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Farmers Perception of Repayment of Loans

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© Kamla-Raj 2012

J Agri Sci, 3(1): 21-27 (2012)

Farmers’ Perception of Repayment of Loans Obtained from
Bank of Agriculture, Ogun State, Nigeria
I.F. Ayanda* and O. Ogunsekan**

Department of Agricultural Economics and Extension, Kwara State University, Malete, PMB
1530, Ilorin, Kwara State, Nigeria
Department of Agricultural Extension and Rural Development, University of Agriculture,
Abeokuta, Ogun State, Nigeria
Telephone: 08033737391; E-mail:

KEYWORDS High Interest Rate. Short Payback Period. Low Farm Productivity. Employment Generation. Loan Recovery
ABSTRACT This study examined farmers’ perception of repayment of loans in Ogun State, Nigeria. A multi-staged sampling technique was used to select 120 respondents for the study. Descriptive and Pearson Moment Correlation Statistics were used to analyze the data. Results showed that loan beneficiaries were mostly youth. Majority (74.8%) disagreed with the loan payback period of 7-12 months while 74.2% of the farmers perceived loans as grant (not payable). A significant and inverse relationship exist between interest rate (r = -.151; p ≤ 0.05), low farm output (r = -.113; p ≤ 0.05) and loan repayment; a linear relationship exists between age of farmers (r = .715; p ≤ 0.05) and loan repayment. The loans have the potential to create employment in the rural areas. Youth with repayment capability should be given priority in the issuance of loans to farmers.
Officials of Bank of Agriculture should strengthen loan recovery strategies.

Background to the Study
Nigeria is faced with the challenge of providing adequate food supply for its teeming population of 150 million. Food and Agricultural Organization (FAO) has consistently listed
Nigeria among countries that are technically unable to meet their food needs. This is because in most developing countries such as Nigeria, small- scale farmers dominate the agricultural sector of the economy. They are also very significant in world development with 50% of world’s population depending on them (Afolabi
2010). Nigerian farmers are confronted with myriads of problems, one of which is finance despite the fact that small-scale farmers produce the bulk of the food consumed locally and some export crops which generate foreign exchange for the country. The acknowledged factors of production include land, labor, capital and entrepreneurship. The land area of Nigeria is
923,770 kilometers square that is 92,377,000 hectares out of which about 76 million hectares are good for farming but less than half (33.49%) is currently being used for agricultural production (Nation Master 2012). Except for land tenure system, an average farmer in Nigeria is expected to have enough land for cultivation. Nigeria, before independence enjoyed a thriving agrarian economy.

The problem of Nigeria agricultural sector started with the neglect of this sector as Nigeria became a mineral oil economy in the 1970s. The rate of population growth (3.6%) outstripped the growth rate in food production (2.4%) resulting in dangerous widening gap between food supply and population to be fed (Ingawa 2005).
Prior to independence in 1960, agriculture contributed 70% of the Nigeria Gross Domestic
Product (GDP) and by 1996 it contributed 55
%. Her contribution since then has consistently declined. Presently, the sector contributes 41% of the nation’s GDP. The reason for this continuous decline was associated with the decrease in the per-capital income of the nation and lack of a stable national credit policy and paucity of credit institutions which can assist farmers
(Rahji 2000). According to Rahji (2007), credit or loanable capital is viewed as more than just another resource such as labour, land, equipment and raw materials. Shepherd (1979) opined that credit determines access to all of resources on which farmers depend. Hence, it can make the latent potential or under used capacities functional.
The income level of households in Nigeria is relatively small in relation to the capital required for agricultural production. The World
Bank Human Development’s report in year 2000 ranked Nigeria among the poorest twenty-five
(25) countries in the world (Afolabi 2010). This consequently affects the availability of capital

22 for agricultural production. There is no doubt that credit can improve productivity, income and welfare of rural people. It will definitely alleviate seasonal needs for working capital or the problem arising from crop failure, sickness within the families or unexpected social commitment (Ajakaiye 1998). Ojo (1998) reported that 66.99% of small scale farmers in Nigeria used their loans on farm operations such as hired labour, purchase of implements, fertilizer, seeds and other farm inputs while 31.07% of them utilized their loan for household purpose such as paying for children education and medical treatment. Adebayo and Adeola (2008) reported that farmers relied on loan from informal sources with cooperative societies being the most popular source. The report indicated that payment for labour wages consumed the larger percentage of the credit obtained by most of the farmers. Furthermore, Fakayode et al. (2010) reported that the loan beneficiaries were young and the sum disbursed to each beneficiary was small resulting into low gross margin from cropping activities. In addition loan was not timely granted while the efficiency of methods employed by the bank as regard to loan supervision was scored low. Therefore, a need for credit for agricultural purposes was essential. In pursuance of this, credit schemes were put in place to increase the access of farmers to credit facilities so that food and cash crop production would be increased. One of the schemes is the Nigerian Bank of Agriculture formerly known as
Nigeria Agricultural Cooperative and Rural
Development Bank (NACRDB) to cater for credit needs in the agricultural sector (Oladeebo
2003). It will be recalled that NACRDB came into existence following the successful merging of the former People’s bank of Nigeria (PBN), the defunct Nigeria Agricultural and Cooperative Bank (NACB) Ltd. and the Family Economic Advancement Program (FEAP) in October, 2000 (FGN 2000). The Bank of Agriculture is the single largest development finance institution in Nigeria. Thus it is dedicated primarily to agricultural financing at both macro and micro levels, as well as micro financing of small and medium scale enterprises. The mandates of BOA according to NACB (1973) are to: • provide all classes of agricultural loans for farming: livestock, poultry and fishery etc.,
• accept savings from individuals and cooperative societies and to make repayment


