ABSTRACT
This research examined risk attitude and loan repayment
performance among smallholder farmers in Mbaitolu and Owerri West local
government area of Imo state. In the study area, government and
Non-Governmental organizations have extended credit facilities to farming
households to narrow the gap between the required and the owned capital to use
improved agricultural technologies that would increase production and
productivity. However, there is serious loan repayment delinquency in the study
area, which discourages the rural finance from promoting and extending credit.
A structured questionnaire was used to gather information from 60 smallholder
farmers from two L.G.A, using the multistage sampling technique. The result shows
that the respondents are mainly female (86.6%) and majority are married (75%)
who are in their active age (38 years). The multinomial
logistic model, through the explanatory variables included predicted correctly
41.17% of risk neutral respondents, only 34% of the risk seekers and 51.55% of
risk-averse respondents. The overall prediction was 54.63%. In this particular
study, sex, primary educational status, years of farming experience, marital
status, household size, credit, membership of cooperative, land acquisition by
inheritance and total investment capital are the factors found to have
determined risk attitude at different levels of significance but with differing
signs relative to the base outcome. A
two limit tobit regression model was applied to identify factors that
influenced loan repayment. The results indicate that agro ecological
zone, off-farm activity and technical assistance from extension agents
positively influenced the loan repayment performance of smallholder farmers,
while production loss, informal credit, social festival and loan-to-income
ratio negatively influenced the loan repayment of smallholder farmers
(p<0.05). Based on the findings policy implications were drawn for improving
loan repayment performance and sustainability of credit services and
institutions in the study areas.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Loans play a vital role in economic
transformation and rural development (Akpan, 2010). Agricultural
or farm Loans is a
crucial input required by the
smallholder farmers to establish and
expand their farms with the aim of increasing agricultural production,
enhancing food sufficiency,
promoting household and
national income, and
augmenting the individual
borrower’s ability to repay borrowed fund.
It enables the poor farmers to tap the financial resources and take
advantage of the
potentially profitable investment
opportunities in their
immediate environment (Zeller and Sharma, 2008). The need for Loans
facilities is necessitated by the limitations
of self-financing, uncertainty pertaining to the levels of
output, and the time lag between
inputs and output (Kohansal
and Mansoori, 2009). However, its accessibility is imperative for
improvement in the quality and quantity of farm products, so as to increase
farmer’s income and reduce rural-urban drift (Kohansal and Mansoori, 2009). It is
believed that farm Loans is
an indispensable tool
for achieving socio-economic transformation of the rural
communities. If well applied, it would
stimulate capital formation
and diversified agriculture, increase resource productivity and
size of
farm operations, promote
innovations in farming, marketing efficiency and value
addition while enhancing net
farm incomes (Nwagbo
et al., 2009).
In Nigeria, the acclaimed
importance of Loans
in agribusiness promotion and
development, notwithstanding, their acquisition, management
and repayment have been
burdened with numerous challenges (Oboh
and Ekpebu, 2011; Afolabi, 2010),
especially for the
smallholder farmer (Awoke, 2004).
In the case
of Loans acquisition and management,
Rhaji (2000) observed
that lack of adequate,
accessible and affordable
Loans is among the major factors responsible
for the systemic decline in the
contribution of agriculture to the Nigerian economy. With respect to repayment
high levels of loan default among borrowers remain a major impediment.
Awoke
(2004) reported that
the high rate
of default arising from
poor management procedures,
loan diversion and unwillingness
to repay loans has
been threatening the sustainability of most
public agricultural Loans
schemes in Nigeria.
In the same
vein, Olagunju and Adeyemo
(2007) argued succinctly that the problem of default in the repayment of
agricultural loans is one of the factors that have militated against the
development of the agricultural sector in Nigeria, because it dampens the
willingness of the financial institutions to increase lending to the
sector. Whatever the
cause, one direct consequence of
loan default is
that it has
caused considerable
reduction in the
loanable funds to
greater majority of loan seekers
and also requires substantial amount of
administrative cost and
time to recover
the amount in default
(Udoh, 2008). Partly because of the
high default rate,
most Loans institutions
are becoming more reluctant
to extend loan
to smallholder farmers (Afolabi, 2010;
Olagunju and Adeyemo,
2007) in dire need
of the facility.
Towards curtailing loan defaults
and enhancing loan repayment
performance among Nigeria farmers, formation
and memberships of
farmers’ groups have been
advocated. A group
is a collection
of individuals among whom
a set of
interdependent relationship exist (Ofuoku and Urang, 2009). Groups are characterized
by interaction, shared values and beliefs, common goal, structure and ideology
(Ofuoku and Urang, 2009). Cooperatives are forms of groups that have been
encouraged among farmers as instruments of social and economic transformation. Under the cooperatives membership model, farmers
were encouraged to become
members of cooperative associations, which
would be registered,
have elected officials and
be holding regular
meetings with documented minutes
(Ofuoku and Urang, 2009). The
belief was that working
under associations and groups,
farmers would be
empowered to speak and
act with one voice
and consequently it
became for them
to process Loans
through financial institutions.
