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

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.