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Agricultural Credit Repayment Preference among Rural Farmers in Some Rural Communities in Kogi State, North-Central Nigeria

Ugbede Victor Ahiaba

Department of Agricultural and Environmental Engineering, University of Agriculture, Makurdi-Nigeria

Abstract: Credit repayment is one of the challenging aspects of agricultural financing, especially in rural communities of developing country like Nigeria. Some of the challenges for any credit provider include lack of tangible collateral among the farmers and the difficulty involved in predicting farmers’ creditworthiness. This study examined repayment preferences among the rural farmers in some selected communities in Kogi State-Nigeria. A total of 100 active farmers were engaged for ten years and were provided with credits in the form of farm inputs (fertilizers, improved seedlings and pesticides). The farmers were divided into two sets: one set to repay input credits received with cash while the second set was to repay with ten per cent of harvested crop for which they received the inputs. The result shows a significant difference in credit repayment preference between the two sets of farmers. The set that repaid with ten per cent of the harvested crops were found to have performed better (measured by the rate of defaults) than the set that repaid with cash equivalent. Therefore, a localize agricultural financing system with the cash and kind repayment options, is recommended for these communities, and similar other communities in Nigeria.

Keywords: cash, community financing, farm inputs, farm produce, Kind

Received October 02, 2018; Revised November, 21, 2018; Accepted December 27, 2018

Citation: Ugbede Victor Ahiaba, Agricultural Credit Repayment Preference among Rural Farmers in Some Rural Communities in Kogi State, North-Central Nigeria. American Journal of Rural Development, 7 (1). 1-5. January 2019. doi:10.12691/ajrd-7-1-1

1. Introduction

There are numerous reasons to focus on the development of Sub-Saharan Africa (SSA), especially Nigeria along sustainable agriculture. First, the region is recognised as having one of the world’s most underutilised agricultural lands [1]. Secondly, it is rich in alluvial soils with many people available to make a living from agriculture. Thirdly, the vegetational condition of Nigeria is in three unique folds-tropical/mangrove in the South, Guinea Savannah at the middle belt and then the Sahel/Sudan Savannah towards the extreme north, hence allowing cultivation of diverse crops. Rainfall is sufficient for most plants, supported by Fadama (drying season irrigation farms) in some communities in Nigeria. More so, the smallholder farmers activity has been identified to play a pivotal role in food security of Nigeria generating up to 60 per cent of employment and contributing to Gross National Income (GNI) [2].

However, wealth distribution among the population is hugely uneven. The rural farmers appear to represent the poor people, using every world standard. By the population and poverty statistics of the location of study, approximately 80 per cent of the population reside in the rural areas, and out of this eighty percent, only 0.5 per cent are not farmers, and 98 per cent of the people living in rural areas are living below international poverty line (based on purchase power parity) [3]. On the national scale, 49.1 to 69 % of Nigeria’s population (89 to 112 million) people were reported to be living below the international poverty line as at 2017 [4,5]. The economic growth does not reflect on most citizens, hence the poor indicators on the standard of living [6].

From the global perspective, the wealthiest twenty-four countries of the world have about ten per cent of the population but produce 45 per cent of the world’s [foods]. The poorest fifty accommodates one-third of the world’s population but grows just 5 per cent of the world’s foods [7].

Meanwhile, by the size of Gross Domestic Product (GDP), Nigeria was ranked 31st by the International Monetary Fund in 2017 [8] 30th by the World Bank in 2017 [9] and 27th in 2016 by the United Nations (UN) [10]. The per capita income for Nigeria in 2017 was USD 2,175 (dividing the GDP by the population as of 2016), but most farmers in Nigeria live below the poverty line of $1.90, based on purchasing power parity (World Bank, 2016), because of the uneven distribution of wealth and income [11]. The “high” GDP rank notwithstanding, many are living below the world’s poverty line. This research believes that farmers constitute a large proportion of the poor population of Nigeria.

Most importantly [7] gave some explicit connections between low income and the menace of poverty, hunger/ ndernutrition, food and wealth distribution, including the life expectancy of the people and quality of life.

