DETERMINANTS OF LOAN REPAYMENT AMONG RURAL YOUTH GROUPS: THE CASE OFSOUTH ARI WOREDA, SOUTH OMO ZONE OF ETHIOPIA

Abstract

Poverty and youth unemployment is a serious problem of developing countries like Ethiopia. But, in recent years government programs, NGO’s and Microfinance institutions are trying to alleviate the problem by accessing credit to the unemployed youth and poor peoples who lives in urban and rural areas. However, failure by rural youth groups to repay their loan on time or to repay them at all has been a serious problem faced by lending government programs and microfinance institutions.Therefore, the major aim of this study is to empirically examine factors determining loan repayment among rural youth business groups; in case of South Ari Woreda, South Omo zone of Ethiopia. Both descriptive and econometric regression models were used to analyze collected data. Descriptive statistics were used to summarize and describe the socio-economic, institutional & business type characteristics of the respondents. Moreover, chi-square test and t-test analysis were used to compare defaulters and non-defaulters in case of different explanatory variables. Two limit Tobiteconometric regression model was used to identify factors determining loan repayment of rural youth business groups. The result indicated that out of 13 explanatory variables, Loan diversion influence loan repayment of rural youth business groups significantly and negatively.WhileTeam work sprite of the groups, Business experience of the group, Provision of manufacturing and selling sit, Loan supervision, Suitable repayment and Loan releasing time line were found to be the most significant variables contributing to loan repayment of rural youth groups positively. Thus, the study suggests that, the identified significant variables to be a stepping stone to further interventions for Government bodies, financial institutions, & stakeholders so as to work together to significantly decrease loan defaulting problem.