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Lender Behavioural Characteristics Affecting Agribusiness Loans Default Rate in Agricultural Finance Corporation, Mount Kenya Region

Received: 19 May 2023     Accepted: 9 June 2023     Published: 6 July 2023
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Abstract

Farming communities who borrow agribusiness credit from Agricultural Finance Corporation (AFC) require efficient access to credit. Lender behaviour and decisions exhibited in credit supply dynamics influence agribusiness loan default rate. Mount Kenya region has registered a high default rate of 20.33% compared to a standard of 10% for all types of loans in Kenya. Using descriptive research design this, study sought to assess the effect of lender behavioural characteristics on agribusiness loans default rate in the region’s 11 branches and a population of 3,002 agribusiness borrowers. Systematic random sampling technique with an interval of 10 was used to sample 300 respondents. Primary data on lender behavioural characteristics was collected using a structured questionnaire. Statistical Packages for Social Sciences (SPSS V.27) and Stata version 15 were used to analyse data. To estimate the effect of variables in predicting default rate, regression analysis was used. In obtainment of the F-statistic for measuring the adequacy of the regression model, ANOVA was performed. Probit regression model was used to specify the statistical relationship between the variables. The four indicators used in the model explicated 48.80% of the dependent variable. Lender behavioural characteristics that were considered in the study had significantly affected AFC loan default rate at 1% level. The p-values of the pointers of lender behavioural characteristics for farm visit, disbursement timeliness, political lending and adequate funding (0.003,0.000,0.000,0.000) respectively were less than the p-value of 0.01. The negative coefficient (-0.355) of farm visit meant that lenders effort in visiting farmers would reduce default rate in AFC loans. However, the coefficient of disbursement timeliness, political lending and adequate funding had a positive coefficient implying a negative effect that increased AFC loans default rate. To mitigate default, credit officers need to disburse adequate loan expeditiously, refuse to yield to political interference and adhere to stipulations of lending policy. The study recommends that AFC should adequately and timely fund supervised borrower projects and own those projects by extending advisory and training inputs even as they embrace a neutral working environment that is free from political manipulation, compromise and influence.

Published in International Journal of Agricultural Economics (Volume 8, Issue 4)
DOI 10.11648/j.ijae.20230804.11
Page(s) 122-132
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2023. Published by Science Publishing Group

Keywords

AFC Loan, Lender, Behavioural Characteristics, Repayment, Default Rate

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Cite This Article
  • APA Style

    M’Muruku Salesio Miriti, Mwirigi Rael Nkatha, Gathungu Geofrey Kingori. (2023). Lender Behavioural Characteristics Affecting Agribusiness Loans Default Rate in Agricultural Finance Corporation, Mount Kenya Region. International Journal of Agricultural Economics, 8(4), 122-132. https://doi.org/10.11648/j.ijae.20230804.11

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    ACS Style

    M’Muruku Salesio Miriti; Mwirigi Rael Nkatha; Gathungu Geofrey Kingori. Lender Behavioural Characteristics Affecting Agribusiness Loans Default Rate in Agricultural Finance Corporation, Mount Kenya Region. Int. J. Agric. Econ. 2023, 8(4), 122-132. doi: 10.11648/j.ijae.20230804.11

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    AMA Style

    M’Muruku Salesio Miriti, Mwirigi Rael Nkatha, Gathungu Geofrey Kingori. Lender Behavioural Characteristics Affecting Agribusiness Loans Default Rate in Agricultural Finance Corporation, Mount Kenya Region. Int J Agric Econ. 2023;8(4):122-132. doi: 10.11648/j.ijae.20230804.11

