Lending Interest, Inflation and Foreign Exchange Rates Relationship with Loan Delinquency in the Tea Subsector in Kenya
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Delinquent loans are in the rise both globally and locally leading to closures, receiverships and even collapse of institutions receiving and offering agricultural loans. The agricultural sector plays a very critical role in economic development, employment and wealth creation and as a source of revenue. The state of tea sector in Kenya currently is a combination of a number of factors; colonial history, socio-economic environment, regional economic relations, resource endowments and the general policy environment. This study therefore sought to determine the relationship between three macroeconomic variables namely, lending interest, inflation and foreign exchange rates; and delinquency of loans in the tea manufacturing companies managed by Kenya Tea Growers Association for the period Quarter 1, 2008 to Quarter 4, 2017. Thestudy adopted explanatoryresearch design approach and the population of study was 16 tea manufacturing companies. Secondary data on the macro-economic variables and delinquency of loans was collected and analyzed using E-Views software. The study findings reveal that at 95% level of confidence, the independent variables have no significant relationships (p=0.38). In the short-run, Error Correction Model depicts a significant relation between loan delinquency and the three macroeconomic for the period under study. Regression analyses depict negative relationships between lending interest rate, foreign exchange rate; and loan delinquency. Inflation rate reflected a positive relationship. The results of Autoregressive Distributed Lag Model revealed sufficient evidence of insignificant relationships between loan delinquency and the selected macroeconomic variables in the long run.This study notes thatmacro-economic environment should therefore, be monitored by the regulators and should take fiscal and monetary measures to ensure management of loan delinquency in the tea sector, and the economy as a whole.