Evaluation of Microfinance Bank Lending to Agriculture in Imo State Nigeria

Abstract

The study was an evaluation of microfinance bank lending to agriculture in Imo State, Nigeria. The specific objectives of the study were to (i) to analyse the institutional features of the microfinance banks in the study area (ii) analyses the socioeconomic characteristics of the loan beneficiaries, (iii) determine the amount of credit supplied by microfinance banks to farmers and their repayment performance, (iv) determine the factors influencing credit supply by microfinance banks to farmers, (v) determine the factors influencing credit repayment by agricultural loan beneficiaries of microfinance banks, (vi) determine the efficiency of microfinance banks loans to agriculture in the study area, (vii) determine the deposit portfolio of the microfinance banks in the study area, (viii) analyze the strategies employed by microfinance banks to guard against loan default by farmers and, (ix) analyze the major constraints affecting the performance of microfinance banks in lending to agriculture in Imo state. Two null hypotheses were formulated in line with the specific objectives. Both purposive and simple random techniques were used in the study. The purposive selection was based on the microfinance banks which had high level of agricultural lending. Out of 47 microfinance banks in the three agricultural zones of Imo state, 26 microfinance banks were randomly selected and used for the study. A sampling frame of 194 agricultural loan beneficiaries was obtained from the microfinance banks‟ list. From this list, 136 beneficiaries were selected through simple random sampling and this formed the sample size for the beneficiaries. A set of questionnaire was administered on the bank official while the other set was administered on the 136 loan beneficiaries. Data were analyzed using descriptive statistics, multiple regression analysis and tobit regression analysis. The result of this study indicates that the mean amount of credit supplied by microfinance banks to farmers was N163212.50. The overall repayment performance was 67.20% resulting in a default rate of 32.80%. The result of the multiple regression showed that the variables for average farm income (X4), loan period (X5), gender (X6) and distance (X7) were significant at 1% and 5% levels and are important factors influencing credit supply by microfinance banks in the study area. The to bit regression showed that variables age (X1), grace period (X6), education (X9), dependency ratio(x10), and collateral (X12) were significant at 1% and 5% levels of significance and are important factors influencing loan repayment performance of the farmer beneficiaries in the study area. A mean efficiency index of 0.06 was obtained showing that 6% of microfinance banks interest was spent on loan recovery while 25.78% of the interest was intact. The result of hypothesis showed that microfinance banks are efficient in their lending to agriculture. It was also discovered that the microfinance banks had a mean deposit portfolio of N121, 653,840.00 out of which they lent 163,212.50 to farmers in the study area. It was also observed that the geographic spread of microfinance banks in Imo state tilted towards the Orlu agricultural zone while Okigwe zone experienced the lowest spread and was therefore recommended that all concerned agencies should increase the number of microfinance banks in that area in order to extend credit facilities to small scale farmers, improve infrastructure and increase deposit mobilization. It was recommended that microfinance banks should review their policies as they affect the amount disbursed to farmers to make it adequate. Furthermore, age, education, dependency ratio collateral, grace period and other key issues in the study played vital roles in repayment performance, it was recommended that microfinance banks emphasize on them in designing loan schemes as it affects farmers. Since microfinance banks were efficient in their lending to agriculture there is need for them to make policies on agricultural lending in order to increase access to loan beneficiaries.