Factors Affecting Loan Repayment Performance of Floriculture Industries to the Development Bank of Ethiopia

Abstract

This study was carried out to assess factors that influence loan repayment performance of DBE’s floriculture borrowers. The study used data collected from individual farm files of fifty four floriculture borrowers of DBE. The study shows that 52% of the borrowers were defaulters, whereas, the remaining 48% were nondefaulters. Probit model was used to identify variables which determine loan repayment performance. Educational status, sustainable floriculture certification status and farming experience of growers 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 educational status of borrowers and farming experience of project managers deserve special attention. Finally, credit institutions or lending agencies should evaluate the factors that significantly influence loan repayment before granting loans to floriculture farms to reduce loan defaults.