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PROJECT TOPIC- DETERMINANTS OF CREDIT REPAYMENT CAPACITY OF SMALL HOLDER FARMERS’ LOAN BENEFICIARIES IN OHAUKWU L. G. A OF EBONYI STATE

PROJECT TOPIC- DETERMINANTS OF CREDIT REPAYMENT CAPACITY OF SMALL HOLDER FARMERS’ LOAN BENEFICIARIES IN OHAUKWU L. G. A OF EBONYI STATE

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Credits play a vital role in agricultural transformation and rural development. Agricultural or farm credit 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, 1998).

The need for credit 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). Various empirical studies have concluded that without the development and adoption of new agricultural technologies and the use of credit facilities, it is impossible to expect rapid growth of agricultural productivity.

However, with the introduction of new production technologies, the financial needs of farmers increase manifold (Mohammad, 2009). Steady agricultural development depends up on the continuous increase in farm investment. Most of the time, large investment cannot be made by the farmers out of their own funds because of their low level of incomes. Thus, here comes the importance and significance of the availability of rural credits to bridge the gap between owned and required capital (Gebrehiwot, 2007).

However, credit 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 credit is an indispensable tool for achieving socioeconomic 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., 1989).

In Nigeria, the acclaimed importance of credits 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). There is no doubt about the crucial roles of credit in economic development. But the increasing default rate is one of the major problems of the lending institutions (Mohammad, 2009).

In the case of credit acquisition and management, Rhaji (2000) observed that lack of adequate, accessible and affordable credit 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 credit 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 credit institutions are becoming more reluctant to extend loan to smallholder farmers in their need of the facility (Afolabi, 2010; Olagunju and Adeyemo, 2007). In Nigeria, governments at different levels had at different times been involved directly or indirectly into provision of small to large-scale financial assistance to farmers as a major policy strategy for increased agricultural productivity (Udoh, 2008). Various schemes, programmes and institutions had been put in place to enable smallholder farmers have access to financial services. According to Udoh (2008), the practices of micro credit schemes had been celebrated in many government circles as poverty reduction-focused programme.

PROJECT TOPIC- DETERMINANTS OF CREDIT REPAYMENT CAPACITY OF SMALL HOLDER FARMERS’ LOAN BENEFICIARIES IN OHAUKWU L. G. A OF EBONYI STATE

1.2 Problem Statement                                

There is every need to boost production through allowing farmers to access financial services from formal and informal financial institutions as this will assist in boosting agricultural productivity. (Afolabi, 2010) argues that, whether default is random and influenced by erratic behavior or whether it is influenced by certain factors in a specific situation, there is a need for an empirical investigation so that the findings can be used by credit lenders to manipulate their credit programmes for the better.

Although the farmers have shown some default problems as can be observed in their declining repayment rates .The need for agricultural loan among the small scale farmers cannot be over emphasized as it enables them to establish and expand their farms (Ojo, 1998). He further observed that 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 for them.

Despite the abundance of many literatures about repayment, there seem to be some gap in knowledge on the side of credit lenders on the factors that determine the repayment capacities of farmers. This study aims at seeking a better of understanding the determinant factors which affect credit repayment by farmers in Ohaukwu L.G.A of Ebonyi State. The need to pinpoint the major factors which a credit financial institution/individual(s) should consider to avoid or reduce loan default to barest minimum should be paramount to credit issuance.        

1.3 Research Objectives

The broad objective of the study is to analyze the determinants of credit repayment capacity of small holder farmers’ loan beneficiaries in Ohaukwu L. G. A of Ebonyi State.

          However the specifically objectives are to:

  • describe the socio-economic characteristics of small holders loan beneficiaries in Ohaukwu L.G.A of Ebonyi State
  • identify the major sources of credit accessed by small holder farmers
  • determine credit repayment capacities of small holder farmers in the area
  • identify the determinants of credit repayment capacity of the small holder farmers
  • analyze the effects of socio-economic attributes of farmers on their credit repayment capacity
  • identify the factors militating against farmers farm loan repayment capacity in the area.

1.4 The Hypothesis

          The following null hypothesis was statistically tested

H0: Socio-economic attributes of farmers have no significant effect on their credit repayment capacity.

1.5 Justification

The problems which credit pose to food production are on the tremendous increase as more food is lost on daily basis as a result of credit default. This work aims at challenging and providing g solutions to those who wish to understand about credit, its contribution on agriculture, factors that result to loan default and the possible mitigation measures in order to enable loan beneficiaries repay loans.

This work will provide information about the effect of credit default and as such will be a good source of information to the government in assisting the farmers on how to tackle this problem. Extension agents and workers will benefit from this work as it will be relevant for them to understand the problems which the farmers in all scale of production face.

PROJECT TOPIC- DETERMINANTS OF CREDIT REPAYMENT CAPACITY OF SMALL HOLDER FARMERS’ LOAN BENEFICIARIES IN OHAUKWU L. G. A OF EBONYI STATE

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