Examining the socio-economic factors influencing loan repayment among youth: Evidence from local government authority soft loan programs in Morogoro Rural District, Tanzania

Résumé

Youth financial exclusion is still a critical barrier to rural economic participation in Tanzania. Local Government Authorities (LGAs) introduced soft loan schemes to support youth entrepreneurship, yet sustainability is threatened by poor repayment performance, with 43.5% of funds unrepaid. This study is guided by the Theory of Planned Behaviour (TPB) as introduced by Ajzen in 1991, which states that individuals' behaviour is influenced by their intentions, which are in turn shaped by their attitudes, subjective norms, and perceived behavioural control. The study used a cross-sectional research design. The target population of the study is youth groups which have benefited from loans from the Morogoro rural district since 2019. The sample size was found by using Yamane's formula. Data was collected from 190 youth respondents through structured questionnaires, supplemented by focus group discussions with 16 participants and key informant interviews with 3 district officials. Binary logistic regression and chi-square tests found significant associations and predictors of repayment performance. Demographic characteristics significantly shaped repayment outcomes. Age demonstrated a clear progression effect, with youth aged 29–40 years 2.35 times more likely to repay than those aged 18–28 (p = 0.012), while those above 40 achieved even higher odds (OR = 3.20, p = 0.047), reflecting maturity's positive influence on financial discipline. Secondary education increased repayment likelihood by 1.87 times (p = 0.028), confirming financial literacy's importance. Employment status proved decisive: self-employed youth were 6.63 times more likely to repay than unemployed borrowers (p < 0.001), while formally employed youth achieved 5.34 times higher odds (p < 0.001). These dramatic differences underscore that stable, reliable income is essential for loan servicing. Loan design features critically influenced outcomes. Adequate loan amounts tripled repayment likelihood (OR = 3.42, p < 0.001), emphasizing that proper sizing matched to investment scale is essential for profitability. Prior business experience doubled repayment probability (OR = 1.98, p = 0.003), proving how market knowledge and cash-flow management skills enhance sustainability. The investment sector mattered significantly, with agriculture and small businesses showing strong repayment. Financial literacy training generated substantial improvement (OR = 4.20, p < 0.001), with trained borrowers achieving 84.8% good repayment versus 54.1% without training. Most powerfully, borrowers whose repayment source was investment profits were 11.84 times more likely to repay than those dependent on family support (p < 0.001). Qualitative findings revealed that program features attracted youth, but household survival pressures undermined implementation. Approximately 54% of borrowers partially diverted funds toward consumption, particularly education and basic needs. The study concludes that repayment performance reflects the complex interplay of maturity, employment stability, loan adequacy, institutional support, and productive use. For sustainability, LGAs should prioritize adequate loan sizing, provide mandatory comprehensive training, strengthen ongoing monitoring, and address household survival pressures through complementary support mechanisms.