WACHAMO UNIVERSITY

COLLEGEOF BUSINESS AND ECONOMICS

DEPARTEMENT OF ECONOMICS
DETERMINANTS THAT AFFECT AGRICULTURAL INPUT LOAN REPAYMENT IN
ANGACHA WOREDA.

.BY: - TSEHAY TEREFE

ID NO: - 00278

ADVISOR: -DINKICHO

February, 2021

WACHAMO, ETHIOPIA

i
Contents
ACRONYMS...............................................................................................................................................i
List of table contents.................................................................................................................................ii
CHAPTER ONE........................................................................................................................................1
INTRODUCTION.......................................................................................................................................1
1.1 Background of the study................................................................................................................1
1.2 Statement of the problem.............................................................................................................2
1.3 Research question.........................................................................................................................3
1.4 Objectives of the study..................................................................................................................4
1.5 Significance of the Study................................................................................................................4
1.6 Hypothesis of the Study.................................................................................................................4
1.7 Scope of the Study.........................................................................................................................6
CHAPTER TWO.......................................................................................................................................7
2. Theoretical Literature Review..............................................................................................................7
2.1 Definitions of term and concepts of Agricultural input loan..........................................................7
2.2. Need for agricultural input loan....................................................................................................8
2.2.1 Determinants that Affect in Agriculture Loan Repayment Capacity of Farmers.............................9
2.3. Empirical review of Literature.....................................................................................................13
CHAPTER THREE.................................................................................................................................15
3. METHODOLOGY OF THE STUDY.........................................................................................................15
3.1Description of the Study Area.......................................................................................................15
3.2. Data type and Sources................................................................................................................15
3.3. Method of Data collection..........................................................................................................16
3.4. Sampling Techniques..................................................................................................................16
3.5 sample size..................................................................................................................................16
3.6 method of Data Analysis..............................................................................................................17
3.7 Econometric model specification of the study.............................................................................17
3.8 Agricultural input loan repayment...............................................................................................18
3.9 Model Description.......................................................................................................................18

i
REFERENCE...........................................................................................................................................22

List of table contents

Table 3.1 Summary of sample size determination in selected Keble........................................................23
Table 3.2 Description of independent variable..........................................................................................28

ii
 ACRONYMS
GDP –Growth and Transformation plan

. NBE – National Bank of Ethiopia

CBE – Commercial Bank of Ethiopia.

LDC- Least Development Country.

AAO- Angacha Agricultural Office.

OLS –Ordinary Least square.

SNNPR - South Nations Nationalities and People Region.

MFI- Micro Finance Institution.

DBE- Development Bank of Ethiopia.

AIDB-Agricultural and Industrial Development Bank.

iii
iv
CHAPTER ONE
INTRODUCTION

1.1 Background of the study

Utilization and repayment of borrowed agricultural fund has been one of the numerous of
agricultural development in developing countries of the world and Ethiopia is no exception
s(Nwachukwu ,and OK-Isu 2010) borrowed agricultural fund which is also described
as ,agriculture credit is one of pre-requisite for farmers to increase the agricultural output in the
process of agricultural development of countries ,as sited by Oladeebo(2008),agricultural lending
involves giving out of credit in cash in kind and others to small-scale farmers for the purpose of
farming ,there is no doubt about the crucial role of credit in economic development according to
Nwachukwu et al (2010)loan is an important instrument for improving the welfare of the poor
directly through consumption smoothening ,that reduces their vulnerability to short term
income .it also enhances the production capacity of poor resources

farmers through financing investments in their human and physical capital there is no doubt that
in recent time, the considerable interest rate has been shown by agricultural economist planners
policy makers agriculturalist and financial institutions on need to repay more attention into
farmers in Ethiopia,Oladebo(2008).with renewed interest rate improving the status of the rural
resources poor farmers through credit extension,

a key issue that has been cropped up is the question of loan repayment loan is not obtained
without some cost of implication certain factors are considered before it is available to the
beneficiary and one of such factors is the beneficiary ability to repay the loan which is in turn is
also determined by many factors ,according to Ideal and Ofuoku (2008)credit repayment
performance would be influenced by a myriad of factors such as interest rate unstable price of
agricultural commodity social relation and responsibility of borrower and many others factors
abound including member ship of self-group voluntary association of people at grass root level to
meet the challenges of economic and business activities in rural cash economy like cooperative
society which has been described as user owned and democratically controlled enterprises in
which benefit is received according to use such plat form has been used by the government and

