Effect of Borrower's Socio-Economic Profile on Agribusiness Loans Default Rate in Agricultural Finance Corporation, Mount Kenya Region
M’Muruku Salesio Miriti *
Department of AGEC, AGBM & AGED, Chuka University, P. O Box 109-60400, Chuka, Kenya.
Gathungu Geofrey Kingori
Department of Plant Sciences, Chuka University, P. O Box 109-60400, Chuka, Kenya.
Rael Nkatha Mwirigi
Department of Business Administration, Chuka University, P. O Box 109-60400, Chuka, Kenya.
*Author to whom correspondence should be addressed.
Abstract
Background: Agribusiness loans advanced by Agricultural Finance Corporation (AFC) in Mount Kenya Region have high default rate of 20.33% which compares unfavourably with 10% benchmark for all types of loans in Kenya. This is a challenge, given the strategic importance of agribusiness credit in mainstreaming livelihoods to alleviate poverty by offering occupational and professional opportunities. This study aimed at analysing effect of borrower’s socio-economic profile on AFC loan default rate in agricultural finance corporation, Mount Kenya Region.
Methods: According to AFC records Mount Kenya region represents a branch network of 11 branches and a population of 3,002 agribusiness borrowers. Using a descriptive research design a sample of 300 borrowers was drawn from a combined list through systematic random sampling technique with an interval of ten. Primary data on borrower’s socio-economic profile was collected using a structured questionnaire. The data was analysed using Statistical Packages for Social Sciences (SPSS V.27) and Stata version. Using regression analysis, the effect of independent and dependent variable to predict default rate was estimated. ANOVA was performed to get the F-statistic so as to test for the adequacy of the regression model. The logit econometric model was used to specify the statistical relationship between the independent variable and AFC loan default.
Results: Results of the study revealed that multiple borrowing and borrower-lender distance were significant at 5%. Farming experience, borrowing experience and off-farm income were significant at 10%, 5% and 1% levels of significance. Multiple borrowing and borrower-lender distance were found to have 5.5% and 0.8% associations with default rate, respectively.
Conclusion: The findings show that to mitigate default, the borrower should avoid multiple borrowing and manage the friction of distance. The study is significant since it enlightens the credit stakeholders on collective efforts that are effective in addressing the problem of default. The study recommends government interventionist policy by facilitating uptake of agricultural insurance and subsidizing input costs. Borrowers are encouraged to embrace technology, team up as farming communities to look for markets and affordable inputs, adopt agricultural insurances and adhere to lending directives.
Keywords: AFC loan, default rate, Borrower’s socio-economic profile, Repayment