Determinants of Agricultural Input Loan Repayment Performance in Smallholder Rural Farmers: The Case of Humbo Woreda, Wolaita Zone, Southern Ethiopia

Nega Mathewos; Belay Balcha; Anna Kawalec; Muluken Mekonnen; Marisennayya Senapathy

doi:10.34293/commerce.v13i2.8240

Nega Mathewos Assistant Professor, Department of Economics, College of Business and Economics, Wolaita Sodo University, Ethiopia
Belay Balcha Revenue Authority, Tebela Ketema Administration, Ethiopia
Anna Kawalec Institute of Information and Library Science, Jagiellonian University, Poland
Muluken Mekonnen Lecturer, Department of Rural Development and Agricultural Extension, College of Agriculture and Natural Resources, Debre Markos University, Ethiopia
Marisennayya Senapathy Associate Professor, Department of Rural Development and Agricultural Extension, College of Agriculture, Wolaita Sodo University, Ethiopia

DOI: https://doi.org/10.34293/commerce.v13i2.8240

Keywords: Loan Repayment, Tobit Model, Smallholder Farmer, Agricultural Inputs, Humbo Woreda, Rural Finance

Abstract

Background: Agricultural credit access remains a critical constraint for smallholder farmers in Ethiopia, with loan repayment performance significantly affecting the sustainability of rural financial institutions. Despite government and NGO efforts to provide credit facilities in Humbo Woreda, Wolayta Zone, poor loan repayment rates threaten the viability of agricultural finance programs.
Objective: This study aimed to identify and analyze the key factors affecting agricultural input loan repayment performance among smallholder farmers in Humbo Woreda.
Methods: Multistage sampling was employed in collecting primary data in the form of structured questionnaires addressed to 211 farm households chosen randomly. Socio-economic features were analyzed with the help of descriptive statistics, and the factors of loan repayment performance were investigated with the aid of a two-limit Tobit model.
Results: The two-limit Tobit model results revealed that off-farm activities (β=0.032, p<0.05) and frequency of contact with extension agents (β=0.018, p<0.01) positively and significantly influenced loan repayment performance. Conversely, production loss (β=-0.142, p<0.01), informal credit access (β=-0.089, p<0.05), social ceremonies expenditure (β=-0.076, p<0.05), and loan-to-income ratio (β=-0.134, p<0.01) negatively affected repayment performance.
Conclusions: The study establishes that both institutional and socio-economic factors significantly influence loan repayment behavior. Successful repayment is enhanced through agricultural extension support and income diversification strategies.