1
other private institutions at various level to improve the productivity of the farmers and also
alleviate the poverty and suffering of rural resources poor farmers ,according to Dad
son(2012)noted that in developing country improvement through investment in productive
venture especially in agricultural sector were majority of population derive their lively hood is
necessary for accelerate economic growth at low level of income

the accumulation of wealth of saving may be difficult under such circumstance access to loan
can help poor farmers to undertake investment and productivity in order to increase agricultural
productivity especially among the rural poor and assist rural house hold in maintaining food
security .many government in developing country initiated credit program with the idea that rural
small holder farmers have access to a formal sources of credit (Dong and Feathers on 2010) ,the
question of repayment of loan by farmer is one of important issue since it influences access to
credit by the farmers

Farmers of this Woreda were characterized by traditional methods and use agricultural input to
produce output for family consumption only. So, in many causes a lot of farmers face different
problem to repay their agricultural input loan on time agriculture input such as, DAP, Urea and
Improved seeds. Because of these problems this study would be under taken to study
determinants that affecting agricultural input loan repayment in AngachaWoreda. (AAO, 2015).

1.2 Statement of the problem

An overwhelming majority of the world is poor live in the third world countries. Various
approaches have been employed in alleviating poverty of which provision of credit that targets
the poor is one. Gibbons, (2009) argues that the best way to do something about poverty is to let
the people do their own thing. Nobody will have more motivation to change his situation than the
suffer himself. It is generally accepted that credit, which put to productive use, results in good
returns. But credit provision is such a risky business that, in addition to other reasons of varied
nature, it may involve fraudulent opportunistic behavior.

The lender in the financial system is at a disadvantage of information on the borrower’s

behavior. Mengistu,(2007). Although the performance of the MFIs in Ethiopia has been
impressive since their establishment, they are experiencing default problems as can be observed
in their declining repayment rates. Hunte (1999) argues that default problems destroy lending
capacity as the flow of repayment declines, transforming lenders into welfare agencies, instead

2
of a viable financial institution. It incorrectly penalizes credit worthy borrowers whenever the
collection mechanism is not efficient.

Loan default may also deny new applicants access to credit as the banks cash flow management
problems argument in direct proportion to the increasing default problem. It is obvious that many
rural credit schemes have sustained heavy losses because of poor loan collection and yet a lot
more have been dependent on government subsidy to financially cover the losses they faced
through loan default. But such dependence will not prove or helpful for sustainability Mulatu,
(2007).

These study will focused on KambataTambaro zone in general and AngachaWoreda in

particular. Farmers were characterized by subsistence and traditional farming as a result most
farmers of this Woreda has no potential to purchase agricultural input by cash because, most
farmers are small farmers. As a result, government and private institution provide agricultural
input loan to the farmers, but in most case the farmers of this Woreda does not repay loan on
time to lenders due to different determinants such as social, economic and political.AAO, (2015).
Even though, different researches are conducted by using different methodology regarding
determinants that affect agricultural input loan repayment in different part of Ethiopia Such as
economic variables such as farm size, low price agricultural output, educational level of farmers,
Social variables such as, , sex, age, family size and political variable like, lack of good
governance. But the previous researchers could not Include Saving variable as the determinants
and there was no similar study conducted in Angachaworeda. Therefore, this study will adds
saving as the determinants that affect agricultural input loan repayment of farmers in the study
area (AngachaWoreda).

1.3 Research question

3
This study will addressed the following question.

•What are the organizational determinants that affect farmers’ potential to repay loan on time?

•What are the socio- economical determinants that affect agricultural input loan repayment
performance of farmers?

1.4 Objectives of the study

1.4.1 General objective

The general objective of this study will want to assess determinants that affect agricultural input
loan repayment of farmers in AngachaWoreda

1.4.2Specific objective
•To assess organizational determinants that affect farmers’ potential to repay loan on time.

•To identify socio- economic determinants that affect agricultural input loan repayment of
farmers.

1.5 Significance of the Study

The significance of the study is to provide information about determinants that affect agricultural
input loan repayment of famers in AngachaWoreda, to other researcher and policy makers of this
Woreda. Additionally this study would be high lights the behavior of farmers on agricultural
input loan and repayment decision. So, in order to formulate successful strategy, this study will
distinguish the causes, consequence and solutions of the farmers’ of AngachaWoreda.

1.6 Hypothesis of the Study

Ho: Age as independent variable has not affected the repayment of agricultural input loan.

