Repayment Performance of Agricultural Loan by Smallholder Farmer

In subsistence agriculture and low-income countries like Ethiopia, where the smallholder farming dominates in the overall national economy, smallholder farmers have been facing severe shortage of financial resources to purchase productive agricultural inputs and adopt new technologies. The price of inputs is going up every year. Consequently, the dependence of the subsistence farmers on financial institutions for credit has become substantially higher nowadays. Failure by farmers to repay their loans in time or to repay them at all is a serious problem facing both agricultural credit institutions and smallholder farmers. According to Hunte (1996), loan default is a tragedy because failing to implement appropriate lending strategies and credible credit policies often result in failure of credit institutions. Therefore, to design appropriate lending strategies and procedures, information on relative importance of the factors, which affect credit utilization and loan repayment performance of smallholder farmers is essential.