Determinants of Repayment for Youth Development Fund Loans in Tanzania

Abstract

The study intended to identify factors influencing youth group loan repayment for the Youth Development Fund (YDF) in Tanzania. This study utilizes cross-sectional primary data from structured questionnaires and interviews with 388 individuals in the Butiama District of the Mara Region. The analysis involved descriptive statistics and econometric estimation using the ordinal logistic regression model. As per descriptive analysis results, this study provides a comprehensive analysis of socio-economic and institutional factors distinguishing loan defaulters from non-defaulters among youth participants in Tanzania's loan programs. Significant variations, supported by p < 0.05, highlight that non-defaulters possess more leadership experience, exhibit superior business performance, undergo increased training, and are in closer proximity to lending institutions. The study reveals noteworthy differences in demographic factors such as marital status, education, belief in societal employment, and types of financed projects between the two groups. Misappropriation of funds, peer pressure, and economic shocks are identified as key contributors to loan defaults, emphasizing the need for targeted interventions and vigilant monitoring for enhanced loan repayment and project success. Moreover, the econometric estimation using the ordinal logistic regression model, with statistical significance at a 5% level, demonstrates that independent factors account for 85.5% of the variation in loan repayment performance among youth groups. The study encounters societal views favoring employment over entrepreneurship, revealing a negative impact on youth loan repayment. Factors like loan diversion, peer pressure, group size, and entrepreneurship training emerge as significant determinants of loan repayment performance, providing valuable insights. In conclusion, the study underscores the critical importance of tailored interventions for addressing challenges faced by youth borrowers. Misappropriation of funds, peer pressure, and economic shocks require nuanced mitigation strategies. Policy recommendations encompass refining loan structures, enhancing training programs, and challenging societal norms favoring employment over entrepreneurship. Tailored interventions with strengthened monitoring, addressing socio-cultural attitudes, and internal control reinforcement are suggested for sustained success in youth-focused financial initiatives through continuous research and policy adaptation.