H1: Age as independent variable has significantly affected the repayment of agricultural input
loan.

Ho: Sex as independent variable not affected the repayment of agricultural input loan.

H1: Sex as independent variable are significantly affected the repayment of agricultural input
loan.

4
Ho: Educational level of farmers as independent variable has not affected the repayment of
agricultural input loan.

H1: Educational level of farmers as independent variable has significantly affected the
repayment of agricultural input loan.

Ho: Time of loan disbursement as independent variable has not affected the repayment of
agricultural input loan.

H1: Time of loan disbursement as independent variable has significantly affected the repayment
of agricultural input loan.

Ho: Family size as independent variable has not affected the repayment of agricultural input
loan.

H1: Family size as independent variable has significantly affected the repayment of agricultural
input loan.

Ho: Low price agricultural output as independent variable has not affected the repayment of
agricultural input loan.

H1: Low price agricultural output as independent variable has significantly affected the
repayment of agricultural input loan.

Ho: Training output as independent variable has not affected the repayment of agricultural input
loan.

H1: Training output as independent variable has significantly affected the repayment of
agricultural input loan.

Ho: Farm size as independent variable has not affected the repayment of agricultural input loan

H1 Farm size as independent variable has significantly affected the repayment of agricultural
input loan.

Ho; saving’ independent variable has not affected the repayment of agricultural input loan

5
H1 saving as independent variable has significantly affected the repayment of agricultural input
loan.

1.7 Scope of the Study

The scope of the study will carry out in KambataTambaro zone Angachaworeda. The scope of
the study will focuses on agricultural input loan repayment of farmers such as improved variety
of seeds, DAP, Urea, and chemicals although sustainability of MFIs includes financial,
economic, institutional and borrower’s viability. Accordingly, the study will focuse on loan
repayment performance.

6
CHAPTER TWO
2. Theoretical Literature Review
2.1 Definitions of term and concepts of Agricultural input loan.
It is a loan to farmers to acquire inputs during the planting season and its period is 11 months.
The installment is low during the first 9 months, when farmers are planting and higher during the
last two months, when crop is sold in the market.

Loan: - is borrowed money or commodity that you can use to purchase goods and services or use
in production process as an input when you need them. It is the life blood of any business
including agricultural sector. It is very difficult for business to survive and certainly grow
without it especially for small farmers (NBE, 2015). It is an arrangement in which lenders give
money or property to borrowers and agree to repay the property or money usually a long with the
interest at future point in time.

Loan repayment: - the time that borrower or debt holder to repay his debt or loan. The minimum
payment that has to be made in a period or penalties’ levied for late payment (grow hill
dictionary).

Default: - Defined as a failure to repay loan/ debt on time to the owners. On default: it may be
defined as a payment of loan debt at the right time to the owner (dictionary definition).

Based on the duration of time it has classified in to three types. Short-term loan; it take for one
year only. Here the farmers take loans to produce output for one-year .The products such as
maize, wheat, sorghum and teff

.Medium term loan; it take for one year up to five year. Here more farmers are participating to
take loan. Because; they can purchase the more factor of production (Like land).

•Long-term loan; it take for more than five year. The farmers are taken loan for produce more
production by purchasing modernizes agricultural equipment due to long term of agricultural
input loan .Almost all of the agricultural loan (credit) is short term nature, which will have little
impact on long-term investment and transformation of agriculture. Assefa, (2014).

7
2.2. Need for agricultural input loan
Loan is the key input in every development program; this was particularly true for rural
development. So long as sufficient loan is not provided to the development program of poor from
either accumulated saving or capital market is necessary in financing many new technologies.
(Beckman and faster, 2010). Agricultural input loan is the crucial input for the agricultural
development. For agricultural stage of transformation, loan is an instrument that can make
change possible with a minimum of social and physical losses (Brines and peer Hord (2015).
Gonzalez – Vega, (2015) have under lined that the lined that the importance of loan facilities to
small holders of LDC. Government of LDC and aid agency have extended large amount of
money in the form of agricultural loan.

The motivation has been the belief that the loan is an essential part of various input package that
are prescribe as part of agricultural investment project designed to introduction modern
technologies and thus stimulate change and growth in agriculture. Agricultural input loan is an
important input to increased agricultural production and productivity through transformed
traditional agricultural to modern agricultural that means the raise of agricultural output shall be
attained through in organic fertilizer, improved seeds and pesticides’(MOA, 2014).

