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Economic and Institutional Elements of Loan Repayment Capacity of Smallholder Farmers in the Transitional Zone of Ghana

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  • Abankwah, Vincent
  • Awunyo-Vitor, Dadson
  • Seini, Yussif Abdul-Rahman

Abstract

Farmers in developing countries have been identified as the most defaulting group of credit beneficiaries. While credit remains the second largest source of farm capital, prospective borrowers are denied access to credit as a result of high loan delinquency among farmers. This phenomenon does not only reduce farmer productivity but contributes also to dwindling household income and food security. In order to improve agricultural credit programmes and make them sustainable, it is imperative to examine the loan repayment capacity of farmers. The objective of this study was to identify the borrower-specific characteristics as well as institutional factors that determine the loan repayment capacity of smallholder farmers. The study was conducted in the Ejura-Sekyedumasi District and Mampong Municipality of Ghana. Primary data used for this study were collected from a cross section of smallholder farmers who received credit from formal and semi-formal credit institutions for farming activities between 2009 and 2011 farming seasons. A two-stage sampling technique was used to select 120 loan beneficiary farmers comprising 60 defaulters and 60 non-defaulters. The data set was analyzed using descriptive statistics and probit model. The study revealed that farmer’s age, sex, household membership, income and farming systems significantly influence loan repayment capacity. More so, relatively low interest rate, post disbursement monitoring, moratorium and repayment schedule were institutional factors found to influence loan repayment by smallholder farmers.

Suggested Citation

  • Abankwah, Vincent & Awunyo-Vitor, Dadson & Seini, Yussif Abdul-Rahman, 2016. "Economic and Institutional Elements of Loan Repayment Capacity of Smallholder Farmers in the Transitional Zone of Ghana," Asian Journal of Agricultural Extension, Economics & Sociology, Asian Journal of Agricultural Extension, Economics & Sociology, vol. 9(3).
    • Handle: RePEc:ags:ajaees:357309
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    References listed on IDEAS

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