One of the critical areas that cause low income among rural farmers is the poor or lack of agricultural credit to support agricultural production and enterprise. Also, tackling the problem of the farmers’ creditworthiness and repayment capability, even when the loan is available, is often a challenge. Therefore, credit repayment remains a vital issue in agricultural credit financing, to enhance the production and income of rural farmers.

Among the rural farmers all over the world, access to the credit is often limited [12], and worse for developing countries like Nigeria and the rest of African countries. The difficulty for credit providers is in good numbers, chief among which is the inability of the credit providers to quantify the creditworthiness of the rural population. Other challenges faced by credit agencies include weak institutions to enforce the credit agreement [12] thereby increasing the rate of defaults. Lack of traceable address and farmers’ difficulty in parting with their money when due, is a challenge. According to the Bank of Agriculture in Nigeria, some farmers would collect the credits, and move elsewhere, to avoid repayment [13].

Therefore, production is limited, even when farmers know about an agricultural technology or input (e.g., fertiliser, improved seeds), and its proﬁtability, adoption could be hindered by limited ﬁnancial means or access to credit [12,14]. Technically, the repayment preference or options could determine the level of compliance and the rate of default. Perhaps, an alternative repayment model was possible.

This study, therefore, attempts to understand the credit repayment preference among rural farmers in Dekina, Ankpa and Omala local government council of Kogi State, Nigeria. The research objective was to give the farmers the option of repaying agricultural credit received in the form of inputs, with cash value or with the harvest with which they received the inputs to produce. The study is framed with the following null hypotheses as:

i) There is no difference between the rate of defaults for married and unmarried (singles) participants; (ii) There is no difference in repayment preference among rural farmers in some communities in Kogi State, Nigeria.

2. Methodology

This study span through ten years-from May 2008 to May 2018. A mixed method approach was used. One hundred farmers were randomly selected from three local councils, covering ten (10) communities. In each community, ten farmers were contacted, registered for the Inputs Financing Scheme (IFS), henceforth referred to as The Scheme. It began with the farmers receiving training on the aim and prospect of The Scheme in simplest term possible: farm inputs are provided at X amount at zero per cent interest rate, and X amount of repayment was expected at the end of the farming season. Fertilisers, improved seedlings and pesticides were the three inputs provided, with the price of the three inputs lumped into one as “Input Cost” for which each farmer would have to sign and agreed to before they can access it. The seedlings were obtained from renowned agricultural research institutes and organisations in Nigeria, while the fertilisers were obtained from reliable Agro-dealers in Benue and Kogi State of Nigeria.

The Scheme agreed with 50 of the farmers (five farmers from each of the community) to repay the cost of The Inputs with cash while 50 others (Again, five from each of the community) were to repay with their harvests (or repay in kind). For those repaying in kind, for all crops cultivated by the farmers, mainly maize, rice, cassava and yams, ten per cent of the total harvest was demanded in their raw form as repayment. The farmers who were to repay with cash were to do so by repaying the exact amount in cash, not factoring the effect of inflation or other of such factors that may affect the original amount. The aim was to know the credit repayment preference among the rural farmers and to estimate the level of compliance with the credit and repayment terms. Each farmer had a file for record keeping. The rate of default was compiled annually.

After five years (2013), there was a switch between the repayment format (cash or kind) for the two sets of farmers. Those who were repaying with cash were requested to sign a new agreement to repay with the outputs from the farm (that is, in kind) while those who were earlier repaying with outputs (in kind) were to repay with cash.

Sadly, during the period of this research, 17 members of the initial 100 farmers the research began with, passed on. They were however replaced with other farmers from the same community. In some few cases, some of the deceased farmer’s next of kin, (as obtained on record at the beginning of The Scheme) continued with The Scheme.

While several social results were generated, the results presented here are those that focused only on repayment preference that works best for rural farmers in the local communities of interest.

2.1. What Constitutes a Repayment Default?

In this study, a credit repayment default occurs when a credit user or borrower failed to meet the repayment required on due dates, plus five reminders within a maximum of 30 days. In other words, each farmer was approached or reminded of the repayment for agricultural credits received at the beginning of the planting season. In some cases, some of the farmers repaid (in cash or kind) before the due date, however, others were approached a few times. Those who were not able to repay after five reminders, within 30 days, were registered as having defaulted. Those repaying with cash equivalent to The Input Cost (from this point onward called The Cash Farmers) and those repaying The Input cost with ten per cent of their harvests (henceforth called The Kind Farmers) were compared.