of such savings altogether with appropriate interest, • encourage the formation of cooperatives,
• encourage good banking habit among
Nigerians especially the target groups,
• encourage capacity building through the training of beneficiaries on proper loan utilization, • pursue repayment of loans, and formation of strategies for the profitable marketing of products.
The government also mandated commercial banks in Nigeria to give credit facilities to the agricultural sector of the country in order to expand the scope of farm operations, adoption of new technology, enhance optimal use of farm inputs and increase agricultural production and hence increase attainment of food self sufficiency. Unfortunately, in spite of the importance of loan in agricultural production, its repayment is fraught with a number of problems especially in the small holder farming. These include the process of loan acquisition, terms and agreement, loan components, disbursement plans and repayment plans, farming experience, farm size, gross farm income, interest rate, farm output and recently the factors of climate change are but a few to mention. The poor repayment of loan has affected so many financial institutions to the extent of causing them to liquidate. Over the years, farmers have been found to be insensitive, resolute and unresponsive on repayment of agricultural loans acquired from banks
(Oladeebo 2008). Little is known about the socio-economic factors affecting loan repayment as most farmers either willingly or unwillingly refrain from paying back (Awoke 2004).
Loans obtained from these credit institutions become burdensome to borrowers and seem irresolute to the credit institutions. Armah and
Park (1998) opined that unless substantial recoveries are made from overdue debts, not only will lending institutions be unable to issue out further loans, there might also be difficulties in meeting legal obligations. Therefore, for easy accessibility of loans by farmers regular repayment of loans is important.
It was therefore necessary to constantly update position and feelings of farmers towards loan repayment. The research questions include, what are the socio-economic characteristics of the farmers involved in the loans? What are the farmers’ perceptions of the terms of loan repay-



ment stipulated by The Bank of Agriculture?
What are the farmers’ perceptions of loan repayment?
Objectives of the Study
The objectives of the study were to: investigate the socio-economic characteristics of the farmers who obtained loan from
Bank of Agriculture, Abeokuta, Ogun State,
• examine farmers’ perception of the terms of loans’ repayment.
• investigate farmers’ perception of repayment of loans.
The outcomes of the study will assist to understand farmer’s situation and position affecting repayment of loans and formulate guidelines for loan repayment by policy makers and credit institutions in the country. The following hypotheses were tested: There is no significant relationship between interest rate and loan repayment by farmers in the study area. There is no significant relationship between farm output and loan repayment by farmers and there is no significant relationship between age and loan repayment by farmers.

Study Area
The study was carried out in Ogun state, Nigeria. The state lies between longitude 2o 45’ and 3o 55’E and latitude 7o 01’ and 7oN and characterized by two climatic seasons. These are the dry season between November and March and the rainy season between April and October. It is made up of twenty Local Government Areas with a population of about 3,728,098 comprising 1,847,243 males and 1,880,855 females
(NPC 2006). It covers a land area of approximately 16,406.226 square kilometers (that is
1,640,622.6 hectares). The state is bordered by
Atlantic Ocean to the south, Ondo state to the east and Oyo state to the north. About 60 percent of the inhabitants of the study area engage in farming. They grow both permanent and food crops while some of farmers diversified into poultry and fish production. Farmers in the state are predominantly small scale.
The target population for the study were farmers who obtained loan from Bank of Agri-

