Beyond Access to Finance: Youth Motivations, Loan Utilization, and Repayment Behaviour in Local Government Soft Loan Schemes in Rural Tanzania

Abstract

Access to affordable finance remains a critical barrier for rural youth in Tanzania, where stringent collateral requirements by commercial banks systematically exclude young people from formal credit markets. In response, Local Government Authorities have implemented soft loan schemes targeting youth groups to foster entrepreneurship and economic inclusion. This mixed-methods study investigates youth motivations for accessing soft loans, utilization and investment patterns, and determinants of repayment success in Morogoro Rural District. We surveyed 200 youth loan beneficiaries through stratified random sampling, conducted focus group discussions with 16 participants from 14 youth groups, and interviewed three district officials. Quantitative data were analyzed using STATA version 18 for descriptive statistics, chi-square tests, and binary logistic regression, while qualitative data were thematically analyzed using Atlas.ti version 25. Findings reveal that structural features, such as absence of collateral and zero-interest rates, were primary motivators for loan uptake. However, a significant proportion of beneficiaries partially diverted funds toward household consumption needs due to economic pressures. Agriculture dominated investment choices, though technical capacity gaps led to substantial losses. Peer influence motivated participation but often propagated misinformation regarding repayment obligations. Logistic regression identified key predictors of repayment success: fully collective (OR = 3.434, p = 0.001) and mixed investment models (OR = 2.129, p = 0.027), alignment with stated purposes (full alignment OR = 4.789, p = 0.001; partial alignment OR = 2.440, p = 0.025), agricultural investments (OR = 2.489, p = 0.013), motivation by no collateral requirement (OR = 2.201, p = 0.014), and more recent loan cohorts (2023–2024; OR = 2.435, p = 0.003). Peer influence reduced the odds of repayment success (OR = 0.508, p = 0.019). We conclude that while LGA soft loans enhance financial access, sustainable impact requires integrated support systems addressing technical capacity, household survival pressures, misinformation, group governance, and continuous monitoring. Policy recommendations include mandatory pre-disbursement training, strengthened monitoring and evaluation, targeted communication to combat misinformation, support for sectoral diversification, and promotion of genuine collective enterprises.