To receive these agricultural input loan the farmers are improved their productivity and change
their life and produce moderate output for personal consumption and commercial purposes and
etc. Studies undertaken in Ethiopia show that credit provision to small farmers increases their

Productivity and improves their standard of living. For instance, Assefa (2014) reported theneed
for the expansion of rural credit to all areas of the country.

Likewise, Birhanu (2012) and Getachew (2015) pointed out the need for agricultural credit to
increase productivity and accelerate adaption rate. Generally, credit removes a financial
constraint and helps accelerate the adoption of new technologies, increases productivity, and
improves national and personal incomes. In addition, it constitutes an integral part of the process
of commercialization of the rural economy and a convenient means of redressing rural poverty
(MOA, 2014).

8
2.2.1 Determinants that Affect in Agriculture Loan Repayment Capacity of
Farmers
Loan repayment capacity of small farmers has been variously investigated in literature. Different
analytical techniques had been employed in the analyst to explain the effect of different
explanatory variables on repayment capacity. Afolabi, (2010) had showed that non default,
namely strategic default and non-default.

Due to negative economic shock strategic default and strategic default is associated to borrower
will full discussion to default, even the benefiting business enterprises yield enough revenue to
repay. Among the common reported individual specific socio – economic and demographic
determinants that affect agricultural input loan is the borrower age and level of education
(Oladebo, 2014). Gender equality and (Karim, 2009) are the major ones. Borrowers farming
experience and gross farm income had positively influence loan repayment. While large family
size and nonfarm experience had positive and negative influence on loan repayment of farmers
respectively (Afolabi, 2010).

On the other hand according to Hawaii and Sharif (2012) access to method generally ensure that
the poorer not richer people access to loan, specifically in the investigation of the loan repayment
of farmers in hoarsen– razivi province of lraqs found that, loan size and collateral values had
significant effect on loan repayment, also interest charged on loan and number of installment for
which loan is due for repayment has also affect loan repayment of farmers. Economic variables
such as farm size, low price agricultural output, educational level of farmers. Social variables
such as natural disaster, sex, age, family size and Political variable like, lack of good governance
and the Institutional variables such as training, use of irrigation are major determinants of loan
repayment.

2.2.2. Loan provision and Collection Mechanism in Ethiopia

Here we can categorize evolution of formal rural credit services in Ethiopia by three period of
times; i.e. rural credit in Ethiopia before 1975, during the Derg period and after Derg regime.

Following the creation of the Ministry of Agriculture in 1943, the Agricultural Bank of

Ethiopia was established to accelerate agricultural development by assisting small landholders

whose farms had been devastated during the Italian occupation through loans for purchase of

9
seeds, livestock and implements and to repair or reconstruct their homes and farm buildings
(Tesfaye, 2014).

Regarding rural finance, the share of agriculture reflected the importance attached to it in the
Plan. Subsistence and large-scale and mechanized agriculture together were to receive about half
of the bank credit. Subsistence agriculture was transformed through:-

(a) The introduction of improved tools and implements, modern techniques, and better seeds;

(b) Credit, price and tax policies; and

(c) Land reform and agricultural services (Assefa, 2014).

High collateral as high as 200% of the loan, mainly in the form of real property and machinery,
guarantor requirements, in the face of widespread tenancy, land title problems e.g. communal
land, rist system, etc. proved to be the major hindrances of the total DBE loans disbursed during
1951-69, only 42 per cent went to agriculture, of which small farmers received only 7.5 per cent.

The implication of these on peasant farmer’s credit access is clear. While the share of agriculture
in total credit during 1970/71-74/75 was high, averaging about 65 per cent, peasant farmers did
not benefit much. It mainly went to dairy development projects, large farmers, co-operatives of
commercial farmers (Tesfaye, 2014).

Overall, the extent of exclusion was well recognized by the AIDB board so much so that in 1974
it decided to introduce a small farmers credit program on pilot basis but was not implemented as
it was overtaken by events of the revolution .After the fall of Emperor Hailesilassie government,
the financial system in Ethiopia was nationalized and restructured based on the 1976 Banking
Law.

The credit policy was geared towards the overall policy of the country’s centralized economic
management. Credit policy gave absolute priority to the socialized sector public enterprises, state
farms and cooperatives. Loans and advances by borrowing institutions over the ten year period
between 1981 and 1990 show that on average the government sector took 36.4% of the total,
while50.3%wenttopublicenterprises and the private sector’s share was only 8.3% of the total
loans and advances made by the banking system during the period.

