DETERMINANTS OF LOAN REPAYMENT PERFORMANCE OF PRIVATE COMMERCIAL COTTON PRODUCING FARM IN ETHIOPIA: THE CASE OF DBE BORROWERS

Abstract

This study with objective of identifying the loan repayment determinants examined the loan repayment performance among private commercial cotton grower borrowers of the Development Bank of Ethiopia. Secondary data was collected from development bank of Ethiopia. the data was collected for operational cotton farms that are under repayment obligation and covers 72 percent of them .area wise the data covers those borrowers that are located in potential cotton producing areas such as Gambela,Metema ,Awash and Afar etc. All the farms that are considered here are operate under the leased land and rain fed production systems. Both descriptive and A probit model is applied to identify the factors that influence loan repayment. Sixteen variables hypothesized and are analyzed to reach the major determinants of the loan repayments performance of commercial cotton growers of DBE. The findings indicated that five variables namely loan processing time, value of collateral, equity level of borrowers, having substantial off-farm income and Credit experience of borrower found to be significant variable that determine the loan repayments of commercial cotton borrowers of DBE, The analysis of partial marginal effect shows that equity contribution level of borrowers is the most important factor among the other five variables has impacts on the loan repayment performance of the borrowers. Based on the findings, policy implication is reducing /rejecting those loans with long processing time, initiating legal action for those with less value of collateral or requesting additional guarantees. Giving emphasis on selection of those with the high equity level of contribution, Credit experience and with substantial other sources of income. Other recommendation includes providing incentive for those who repaid timely, appealing for causes of the defaults by DBE to stake holders, provision of training, improved technologies and focusing on intensive farming will help in improving the loan repayment performance among private commercial cotton growers,at the same time will facilitate the sustainable loan recycling and development of the cotton production sector.