2.2. Testing the Difference

A t-test was used to determine the difference between the two sample means (the two set of farmers) with unknown variance. The results are presented in the next section.

3. Results

The results are presented here for the two sets of farmers involved in this study: Table 1, Table 2 and Table 3 show the gender of the participants, marital status, and age group respectively. Table 4 and Table 5 shows the gender balance within each set of farmers.

Table 6 and Table 7 below, shows the number of unmarried and married defaulters within The Cash and The Kind Farmers’ groups respectively. Note: Table 8 and 9 are the mean defaults for the first-five and the last-five years respectively.

Table 1. Gender of the Total Participants

Table 2. Marital Status of the Total Participants

Table 3. The Age Group of the Total Participants

Table 4. The Gender Balance of The Cash Farmers

Table 5. The gender balance of The Kind Farmers

Table 6. Unmarried and Married Defaulters within The Cash Farmers’ group

Table 7. Unmarried and Married Defaults within The Kind Farmers’ group

Table 8. Comparing the mean defaults between the two sets or groups for the first-five years

Table 9. Comparing the mean defaults between the two farmers’ group for the last-five years

3.1. Switching the Object of Repayment between the Two Set of Farmers

Recall that the researcher operated as an agricultural credit as any of such provider could have operated in such a rural and underdeveloped location. To the participants (farmers), the researcher was a credit provider. From 2013 to 2018, the researcher switched the credit repayment object, allowing The Cash Farmers group to repay in kind, while The Kind Farmers’ group in the first five years, could begin credit repayment with cash value, of the amount spent on The Inputs. After five years, the default rates among the farmers were counted and tabulated. The summary of the t-test results between the married and the unmarried participants within each set of farmers and between the two set of farmers, is shown in Table 10, below.

Table 10. Summary of the t-test to decide the difference between the two sets of farmers

4. Discussion of Results

Recall the null hypotheses: (i) There is no difference between the rate of defaults of the married and unmarried (singles) participants; (ii) There is no difference in repayment preference among rural farmers in some communities in Kogi State, Nigeria.

Table 1 and Table 2 shows gender and marital balances among the participating farmers. The reason for gender and marital balances was to improve result validity, considering all sides of the demographics. Table 3 shows the minimum and maximum age of the participants. The minimum age of 18 years was chosen to correspond with the “adult” age in the law of the federal republic of Nigeria. The maximum age of 55 was chosen to correspond with the average life expectancy of Nigerians. Within each group, the gender was also balanced as shown in Table 4 and Table 5.

Table 6 shows the performance of unmarried and married participants within The Cash Farmers’ group; and the t-test showed in Table 10, indicated a p-value less than 0.05 level of significance. Therefore, the repayment pattern between unmarried and married participants within The Cash Farmers’ group was significant at 95 per cent confidence level. That is, there is a significant difference in means, between repayment pattern of the unmarried and married participants. Therefore, the hypothesis is rejected.

However, the rate of defaults between unmarried and married participants within The Kind Farmers’ group (Table 7) was not different, as shown in Table 10 that the p-value is higher than the 0.05 level of significance, which means the values are the same. Therefore, the null hypothesis is accepted. There was indeed no difference between the means.

There is, however, a significant difference in the rate of defaults between the two sets of farmers in the firs-five years. From Table 8, the farmers who repaid input credit with a part of the harvest (The Kind Farmers), performed better in repayment than those who were repaying with cash (The Cash Farmers).

When the repayment preference or option was switched between the two groups (Table 9), above, there was a significant difference in the repayment defaults. The Cash Farmers (who were the former Kind Farmers) appeared to have performed poorly regarding credit repayment, when compared with the second group who were previously The Cash Famers (and performed poorly when they were repaying with cash). According to [15] unmarried people tend to save less and acquire fewer assets than the married ones. This could have also reflected in the repayment pattern as well. The married farmers were more committed to the repayment than the unmarried participants. Similarly, payment with a part of the harvest was the easier option for the farmers than handing in money. This in turn was easier for the married farmers than the unmarried ones.

