Abstract:
This paper aimed at investigating the interaction effect of loan use and repayment behaviour of farm
households. We use primary data collected from the field survey that is conducted in North
Kordofan of Sudan, namely Shiekan and Enuhud localities during the season 2014, using structured
questionnaire. It surveyed 200 farm households (defaulter and non-defaulters), which were selected
through a multi-stage stratified random sampling technique. The data gathered were analyzed using
descriptive statistics and bivariate probit model. The results of descriptive analysis showed that 89
percent of rural households repayed their loans on time, while 52 percent of rural households have
used their loans for investment activities. Interestingly, about 82 percent of households decided to
invest in agricultural activities, of which 23 percent did so in livestock rearing. While, only 18
percent of households have used their loans for nonagricultural activities.We find evidence that the
borrowers who have received loans and invested in livestock activities had less default compared
to those who invested otherwise. We also provide evidence that the loan utilization mechanism
adopted by microcredit institutions in the study areas is somehow linked to the repayment
behaviour of the borrowers. Although, Our findings confirmed that application fees, value of assets,
frequency of repayment period, punishment expected and group lending collateral required were
significant variables that influencing the outcome equations (loan utilization and loan repayment),
yet lenders do not put emphasis on the age and education level of borrowers during the process of
contract formation. This implies the conclusion that linking of bad repayment records with less
knowledge and skills of clients is not always sufficient to identify the defaulters.