10
More than 89 percent of agricultural loans went to state farms while the rest went to agricultural
co-operatives, with the private peasant sector receiving negligible share. Therefore, the outcome
with regard to reaching small rural borrowers with financial services was disappointing both
during the Imperial and Dreg regimes this is evident from the amount of rural credit that went to
the peasant sector.

Considering the large number of rural population, the size of land under cultivation and the
demand for credit, the volume of loan extended to this sector was insignificant.

Following the fall of Derg regime, Ethiopia has followed free market economy, which advocates
financial liberalization. Both economic theory and practical experience suggest that financial
liberalization can stimulate economic development. Financial liberalization in Ethiopia began at
the end of 1992.

Lending rates that were between 4.5 and 9.5% were raised to 11-15% depending

on the sector until September 1994.Discrimination of credit access and interest rates by type of
ownership (i.e. between state owned enterprises, cooperatives and private firms) was eliminated
Banks have been decentralizing loan decision making in order to reduce transaction costs of
borrowing and reducing screening hence transaction costs of lending.

The lending approaches of banks to target beneficiaries could be both a direct type and a two-tier
system. The direct type is in which the Bank extends credit directly to the end user. This cans an
individual person or organization such as cooperatives, government or private enterprises, which
have legal entity. In the two-tier approach, the Bank transfers its financial resources to end users
through other bodies such as cooperatives and peasant associations. Repayment of the borrowed
loan,

In the case of rural Ethiopia, regional governments act as intermediaries’ between banks and
farmers. These governments use their federally allocated budget as collateral to borrow from
banks and lend these funds to farmers for the purchase of agricultural inputs. This procedure has
enabled banks to lend a great deal of money to farmers. Nevertheless, there have been cases of
default, which have necessitated repayment out of the budget allocations of the regional
administrations

11
As compared to other economic sectors the share of agricultural sector in the total

Credit disbursed by the banks has continued to be marginal. For instance, the share of agriculture
in the total credit disbursed between 1991/92 and 1997/98 has only been14.7%, while domestic
trade had 32.2% and industry 13.2%.

Recently, the share of agricultural credit stagnated at around 16% and never exceeded 19% of the
total credit disbursed. In addition, it is believed that almost all of the agricultural credit is of short
term nature, which will have little impact on long-term investment and transformation of
agriculture. (Assefa,2012).

At present, local community participation in screening borrowers and filtering genuine defaulter
is minimal. The authorities and the leaders of MPCs have no objective means of assessing the
extent of crop loss. (Mullet, 2015).

Agricultural input loan is provided in both cash and kind in commercial bank of Ethiopia has
been the major financier of input credit to small holder farmers’ since 1994 to 1995. From 1994
to 1996 credit were given to farms through their cooperative without the regional government
providing guarantee for full loan refunding.

As of 1996 the commercial bank of Ethiopia to sign loan contract with the regional government
directly due to the lack of collateral held by rural households and to guarantee loan repayment.
Borrowers farmer pay 10-5% interest rate on the input loan. The repayment of loan is
immediately after harvest is done. If farmers fail to repay loan on the time, administration
enforcement start to operate (CBE, 2015).

12
2.3. Empirical review of Literature
Determinant loan repayments of agricultural input are a lot. Placebo (2014)explained socio –
economic determinants like amount of loan paid, loan collected spent on agricultural production,
net farm income, age of farmers, farm size cultivate, farming experience with credit use and
farmers in Ogbomosho Nigeria. Among this determinants, amount of loan obtained by farmers,
year of experience with credit use and level of education major determinants that affect loan
repayment positively.Koopahi, (2011) found that the use of machinery, Length of repayment
period, bank supervision on the use of loan had significant positive impact; on the other hand
incidence of natural disaster, low level of education and waiting time for loan reception has
significant negative impact on repayment of agricultural input loan.

In Ethiopia default may rise from determinants such as the inability of borrowers to repay due
to crop failure, unwillingness of borrowers to repay, problem of loan management and utilization
difficulties are the major ones( CBE,2015).

Most report show that innovation and management practice, availability and accessibility of
tractors, crop failure and poverty level are other determinants that affect agricultural input loan
repayment (Afolabi, 2010). From above empirical literature major determinants that affect loan
repayment are conducted on different socio-economic, cultural and demographic settings.)
According to the above researchers, the determinants that affect agricultural input loan
repayment of farmers are economic variables such as farm size, low price agricultural output,
educational level of farmers, Social variables such as, natural disaster, sex, age, family size and
political variable like, lack of good governance. But, the above researchers cannot study religious
as the determinants that affect agricultural input loan repayment of farmers. Therefore, this study
will be add to religious as the determinants that affect agricultural input loan repayment of
farmers in the study area.

