1991. "Group Lending, Repayment Incentives And Social Collateral," Papers, Princeton, Woodrow Wilson School - Development Studies 152, Princeton, Woodrow Wilson School - Development Studies.
    2. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    3. Amemiya, Takeshi, 1984. "Tobit models: A survey," Journal of Econometrics, Elsevier, Elsevier, vol. 24(1-2), pages 3-61.
    4. Adams, Dale W. & Vogel, Robert C., 1986. "Rural financial markets in low-income countries: Recent controversies and lessons," World Development, Elsevier, vol. 14(4), pages 477-487, April.
    5. Huppi, Monika & Feder, Gershon, 1990. "The Role of Groups and Credit Cooperatives in Rural Lending," World Bank Research Observer, World Bank Group, World Bank Group, vol. 5(2), pages 187-204, July.
    6. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-21, May.
    7. Diagne, Aliou, 1999. "Determinants of household access to and participation in formal and informal credit markets in Malawi," FCND discussion papers, International Food Policy Research Institute (IFPRI) 67, International Food Policy Research Institute (IFPRI).
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    Cited by:
    1. D'Espallier, Bert & Guérin, Isabelle & Mersland, Roy, 2011. "Women and Repayment in Microfinance: A Global Analysis," World Development, Elsevier, vol. 39(5), pages 758-772, May.
    2. Kangogo, Daniel & Lagat, Job & Ithinji, Gicuru, 2013. "The Influence of Social Capital Dimensions on Household Participation in Micro-Credit Groups and Loan Repayment Performance in Uasin Gishu County, Kenya," MPRA Paper 48624, University Library of Munich, Germany.

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