As
long as the
members of cooperative
societies desire to remain in the
group, it is expected that they will live up to
expectations, norms and
values of the
group (Ofuoku and Urang,
2009). However, despite the
expected appreciable role of cooperative groups in promoting loan repayment of
its members, limited
studies have tried to investigate the loan repayment competence
of cooperative farmers in
Nigeria. The general objective
is to analyze the risk attitude and loan repayment performance of small holder
farmers in Imo State, Nigeria. Some pertinent
questions that are linked to the specific objectives of this study are:
1.2 Statement of the
Problem
In
developing countries as is the case of Nigeria, small scale farmers dominates
the agricultural economy. Over 80 percent of the farming population in Nigeria
is small holders residing mostly in rate areas (Afolabi 2010). The need for agricultural
loan among the small scale farmers cannot be over emphasized as it enable to
them established and expand their farms. According to Ojom (2008), one of the
problems confronting small scale enterprise including farmers in Nigeria inadequate capital despite the fact that small-scale farmer
produce the bulk of the food consumed locally and some expert crops.
This
makes agricultural loan very imperative more especially as Nigeria tries to
encourage private investors and diversify the economic and revenue base of the
country. Understanding the role small holders farmers could play to the
economic development of the country under the current government, some efforts
are being made to encourage farmers to borrow at less stringent conduction.
Lack of access to credit is generally seen as one of the main reason why many
people in developing economic remain poor. Usually the poor and have no access
to loan from the banking system because they cannot put up acceptable
collaterals and/or because the cost for banks of screening and monitoring the
activities of the poor and enforcing their contracts are too high to make
lending to this group profitable (Hermes and Lensink, 2014).
However,
access to financial service as opined by Ehigiamusoe survived to planning for
the future, investing in nutrition, children’s education and health and
empowering woman socially (Ugwu Mba et al, 2008). This has necessitated the
formation of small holder farmers’ cooperative as a way to access less
strenuous stressful credit. Despite the formation of small farm holder cooperatives
as a way to improve their access to credit to entrepreneurs still have high
risk, studies have shown that small countries such as Kenya, India, studies
also showed that small entrepreneur are prone to default. Sometimes they make
willfully default, managerial ability is poor, they don’t keep accounts and it
is therefore difficult to monitor their operation by the financial institution,
(Asrat 2009).
Schmidt and kropp (2007), stated
that access to financial services by smallholders is normally seen as one of
the constraints limiting their benefits from credit facilities. However, in
most cases the access problem, especially among formal financial institutions,
is one created by the institutions mainly through their lending policies. This
is manifested in the form of prescribed minimum loan amounts, complicated
application procedures and restrictions on credit for specific purposes. They
further argue that the type of financial institution and its policy would
determine the access. Where credit duration, terms of payment, required
security and the provision of supplementary services do not fit the needs of the
target grow, potential borrowers would not apply for credit even where it
exists and when they do, they would be denied access. Farm Households in rural
areas do not usually have adequate access to formal sources credit, which
provide funds through formal financial institutions such as Commercial Banks.
This situation contributes to a virtual exclusion of the small holder farmers
from formal credit markets. The high cost of obtaining loans from informal
sources are also not placed them as better alternatives; however, several
classes of institutional arrangements offer to these borrowers' valid
substitutes for individual collateral, & to the lenders low cost
alternatives to imperfect credit worthiness information (Stiglitz & Weiss,
2001). The lack of access to capital in rural areas is one of the major factors
which hinder the development of agriculture (Tefera, 2004).
Solving
the major financial constraints of this important sub-sector of the economy is
an important step towards achieving the national development objective of a
country. For this to succeed, the problem of high defaults risk associated with
them, which made them financial institute relevant to extend loan, has to be
solved (Gebeyehu, 2002). It’s against this backdrop that this study is designed
to provide answers to the following research questions.
Broad Objective
To
determine the risk attitude and loan repayment performance of small holders
farmers in Mbaitoli and Owerri West Local Government Area
·
What are the socio-economic
characteristics of the small scale farmers who obtained loans for their
agricultural enterprise?
·
What are the source of loan obtained by
farmers in the state?
·
Are the farmer in Mbaitolu and Owerri West
performing well in terms of their capacity to repay the loans disbursed to
them?
·
What is the risk attitude of farmers as
it relates to the acquisition of loan?
·
What is the influence of repayment
ability on the risk attitude of the farmers in the state?
·
What are the constraints to loan
repayment among the farmers in the State?
1.3. Objectives of the Study
The objectives of the study are
i.
Describe the socio-economic
characteristics of the farmers who obtained loan from microfinance in the study
area.
ii.
Examine the source from
which the loans was obtained.
iii.
To determine the
relationship between risk status and socio-economic characteristics.
iv.
Determine the factors
affecting the loan repayment of farmers in the study area
1.4 Justification of the study
Agricultural
production is faced with diverse risk engaging from natural disasters such as
fire outbreak, flood, erosion, wind pests, disease infections, losses,
reduction in production in produce quality over time and soon. The
inevitability of these eventualities has to be carefully recognized; hence
reducing their negative effects on the overall production outcome of the
agricultural sector of the economy.
This
study will be relevant in the following ways;
·
The study will investigate the relevant
effectiveness and efficiency of the existing policies towards cursing the
effect of rush.
·
The result of this study will help
policy makers in designing an efficient impacts of risks on farmer’s loan
repayment ability.
·
This study will also assists in improving
the small scale farmers loan repayment capacity.
Lastly, the study will significantly contribute to
the successful operation of farmer’s credit schemes and programmes that are
serving as an incentive to boost loan disbursement to small scale farmers.
1.5 Hypothesis
of the study
Ho:
loan repayment has no positive significant influence on farmers risk attitude
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