Abstract:
Delivering productive credit to the Member has been a hotly pursued but problem-plagued undertaking.
Providing low-cost, efficient credit services and recovering a high percentage of loans granted are the
ideal aims in rural finance. This is because low repayment performance discourages the lender to
promote and extend credit. Then investigation of the various aspects of credit used and loan defaults is
of great primary data were collected from 171 sample households and secondary data also collected
from respective organizations in the study area. The analysis was made using descriptive statistics and
logit model. Descriptive statistics such as mean, standard deviation and percentage were used for
analyzing the data. Logit importance both for policy makers and the lending institutions. Therefore, the
major concern of this study was to identify the major socio-economic and institutional factors that affect
credit utilization and repayment capacity of members of cooperatives of Ifa Ambo and West Shewa Zone
Finance Office Saving and Credit Cooperative in West Shewa Zone of Oromia National State. In the
course of this study, model was used to identify the factors influencing credit utilization and repayment
performance of households. Eight continuous explanatory variables and fourteen dummy variables were
included in the logit model. Results of Variance Inflation Factor (VIF) and contingency coefficient
showed that the continuous and dummy variables have not multi-co-llinearity effect between the
independent variables and high degree of associated. The binary logit model for credit utilization and
repayment the most influential explanatory variables are 13 and14 respectively. Out of which, five
variables were significant and the rest were insignificant to explain the dependent variable. The loan
repayment model output variables are supervision and misuse of the loan is highly significant at less
than 1 percent and loan from other sources and natural hazard are significant at less than 10 percent.
On the other hand Credit utilization model output affect by only one variable which is timely credit
service significant at less than 10 percent. Based on the findings also included conclusions and
recommendation. Therefore, taking this into consideration, these factors as indicator for designing
agricultural activity programs may assist cooperatives and policy makers to introduce strategy for
alleviating the serious problem and strengthening credit utilization and repayment performance of
Members.
