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The Organizational Factors Determining Loan Repayment Among Cooperative Farmers

An Examination Of The Organizational Factors Determining Loan Repayment Among Cooperative Farmers In Anambra State

Various researchers have put forward the benefits, problems, access and role of credit for increased productivity. But prompt repayment of credit is necessary for good credit worthiness. The review in this section is done under the following sub headings:

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  • Conceptual framework
  • Empirical framework
  • Theoretical framework
  • Summary/gap in literature.

2.1   Conceptual Framework

2.1.1 Understanding Agricultural Credit

Agricultural credit as noted in the literature is one of the pre-requisites for farmers to increase the agricultural output in the process of agricultural development of a country. According to Ololade and Olagunju (2013), agricultural credit is very important for sustainable agricultural development to be achieved in any country of the world.

Agricultural lending involves giving out of credit (in cash and kind) to small- scale farmers for the purpose of farming ,(Abbot and Makeham 2009)there is no doubt about the crucial roles of credit in economic development. In Nigeria, agricultural credit has long been identified as a major input in the development of the agricultural sector. One of the reasons for the decline in the contribution of agriculture to the economy is lack of a stable national credit policy and paucity of credit institutions which can assist farmers, Rahji 2000).According to Rahji (2000) credit or loan able fund (capital) is viewed as more than just another resource such as labour land, equipment and raw materials  Shepherd (1979) opined that from its ability to energize or motivate credit determines access to all of the resources on which farmers depend.Credit can be considered from its ability to energize or motivate other factors of production. It can make the latent potential or underused capacities functional. In such situation, credit acts as a catalyst or elixir that activates the engine of growth, enables it to mobilize its inherent potentials and to advance in the planned or expected direction.

Agricultural credit as noted in the literature( Gandhimathi,2006) is one of the pre-requisites for farmers to increase the agricultural output in the process of agricultural development of a country. According to Ololade and Olagunju 2013) agricultural credit is very important for sustainable agricultural development to be achieved in any country  of the world.Rural credit has proven to be a powerful instrument against poverty reduction and development in rural areas. Farmers are particularly in need of such instrument (i.e. credit), because of the seasonal pattern of their activities and the important uncertainty they are facing. Agricultural credit enhances productivity and promotes standard of living by breaking vicious cycle of poverty of small scale farmers. Imoudu and Onaksapnome (1992) contended that agricultural loan is a crucial input in small holder agriculture because it enables small scale farmers to establish and expand their farms as this would increase their income and ability to repay loan. Farmers need credit to meet the fixed capital requirements for creating adequate infrastructure to adopt new strategy of production and also to meet the variable expenses Modi and Raj (1999) and thus enhanced the demand for agricultural credit. The increased demand for agricultural credit can be met by a systematic expansion of rural credit system (Kumar et al., 1987). Farmers access to credit facilities is supported to be an accelerator of agricultural development through a wide spread break away from traditional technology and by fostering the generalized adoption of developed and improved technology (Bolarinwa and Fakoya, 2011), Flores (2004)corroborating this assertion “stated that institutional credit if made available to farmers could ameliorate some of the farmers problems such as small farm size, low output, low income and low social –economic status. It can also relieve farmers of the excessive interest impose on them by the informal creditors who usually charge high interest rate of between 100-300 percent per annum. Based on the above consideration and the vital role of credit in agricultural development, government initiated different policy measures for extending financial assistance to small-scale farmers through a farm credit scheme at low interest rates. Some of the credit institutions established are the: Agricultural Credit Guarantees Scheme; Nigeria Agricultural Insurance Scheme; Rural Banking Scheme; Agricultural Credit Corporation; Cooperative Thrift and Credit Society (Bolarinwa and Fakoya, 2011).

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It has been confirmed that a well-managed institutional credit scheme aided agricultural development while poorly managed credit programme has been instrumental to agricultural stagnation in many developing countries, Alati et.al 2007) these farm credit schemes have been functioning for many years; it has therefore become pertinent to ascertain their impact on the beneficiaries.

One of the reasons for the decline in the contribution of agriculture to the economy of Nigeria is the lack of a stable national credit policy and paucity of credit institutions which can assist farmers. Afolabi2008)Credit is an important instrument for improving the welfare of the poor directly through consumption smoothening that reduces their vulnerability to short term income. It also enhances the production capacity of the poor resource farmers through financing investment in their human and physical capital. There is no doubt that in recent times, considerable interest has been shown by agricultural economists, planners, policy makers, agribusiness managers, agriculturists, and financial institutions on the need to pay more attention to farmers in Nigeria. This deserved attention is a call from the conviction that in the short-run, Nigeria can rely on farmers to supply the bulk of the food and raw materials for our industries to feed the rapid growing population in Nigeria ezeh 2003) One of the main objectives of any government is to strive to become self reliant in food production. In pursuance of this, credit schemes are put in place to increase the access of small scale farmers to credit facilities so that food and cash crop production would be increased, according to ojo1998),one of the problems confronting small-scale enterprises including farmers in Nigeria is inadequate capital despite the fact that small -scale farmers produce the bulk of the food consumed locally and some export crops which generate foreign exchange to the country. This situation has attracted attention of Nigerian Government and this has led the federal government of Nigeria into the creation of specialized institutions such as the Nigeria Agricultural Cooperative Bank (NACB) which later translated into the Nigeria Agricultural Cooperative and Rural Development Bank (NACRDB) to cater for credit needs in the agricultural sector (Oladebo and oladeebo 2008). Government had also mandated the commercial banks in Nigeria to earmark a chunk of their profit as credit facilities to the agricultural sector of the country.