2.4Explanation of Determinants that Affect Agricultural Input Loan Repayment

Age: with increase in age, it was usually expected that borrowers get more stability and
experienceVigano, (1999).

Distribution loan on time: if loan was disbursed in time, it is unlikely that it would be divert to
non-intend purposes and it has inverse relation with religion. Regally,(1997).

13
Educational Level of Borrower more educated borrower is expected to use the loan effectively
as compared to a less educated one. Koopahi,(2011).

Training: is imply that the likelihood of loan repayment increase with farmers having train.
Placebo (2014)

Sex of borrower: There is a belief among many Microfinance specialists that female are

Better payers than male borrowers. Hanker. (1995).

Family Size: the increasing family size may raise participation on loan taking and repaying
Afolabi, (, 2010).

Farm size: as a farm size decrease the willingness of farmers to receive agricultural input loan is
also decrease. Placebo (2014).

Lower price agriculture output: if the price of output is low in the market condition, the
participation of farmers on input loan will decline. Lack of good governance: if the absence of
rule of law in the country, the farmers will not paid thereceived loan properly CBE,
(2015).Saving ability’s: if farmers usually save from their proceeds for consumption
smoothening purpose throughout the year accumulation of wealth and for contingencypurpose
increase of bad harvest or accident saving enables farmers to easilyfulfill the contract entered
when price of agricultural product are not conductive, more amount of saving the greater
capacity to repay, so the ability of saving before taking loan can increases loan access
opportunityAssefa A.(2014)

14
CHAPTER THREE
3. METHODOLOGY OF THE STUDY
3.1Description of the Study Area
This study will carrying out in KambataTambaro zone, in Angachaworeda. It is bordered on
south by kachabirraworeda on west by doyogana on north by Hadiya zone on east by
DamboyaworedaAngacha town includes angacha administration center and Funamura a fast and
growing town in north part angachaworeda .

Angacha is 77km weather road 45km of dry weather road for average road density of 381km per
1000 square km the woreda was 21 kebeles and two urban centers estimated population of the
woreda was 154837 of whom 77735 were men and 77102 were women.7205/4.65% of its
population The major agricultural products produced in this woreda are maize, teff, pepper,
sorghum, coffee and hair cot beans. The main income for this woreda is rural agricultural
service, service on trade and different service like timber and tax (AAO, 2015).

Angachaworeda has 8 health posts.34 primary schools, 4 high schools and 3 preparatory schools.
Roads are even available even if some difficult in summer season on full services (AAO, 2015).

3.2. Data type and Sources

The type and source of data will be employed for this study both quantitative and qualitative for
descriptive and model analysis. And both primary and secondary data sources collection. The
first were from primary sources. This data gather from the sample of the inhabitants of
AngachaWoreda that are using agricultural input loan for their production process through
structured questionnaire and the second were from secondary source of data. This data willbe
collected from both published and unpublished document from agricultural office of
Angachaworeda. The data will be collected from this primary sources were used for descriptive
and regression analysis.

15
3.3. Method of Data collection
For this study, the primary data will collect through interview and structured questionnaires of
sample respondents, because the information will from literate and illiterate responses, but
secondary data collect from both published and unpublished documents.

3.4. Sampling Techniques

The sampling technique that will employe multi stage sampling technique, because, this
sampling technique will be applied more than one stage. At first stage Angachaworeda will be
selected from all KambataTambaro zone randomly. In the second stage from 21 Kebeles, 4
Kebeles will be selected. In the third stage from four Kebeles, 99 respondents will be selectes by
using simple random sampling technique from 379 total population who where taking loan in
four Kebeles by applying of Yamane formula

3.5 sample size

It will not applicable enough to cover the cost of research to study on all elements of the
population due to economically costly, require large number of time, and large number of human
resources. To study all entries of the population, the study will conducted on selective samples.
In Angachaworeda there were about 15,877 households, from these 1,719 are women and 14,158
are men, from this total of 15,877 household 2,090 household take loans for agricultural
purposeas a woreda and 379 household take loans for agricultural purpose in four Kebeles.

The respondent will be deciding by using Yamane (1967). Sample size will be computed by
taking 90% confidence interval, 0.1 degree of viability and 10% degree of precession.

