FACTORS AFFECTING LOAN REPAYMENT PERFORMANCE OF FLORICULTURE GROWERS: THE CASE OF DEVELOPMENT BANK OF ETHIOPIA

Abstract

This study carried out an assessment on factors that influence loan repayment performance of DBE’s floriculture credit borrowers and estimated the relative importance of factors in improving loan repayment performance among floriculture credit borrowers. The study used secondary Data collected from the individual files of fifty four floriculture credit borrowers of DBE. The study shows that 28 (52%) of the floriculture credit borrowers were defaulters, whereas the rest 26 (48%) were non defaulters. Probit model was used to identify variables which determine loan repayment performance. Follow-ups made by the bank, education status, sustainable floriculture certification status and farming experience of floriculture credit borrowers were statistically significant factors affecting repayment of floriculture loan of DBE. The analysis of partial marginal effect shows that sustainable floriculture certification is the most important factor among the other three variables. The policy implications of the study are: educating all floriculture growers on the importance of being certified with a multitude of standards in the form of certification schemes, codes of practice and a handful of consumer labels so that they can adopt those standards which best meet customer needs, intensifying supervision work in order to provide information and technical assistance for the established project, and improving customer recruitment system to emphasize on education status of borrowers and farming experience of project managers deserve special attention. Finally, credit institutions or lending agencies should look out for the factors that significantly influence loan repayment before granting loans to floriculture growers to reduce loan defaults.