Despite the contribution of farmers to the country’s economy, majority of them in Nigeria are considered credit unworthy by most formal credit institutions and still deny the farmers access to their services. This posture is premised on the feeling that most farmers are low income earners and cannot pay for collaterals; their low saving capacity; illiteracy among others. On the part of the farmers, loans are not disbursed timely; high interest rate and complex application procedure are most recurrent (Adegbite 2009).

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Generally, studies have shown that small holder loan schemes are constrained by poor loan repayment and this has been attributed by many factors, one of which is “attitudinal” as smallholder farmers regard government – funded credit as their own share of the “national cake” and are always reluctant to repay loans. Other factors are high incidence of loan diversion and occurrence of natural hazards. As such, every effort which encourages loan default among borrowers ought to be reversed because of its adverse affects. (Adegbite 2009). On the basis of emerging scenario, the need to examine the determinants of institutional credit repayment performance among farmers becomes imperative.

2.1.2 Organizational Factors Affecting Loan Repayment Capacity of Farmers

Extant  literature is replete with organizational factors affecting loan repayment capacity of farmers. According Oladeebo (2008), organizational  factors such as Group meetings,Group training,Group pressure, Group sanctions, membership experience, on agricultural production, annual net farm income, age, farm size cultivated, farming experience with credit use, and level of education influencing loan repayment among small-scale farmers.

References:

Impact of Financial Intermediation on the Real Sector of Nigeria
Repayment performance of beneficiairies of Ogun State Agricultural and Multi-Purpose Credit Agency (OSAMCA) in Ogun state, Nigeria (2004-2007)
DETERMINANTS OF LOAN REPAYMENT AMONG COOPERATIVE FARMERS IN AWKA NORTH L.G.A OF ANAMBRA STATE, NIGERIA
Apart from the aforementioned other factors affecting loan repayment capacity of farmers, such as management, staff, input supply and production inputs, membership strength, financial problems, educational status, administrative status,  proximity of banking institutions, loan procedure, timeliness of loan processing, repayment period, collateral value, monitoring/supervision, loan size, interest element, transactional cost etc.

2.2 Theoretical Framework

This study is built on the theory of Financial Intermediation (Dawbor 2009). It  help firms to overcome the problems of moral hazard and adverse selection and this reduces the costs of external financing; as well as the transaction costs in general The theory of financial intermediation

markets) playing a pivotal role in economic development, attributing the differences in economic growth across countries to the quantity and quality of services provided by financial institutions. Supporting this view is the result of a research by Nwaogwugwu, (2008) and Dabwor, (2009) on the Nigerian stock market development and economic growth, the causal linkage. who argued that “financial markets are essentially hand maidens to domestic industry, and respond passively to other factors that produce cross–country differences in growth. Moreover there is general tendency for supply of finance to move along with the demand for it. The same impulse within an economy, which set enterprises on foot, makes owners of wealth, venturesome and when a strong impulse to invest is fettered by lack of finance, devices are invented to release it. The Robinson school of thought therefore believes that economic growth will bring about the expansion of the financial sector. In pursuance of this, credit schemes are put in place to increase the access of small-scale cooperative farmers to credit facilities so that food and cash crop production would be increased.  one of the problems confronting small-scale enterprises including farmers in Nigeria is inadequate capital despite the fact that small scale farmers produce the bulk of the food consumed locally and some export crops which generate foreign exchange to the country. This situation has attracted attention of Nigerian government and this has led the federal government of Nigeria into the creation of specialized institution such as the Microfinance Bank to cater for credit needs in the SMEs and agricultural sector (Oladeebo, 2003). Government had also mandated the commercial banks in Nigeria to give credit facilities to the agricultural sector of the country.

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Thus, in Nigeria, in order to increase agricultural production and hence increasing food self sufficiency there is the need to pump more capital into agricultural sector. Availability of adequate and timely credit will help in expanding the scope of operation and adoption of new technology as well as enhancing the purchase and use of some improved inputs which are not available on the farm. Repayment problem has been the major challenge of these farmers in accessing credit from this institutions. Hence, a study of the factors influencing it loan repayment.

2.3 Review of Related Empirical works

The review revealed that there are many factors that influence repayment of credit. Oladeebo (2008) examined socio-economic factors such as amount of loan repaid, amount of loan collected and spent on agricultural production, annual net farm income, age, farm size cultivated, farming experience with credit use, and level of education influencing loan repayment among small-scale farmers in Ogbomoso agricultural zone of Oyo State of Nigeria. Among them amount of loan obtained by farmers, years of farming experience with credit use and level of education were the major factors that positively and significantly influenced loan repayment.

However, age of farmers influenced loan repayment negatively but significantly. At the end it was concluded that for increase in agricultural production, further disbursement of loans should be targeted at young and better-educated farmers who are more likely to adopt new innovations in agricultural production than their older Counterparts. Data was collected from 100 farmers from 10 villages in 2 Local Government Areas from the zone through multistage random sampling techniques with the help of structured questionnaire and were analyzed using descriptive Statistics and Ordinary Least Square multiple regression analysis.

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