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  • @article{10.11648/j.ijae.20230804.11,
      author = {M’Muruku Salesio Miriti and Mwirigi Rael Nkatha and Gathungu Geofrey Kingori},
      title = {Lender Behavioural Characteristics Affecting Agribusiness Loans Default Rate in Agricultural Finance Corporation, Mount Kenya Region},
      journal = {International Journal of Agricultural Economics},
      volume = {8},
      number = {4},
      pages = {122-132},
      doi = {10.11648/j.ijae.20230804.11},
      url = {https://doi.org/10.11648/j.ijae.20230804.11},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijae.20230804.11},
      abstract = {Farming communities who borrow agribusiness credit from Agricultural Finance Corporation (AFC) require efficient access to credit. Lender behaviour and decisions exhibited in credit supply dynamics influence agribusiness loan default rate. Mount Kenya region has registered a high default rate of 20.33% compared to a standard of 10% for all types of loans in Kenya. Using descriptive research design this, study sought to assess the effect of lender behavioural characteristics on agribusiness loans default rate in the region’s 11 branches and a population of 3,002 agribusiness borrowers. Systematic random sampling technique with an interval of 10 was used to sample 300 respondents. Primary data on lender behavioural characteristics was collected using a structured questionnaire. Statistical Packages for Social Sciences (SPSS V.27) and Stata version 15 were used to analyse data. To estimate the effect of variables in predicting default rate, regression analysis was used. In obtainment of the F-statistic for measuring the adequacy of the regression model, ANOVA was performed. Probit regression model was used to specify the statistical relationship between the variables. The four indicators used in the model explicated 48.80% of the dependent variable. Lender behavioural characteristics that were considered in the study had significantly affected AFC loan default rate at 1% level. The p-values of the pointers of lender behavioural characteristics for farm visit, disbursement timeliness, political lending and adequate funding (0.003,0.000,0.000,0.000) respectively were less than the p-value of 0.01. The negative coefficient (-0.355) of farm visit meant that lenders effort in visiting farmers would reduce default rate in AFC loans. However, the coefficient of disbursement timeliness, political lending and adequate funding had a positive coefficient implying a negative effect that increased AFC loans default rate. To mitigate default, credit officers need to disburse adequate loan expeditiously, refuse to yield to political interference and adhere to stipulations of lending policy. The study recommends that AFC should adequately and timely fund supervised borrower projects and own those projects by extending advisory and training inputs even as they embrace a neutral working environment that is free from political manipulation, compromise and influence.},
     year = {2023}
    }
    

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  • TY  - JOUR
    T1  - Lender Behavioural Characteristics Affecting Agribusiness Loans Default Rate in Agricultural Finance Corporation, Mount Kenya Region
    AU  - M’Muruku Salesio Miriti
    AU  - Mwirigi Rael Nkatha
    AU  - Gathungu Geofrey Kingori
    Y1  - 2023/07/06
    PY  - 2023
    N1  - https://doi.org/10.11648/j.ijae.20230804.11
    DO  - 10.11648/j.ijae.20230804.11
    T2  - International Journal of Agricultural Economics
    JF  - International Journal of Agricultural Economics
    JO  - International Journal of Agricultural Economics
    SP  - 122
    EP  - 132
    PB  - Science Publishing Group
    SN  - 2575-3843
    UR  - https://doi.org/10.11648/j.ijae.20230804.11
    AB  - Farming communities who borrow agribusiness credit from Agricultural Finance Corporation (AFC) require efficient access to credit. Lender behaviour and decisions exhibited in credit supply dynamics influence agribusiness loan default rate. Mount Kenya region has registered a high default rate of 20.33% compared to a standard of 10% for all types of loans in Kenya. Using descriptive research design this, study sought to assess the effect of lender behavioural characteristics on agribusiness loans default rate in the region’s 11 branches and a population of 3,002 agribusiness borrowers. Systematic random sampling technique with an interval of 10 was used to sample 300 respondents. Primary data on lender behavioural characteristics was collected using a structured questionnaire. Statistical Packages for Social Sciences (SPSS V.27) and Stata version 15 were used to analyse data. To estimate the effect of variables in predicting default rate, regression analysis was used. In obtainment of the F-statistic for measuring the adequacy of the regression model, ANOVA was performed. Probit regression model was used to specify the statistical relationship between the variables. The four indicators used in the model explicated 48.80% of the dependent variable. Lender behavioural characteristics that were considered in the study had significantly affected AFC loan default rate at 1% level. The p-values of the pointers of lender behavioural characteristics for farm visit, disbursement timeliness, political lending and adequate funding (0.003,0.000,0.000,0.000) respectively were less than the p-value of 0.01. The negative coefficient (-0.355) of farm visit meant that lenders effort in visiting farmers would reduce default rate in AFC loans. However, the coefficient of disbursement timeliness, political lending and adequate funding had a positive coefficient implying a negative effect that increased AFC loans default rate. To mitigate default, credit officers need to disburse adequate loan expeditiously, refuse to yield to political interference and adhere to stipulations of lending policy. The study recommends that AFC should adequately and timely fund supervised borrower projects and own those projects by extending advisory and training inputs even as they embrace a neutral working environment that is free from political manipulation, compromise and influence.
    VL  - 8
    IS  - 4
    ER  - 

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Author Information
  • Department of AGEC, AGBM & AGED, Chuka University, Chuka, Kenya

  • Department of Business Administration, Chuka University, Chuka, Kenya

  • Department of Plant Sciences, Chuka University, Chuka, Kenya

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