culture Limited (BOA) in the 2009/2010 farming season in the twenty LGAs of the state namely: Abeokuta North, Abeokuta South, AdoOdo/Ota, Egbado North, Egbado South,
Ewekoro, Ifo, Ijebu East, Ijebu North, Ijebu
North East, Ijebu Ode, Ikenne, Imeko-Afon,
Ipokia, Obafemi-Owode, Ogun Waterside,
Odeda, Odogbolu, Remo North, Shagamu. It was from this sample frame that the respondents for the study were selected. A multi-stage sampling technique was used to select 120 farmers from four Local Government Areas (LGAs) of state, Nigeria. The first stage was the random selection of one (1) LGA from each of the 4
Agricultural zones (Yewa, Remo, Abeokuta,
Ijebuode) of the state. These are Abeokuta South,
Ipokia, Remo North, and Ijebu Ode LGAs. The list of farmers that obtained loan from Bank of
Agriculture (BOA) Ltd. in 2009/2010 farming season were compiled with the help of officials of the BOA Ltd. operating in the study area .
The list was used for the second stage of the random selection of 20,30,40 and 30 farmers from Abeokuta south, Abeokuta north, Odeda and Obafemi Owode LGAs respectively. These farmers represent 30% of the loan beneficiaries in each LGA. One hundred and twenty (120) copies of structured interview schedule were administered with the assistance of the officials of BOA and the researchers. Both descriptive
(frequency count, percentages and tables) and inferential (Pearson Moment Correlation) statistical tools were used to analyze the data collected.
Socio-economic Characteristics of
The result of the study (Table 1) revealed that
45.8 percent of the respondents were between
31-40 years of age while 36.7 percent of them were between 41-50 years of age. The mean age of the respondents was 39.36 years. Analysis indicates that majority of these respondents belong to the group classified as youth (Akangbe
2003). The finding also agreed with Fakayode et al. (2009) who reported that most of the beneficiaries of a credit scheme in Ekiti State, Nigeria were mostly youth. Youth are venturesome, can take risk, highly travelled and adopt innovations. These could explain why majority of

24 the loan beneficiaries were youths. This age bracket can have a positive effect on their productivity and hence their loan repayment capacity ceteris paribus. Analysis also revealed that
61.7 percent of the respondents were males while
38.3 percent of the farmers were females. The proportion of the females’ beneficiaries was higher than females (7.65%) who benefitted from a similar loan scheme in Oyo State (Afolabi
2010). This was an indication of better participation of females in agricultural ventures and access to production resources. Analysis also revealed that 85.5 percent of the respondents were married. This may contribute to the labour requirements on the farms as most of the farm operations are labour intensive (Ismailla 2010).
Thus, wives and children can serve as cheap source of labour which may lead to increase in their farm size, adoption of innovations and the overall level of farm productivity. This can translate into higher level of incomes to the farmers hence higher loan repayment capacity. The table also revealed that 53.3 percent of the respondents had tertiary education while 84.2 percent of the respondents had farm training. However, close to half of the respondents (44.2%) acquired agricultural training from Farm Institute while
21.7 percent and 34.1 percent of the farmers acquired farm training through extension agents and workshop respectively. Furthermore, the finding agreed with Nweke (1982) who reported that education provides a favourable atmosphere for awareness of innovations. In addition
Sharada and Knight (2000) reported that schooling provides externality benefits by shifting production frontier outwards and that education is important to the timing of adoption. Furthermore, the finding agreed with Ekoja (2004) who reported a significant difference among farmers in the adoption of innovations on account of educational qualification. The formal educational profile and farm training experiences of the farmers adequately exposed them to the importance of credit to farming operations. This has implications on their involvement in agricultural development activities such as the loan scheme since they can access information through print, electronic and professional associations meetings and workshops. In addition respondents’ level of literacy can have positive effects on adoption of agricultural technologies and enhance ability to pay back loan within the stipulated payback period. This confirms the finding Oladeebo (2008) that level of education


attained was one the major factors that positively and significantly influenced loan repayment.
The result also showed that more than half
(58.3%) of the respondents cultivated 2 – 4.9 hectares while the average farm size of the respondents was 3.32 hectares. This shows that the loans have assisted the respondents to greatly increase their farm size well above the national average farm of 0.57 hectares reported by
Ingawa (2005). According to a prior, an increase in hectarage of farmland would lead to a higher level of income resulting from higher level of production and hence a higher potential to repay back the loans.
Table1: Distribution of the respondent according to their socio-economic characteristics
21-30 years
31 – 40 years
41 – 50 years
51 years and above
Mean (years)
Marital Status
Educational Status
No education
Adult education
Primary education
Secondary education
Tertiary education
Household Size
Mean (Numbers)
Farm Size (Hectares)…...

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Fundamentals of Loan

...1. Fundamentals of Loan Analysis 1.1 Objectives and Methods of Loan Analysis Loan analysis is to ensure that loans are made on appropriate terms to clients who can and will pay them back. What analysis is needed and what is the most efficient approach to fulfill that need is primarily determined by the type and nature of the loan. • Objectives of Loan Analysis • To place good and appropriate loans -- can the loan generate income for repayment and will the client repay • Determine eligibility of the applicant -- is he/she eligible according to the the program criteria • Training needs and skills -- to assess the training needs and develop the financial management skills level of the client. (This is the basic principal of programs that integrate their credit and training methodologies.) • Program Indicators -- loan analysis may also be used to generate the indicators that will be used to evaluate the impact of the loan. 1.2 What Analysis is Needed? How do we determine what is needed to adequately analysis a loan? What type of information is critical? Some types of loans require more thorough analysis than others. Larger, long-term loans for fixed assets require more thorough analysis than short-term working capital loans. For individual loans, loan analysis and follow-up visits provide most of the guarantee for the institution and thus the analysis is necessarily more extensive. Group loans transfer most of this responsibility to the......

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