From four Keble 379 household were take loan for agricultural purpose in 2021.

n=, n/1+N(e)^2

Where, n sample size

e= level of precession equal to 10%

n=total household in selected kebeles

e=error term 1+379(0.1)^2=99.75 n=100

N=379

16
Table 3.1 Summary of sample size determination in selected Keble

Number of kebeles Number of household selected Number of household taken

agricultural input loan

Garbafandide 98 24

Kuyea 109 26

Ambaricho 82 27

Zobecho 90 29

Total 379 99

Source ;( AAO; 2020)

3.6 method of Data Analysis

To conduct the study, both descriptive and econometric method of data analysis will be used. In
the descriptive part, the study will use table and percentage to describe the given data. In the
econometrics part ordinary Logistic regression method (Logit) technique will be employed, since
the dependent variables is dummy variable the study will be uses logit model from binary
response model. Other types of binary response model such as linear probability model has
limitation that the value ranges between zero and one (Gujarat4 edition, 2004).

3.7 Econometric model specification of the study

Binary choice model assume that individual will faces with choice between two alternatives.
Thus the choice is the qualitative choice with given a set of attributes will make choice (if
farmers repay loan on time or not to repay loan on time).Following green and Guajarati (2010)
the logit model for the determinant that affects repayment of agricultural input loan specified as
follows. The dependent variable is dummy variables, which take value 0 or 1 depending on
whether or not farmers repay loan on time. However, the explanatory variables were both
continuous and dummy variable.

17
3.8 Agricultural input loan repayment
The loan repayment equation will specifies based on the assumption that the decision of the ith
borrower whether to repay loan in full or not depends on an unobservable utility index, ui
explained by a set of independent variables. This utility index, which indicates that the
Probability of repaying loan in full willbe greater if its value is larger, can be defined by a
Regression relationship as: Ui= 'Xi + I Where ui = utility index, =Vector of parameters, Xi=
Vector of explanatory variables (Maddala, 1983).

The reason why we uses a utility index for the analysis of repayment performance is that, under
normal circumstances, a borrower repays if he/she derives benefits from repaying. For example,
if a borrower expects to get another round of loan, he/she will repay the current loan (Mengistu,
1997).In order to relate this unobservable utility index (precisely a utility derived from repaying)
to the decision of repaying loan in full, we assume that.

ALR=1, ifUi>0 (borrower repaid loan in full); or

ALR=0, if Ui =0 (borrower did not repay loan in full).

3.9 Model Description

The dependent variable in logistic regression is usually dichotomous, that, the dependent variable
can take the value “1” with probability of success (satisfactory)or the value “0” with probability
of failure (not satisfactory). The model for logistic regression analysis assumes that the outcome
variable Y is categorical, for example, binary or dichotomous in this study, the binary logistic
model will be used to analyze whether the performance of the ALR is satisfactory or not. The
dependent variable in this case is dummy variable, which take the Value of (1) for satisfactory
performance by ALRs, and (0) otherwise. This model allows one to predict out comes, from set
of variables may be continuous, discrete, and dichotomous or mix of any of these.

The terminology binary logistic regression analysis the odd of success defined as to be the ratio
of the probability of success to the probability of failure.

18
Where, are the model parameters and for this study the dependent and explanatory variables are
defined as

Yi=1 If paid loan

0 other wise

This model will specifie as:

ALR = f (SX, AG, EL, FS, TR, DLOT, FRMS, SAV)

Below are given the list of the variables together with their definitions.

1. ALR=Agricultural loan repayment, ALR=1 if fully repaid, zero otherwise. No fully repaid is
base group

2. AGHH= Age of Households.

3. SXHH= Sex of Households.

0 if male, 1 otherwise, female is base group

4. EL= Educational Level of borrowers (Households).

5. FS= Family size.

6. TR= Training. 1 if take it, 0 otherwise not use it is base group.

7. FRMS= Farm Size.

8. SAV= 1 if they were save 0 otherwise

9. DLOT=Distribution of Loan on Time.

1 if distributed on time, 0 otherwise no distributed is base group

Description of the explanatory variables together with their expect signs is given below:

1. Age: Vigano, (1993) noted that with increase in age, it is usually expected that borrowers get
more stability and experience. So we expect this variable to have a positive impact on repayment
performance. However, since as people get older, their ability to effectively use finance and

19
generate income declines, the variable could also have a negative impact. It may also have a non-
linear relationship with loan repayment, where up to a certain level of age loan there is a positive
relationship, but beyond that age the relationship changes to either negative or becomes more or
less constant

2. Sex of Borrower: There is a belief among many Microfinance specialists that female are better
payers than male borrowers, taking into consideration their being more Entrepreneurial that
results from assuming more responsibilities in the internal affairs of a Household. (Vigano,
1993).AlsoKhanker (1995) explains that loan recovery rates have been higher for women than
for men in the case of Grameen Bank. But some Researchers have found the opposite result. So
the sign of this Variable is negative expected.

