Determinants of Loan Utilization and Repayment Behaviour among Small Farmers in North Kordofan of Sudan

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.