Informal Loan Demand and Repayment Potential of Farmers in Ohafia Local Government Area of Abia State, Nigeria

Osondu C. K.; Ijioma J. C.; Udah S. C.

doi:7060215

The study analyzed informal loan demand and repayment potential of farmers in Ohafia Local Government Area of Abia State with specific focus to: describe socio-economic characteristics of farmers who procure loan from informal financial sources; examine amount of credit demanded by farmers, vis-à-vis disbursement and repayment in informal credit institutions; determine factors influencing informal loan repayment in the study area; determine loan repayment potentials of farmers; identify problems encountered by farmers in their demand for informal credit. Multistage random sampling technique was adopted in the selection of 120 informal farmer borrowers from whom data were elicited using semi structured and pretested questionnaire. Analysis of data was done using descriptive statistics, ordinary least square (OLS) multiple regression analysis and discriminant function analysis. The first result of the OLS multiple regression analysis showed that amount of informal credit demanded was significantly influenced by years of borrowing, interest rate, household size and age. The second OLS multiple regression analysis result revealed that amount of informal loan repaid was significantly influenced by gender, distance between home and source of credit, household size, interest rate and farm income. The result of the discriminant function analysis revealed that education, farming experience, farm income, distance between home and loan source, gender and farm size made positive contribution to the total discriminant score, while, age, loan period and amount borrowed contributed negatively. It was observed that majority (85.0%) of the farmers faced problem of high interest rate as a constraint to informal credit demand in the study area. The study recommended that the problem of high interest rate of informal credit institutions should be addressed by the government. This will enable the indigent farmers to access and patronize informal credit institutions available to them.

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