3. Educational Level of Borrower: This variable is expected to have a positive impact on

repayment performance in general. Considering normal circumstances, a more educated
borrower is expected to use the loan effectively as compared to a less educated one. In this case
it expected a positive sign for the variable.Koopahi, (2011).

4. Distribution loan on time: If loan is disbursed in time, it is unlikely that it will be diverted to
non-intended purposes. Johnson and Rogaly,(1997) noted that timeliness of loan disbursement is
important when loans are used for seasonal activities such as agriculture. They argued that
complicated appraisal and approval procedures, which might delay disbursement, influence a
program of seasonal loans for farmers who use to buy inputs. Further that this could in turn
worsen the prospects of repayment by diverting loan to non-intended purpose. In such cases a
positive sign was expected.

.5. Training: It has positive relationship with the probability of loan repayment. The train farmers
know how to use loan for allocating for different agricultural production. Placebo (2014).

6. Family Size: Large family size increase labor force that work on farm and participate on
nonfarm activates that generate income and they should be paid loan repayment due to
participated in different activities. Therefore, it can affect positively the loan repaymentAfolabi,
(2010).

20
7. Low price of agricultural product

The face of low price for the agricultural product at harvest period is expected as negatively on
agricultural input loan repayment. The reason for this is Lack of adequate market, excess supply
of agricultural product at harvest period and it has negative sign expected.

8. Farm size as a farm size increase the willingness of farmers to receive agricultural input loan
is raise and due to that reason it shows positive sign expected .Placebo (2014).

9.SAVING if the farmer save from their income during possible time they have greater opportunity
to cover their loan on time it is positively related with loan repayment timely saving before
taking a loan increases loan taking opportunity of the farmers and also the farmers repayment
ability is very high. Own source 2020

Table 3.2 Description of independent variable

Name Description Variable type Expected relation ship

Sex Sex of household Dummy -

Age Age of household Continuous -

Education Education level Continuous +

Family size Family size Continuous +

Saving Saving Dummy +

Farm size Farm size Continuous +

Training Training Dummy +

Distribution of loan Distribution of loan Dummy +

on time

21
REFERENCE
Afolabi. (2010). Estimation of technical efficiency of small holder in the high.

Belshow. (2009). Agricultral cooperatives, Agricultural development with cooperatives,. London

England.

CBE. (2008). Commercial bank report on the criteria forfulfillment of loan. Addis Ababa ,
Ethiopia.

Foster, B. a. (2016). Loan as a power or ability to obtain good and servise in exchange for
promise for them. Nigeria.

Getachew, B. (2008). need for Agricultural input loan . Addis, Ababa,Ethiopia.

Gonzalez, V. (2011). Importance of loan facility for developing countries.

Janhm. (2014). Food and Agricultural Organization.

Karim. (2009). Thesis on farmers perfomance of ioan.

Koopahi. (2011). Problem of loan defauiter in Agricultural an economic and financial analysis.
Ghana.

Mullet. (2007). Characteristics of defaulter in agricultural loan. India.

NBE. (2012). National Bank report on the role of loan on Agriculture. Addis Ababa Ethiopia.

NBE. (2015/2016). Report on contribution of Agricultural sector.

Nwanko. (2008). Factors affecting on an repyment performance of farmer in Kharasan rastal

province. Iran.

Oladebo. (2014). Credit worthiness analysis of farmers. Ghana.

Paselep. (2010). Role of microfinance on transformation of agriculture of Ethiopia. Addis,

Ababa, Ethiopia.

Peerhord, B. a. (2013). Credit for farm business, pace of capital. Prague Glacioa.

22
Samel. (2014). Impact of farm and farmers characteristics on repayment of agricultural credit,
Vol–4.

SAO. (2015). Report on the Annual performance of Agricultural production.

Seyum, A. (2010). Tools for agricultural guide to approprite equipment. Addis Ababa Ethiopia.

Sharif, N. a. (2012). Features of long term and short loan.

23
24
25