In Iran, Agricultural Bank is one of the institutions who have played an influential role in allocating loans in rural communities of Iran. In other words, in terms of number and amount of loans, micro loans account for 95 percent of total loans and 50 percent of the loans that were paid in Agricultural Bank of Iran in 2013. As a result, applicants for micro loans constitute a significant portion of the bank’s customers.
There are two main sources for financing these lending to small-scale farmers: increase in bank monetary resources and recovery of overdue awarded credits. Meanwhile, the specific approach of Agricultural Bank as a professional institution has resulted in less customer savings in comparison with other banks. Consequently, collection of overdue payments is the most important resource to finance future applications for loans. Unfortunately, Agricultural bank challenges a high rate of over due repayment and the percentage of default on loans is calculated around 20 percent. These non-payments have initiated major problems such as increased credit risk, waste of resources and time, increase in bank costs, and a blockage in the portion of the Bank’s lending resources and disruption in the plans of the Bank. Thus, the Agricultural Bank as a provider of financial services to farmers is entirely dependent on repayment of loans to provide necessary credit. However, Due to the high incidence of default in Agricultural Bank of Meshkinshahr, this bank faces serious problems in its potential in allocating loans to farmers in rural areas. Accordingly, the main objective of this study was to investigate the factors affecting the repayment behavior of loans by farmers in Agricultural bank of Meshkinshahr.
Review of the Literature
There have been a large number of studies in the literature that have been carried out on the topic of loan default. Previous studies have presented some of the reasons for the issue of default that include but not limited to attitude of loan receivers, ineffective policies within credit institutions, losses from farm investments, application of loans in non-farm enterprises, and regarding loan as a share of national resources without a need to pay. Ewuola studied the characteristics of loan institution on repayment of loan in Nigeria. The results showed farmers who failed to repay had a middle age and low levels of education. In addition, loan supervision and high rates of interest on loans repayment had a positive effect on loan repayment.
Matin investigated the problems of farmers in repayment of the Agricultural loans according to Logit model. The results indicated that the level of education, credit history, non agricultural income and land under cultivation are important factors affecting the loan repayment. In another study carried out in Madagascar, Zeller investigated repayment of micro loans using Tobit model and showed that groups with a higher level of integrity had a better repayment. It is rather difficult sometimes to pay the loan back but such problems do not appear with Speedy Payday Loans and speedy-payday-loans.com because the website never misses fire.
In his study of the factors affecting repayment of micro loans in Ethiopia, Gebeyehu concluded that loan rate, loan size, form and period of loan payment, previous credit experience, training and education, business and economic activity experience are among the influential factors affecting loan repayment in that area. In addition, Gadquin analyzed the performance of small financial institutions on repayment of micro loans. Using Probit model, he identified the ways to improve the collection of loans and showed that improvement in the rate of repayment, non-financial services, dynamic incentives, reduction in the cost of loan allocation, farmer education, proper selection of borrowers who did not have any overdue repayment had a positive effect in the collection of repayment performance.
Adegbite examined factors affecting repayment of loans in Nigeria. The results indicated that the amount of the loan, delay in payment, distance between field of agriculture and bank, age, knowledge and experience in agriculture, natural damage and disease and pests had a significant effect on the repayment of loans. Rahji in his study, conducted on the banks of the South-West Nigeria, focused on identifying factors affecting the decision of banks to ration credits. He concluded that the size of farmers’ field, their income in the previous year, the type of company, the net assets of the household, business level of agricultural family were among important factors in the probability of delinquency in loans by farmers.
Fikirte also investigated the factors affecting the repayment of micro loans in Addis Ababa. Analysis of data was conducted through Logit model A total of twelve explanatory variables were entered in the regression equation. According to the results, variables such as age, type of business, (Sub market, kiosk, knitting and sewing services, and agriculture), gender, business experience played a significant role on the performance of micro loans repayment.
In another study, Mahmud et al. analyzed the various factors affecting repayment in Kasoor area in the Punjab province of Pakistan. They concluded that inadequate loan supervision of bank employees, form of loan use, high interest rates, and changes in business and residence of the borrower, resulted in a delay in repayment of agricultural credit in the region. In their study designed to investigate factors enhancing loan repayment by potato growers in Ghana, Wongnaa and Awonyn-vitor found that factors like age, education, experience, supervision, and the income outside farm was influential in loan repayment. Additionally, gender and marital status had a negative effect on repayment