EFFECT OF CREDIT RATIONING ON THE PERFORMANCE OF SMALL-SCALE FARMERS IN NASARAWA STATE, NIGERIA
EFFECT OF CREDIT RATIONING ON THE PERFORMANCE OF SMALL-SCALE FARMERS IN NASARAWA STATE, NIGERIA
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Date
2021-03
Authors
AKU, Emmanuel Maganie
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Abstract
Access to credit has been identified as one of the key factors required to accelerate agricultural
growth and improve welfare of rural dwellers in developing countries.The credit market serving
agriculture in Nigeria is encumbered by operational and administrative inadequacies and the
discriminatory tendencies of financial institutions. The government has implemented policies to
redress the situation, but small-scale farmers have not benefitted from these incentives to any
reasonable degree. This makes it imperative to examine the factors circumscribing loan demand
and the various rationing mechanisms. This study examines the factors militating actual credit
access and the various rationing mechanisms and the effect of credit rationing on farm
household‘s productivity and investment. It seeks to (1) examine the nature of risks facing smallscale
farmer-borrowers in Nasarawa State, (2) analyze the factors that affect access to credit of
agricultural credit by farmers and highlight the key determinants of this access, (3) ascertain the
extent to which farmers are credit rationed and the factors influencing the rationing and how the
rationing affects both productivity and investment of the small scale farmers. The study employs
primary data obtained from 592 small-scale farmers through a survey conducted in 2018 across
the three senatorial regions of the state. Methodologically, the study extends the analysis of
credit rationing beyond quantity rationing and presents explicit econometric models for
analyzing the determinants of three types of credit rationing: quantity rationing, risk rationing,
and price rationing. The logit and probit regression models are employed to ascertain the determinants of credit access and credit rationing respectively. The effect of credit rationing on
farm household productivity and investments were also examined by identifying credit-rationed households based on direct elicitation of their credit-rationed status from survey questions about
restrictions on credit and an endogenous regression model was used to analyse the effect of
credit constraints on farm household performance.
The results show that credit market access was significantly influenced, among other variables,
by gender, monthly income, assets value, savings, repayment capacity and social capital,
indicating that security and guarantee is the main criterion lenders use in granting credit. In other
words, clients‘ credit risk profile plays a determining role in household credit accessibility. We
used logit model for the access to credit equation and the probit regression model to estimate the
determinants of households‘ credit rationed conditions. The results show that there is a higher
probability that farmers will be rejected than that they will be given a loan amount lower than
what was requested. It also shows that gender, age, land and asset ownership, strength of
previous relationship and social capital are significant in determining whether a household is
credit rationed. The effect of credit rationings on farm household productivity and investment
were estimated and we found that gender, geographical location, and marital status have no
statistically significant effect on the probability that farmers will be quantity rationed. The effect
of credit rationing on household productivity and investment which was estimated show that
credit rationed households have lower productivity and even investment compared to the
unrationed households. The results presented in this study therefore support the claims that
credits have an important role to play in rural farm production and additional rural finance can
enhance productivity and farm household investment, thus contributing to agricultural sector
development. To address the credit rationing challenges and improve demand for loans by smallscale
farmers, it is recommended that government and banks should mobilize resources and establish loan-monitoring committees at the grassroots level to serve as insurance against the risk
of loan default.
Description
A DISSERTATION SUBMITTED TO THE
POSTGRADUATE SCHOOL, AHMADU BELLO UNIVERSITY, ZARIA IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR AWARD OF PHD DEGREE IN
ECONOMICS
Keywords
EFFECT,, CREDIT RATIONING,, PERFORMANCE,, SMALL-SCALE FARMERS,, NASARAWA STATE,, NIGERIA