5. Conclusion and Recommendation

The credit repayment preference among rural farmers in Kogi State, Nigeria, has been presented. The research ran through a period of ten years, within which two groups of farmers code-named, The Cash Farmers and The Kind Farmers, were given the option of repaying agricultural credits received (in the form of inputs), with either the exact cash equivalent or with ten percent of the farm produce for which they received the credit (inputs) to cultivate. From the t-tests, there was no significant difference in repayment between the unmarried and married farmers that repaid with a part of their produce. However, there was a significant difference in repayment defaults between the unmarried and married farmers who were repaying with money. Ironically, unmarried people appear to default more than the married participants.

In general, the default rate was higher with farmers who repay with cash than with farmers who repay with a part of their produce (10 per cent of output in their raw form).

The research, therefore, recommends a credit repayment system that provides the option for the farmers to repay with a part of their produce. This should be the standard for these and other similar communities in Nigeria. It was found that repayment with farm output was more comfortable for the farmers than with raw cash (base on default rates recorded). Though the researcher found out that the agricultural produce received as repayment returned a better profit, it however, made losses with perishable farm outputs like the tomato. The return on investment from grains (maize and rice) and tubers (yams and cassava) were better and favoured the credit provider. However, the credit provider had to contend with the problem of storage to make a better profit when sold off harvest season. A return on investment from managing the produce could be as high as 200 per cent while the cash produced no apparent return as the farmers return exact amount provided as input cost (for the sake of this research), but an interest rate between 5 to 30 per cent could be achieved, but repayment may be difficult for the farmers.

Therefore, a more localized agricultural credit system, rather than the conventional lending, is recommended. This research is the first of its kind in this region.

References

[1]   | Smith, W.L. and Naylor R.L. ‘Land institutions and food security in sub-Saharan Africa’ in Naylor R.L. (ed.) 2014, The Evolving Sphere of Food Security, Oxford University Press, 202-235.

[2]  
Dan-Azumi, J. ‘African Agriculture at Crossroads: Balancing the Needs of Increased Productivity and the Challenges of Sustainability. The Case of Fadama Agriculture in Semi-Arid North-Central Nigeria in Behnassi M., Draggan S., and Yaya S. (ed.) 2011, Global Food Insecurity: Rethinking Agricultural Rural Development Paradigm and Policy. Springer, 73-89.

[3]   | KSMARD-Kogi State Ministry of Rural Development ‘Kogi: Building the rural economy’, Kogi State Government Press, 2017.
[4]   | World Bank ‘Poverty & Equity Brief: Sub-Saharan Africa, Nigeria’, World Bank, 2018.
[5]   | BBC ‘Nigerians living in poverty rise to nearly 61%’ British Broadcasting Corporation, 2012.
[6]   | World Bank Group ‘World Development Indicators. World Bank Data-Nigeria’, the World Bank, 2016.
[7]   | Leathers, H.D. and Foster, P. The world food problem: toward understanding and ending undernutrition in the developing world, Lynne Rienner Publishers Inc. Colorado and London, 2017, 5th edition.
[8]   | IMF ‘World economic outlook database: report for selected countries and subjects’, International Monetary Fund Data and Statistics, 2018.
[9]   | World Bank ‘GDP (Current US$): World Bank national account data, and OECD national account data files’, The World Bank, 2017.
[10]   | United Nation ‘GDP and its breakdown at current prices in US Dollars’, United Nations Statistics Division, 2017.
[11]   | Ibitoye, J.I. and Odiba, J. ‘Analysis of the Impact of Community Based Poverty Reduction Project on Farming Communities in Kogi State, Nigeria’, Journal of Economics and Sustainable Development, Volume 6, 18-24, 2015.
[12]   | Adjognon, G.S.; Liverpool-Tasie, L.S. and Shupp, R. ‘Productivity shock and repayment behaviour in rural credit market: a framed experiment’, World Bank Group, Development Economics, Development Research Group, 2018.

[13]  
BoA-Bank of Agriculture, Nigeria, ‘Enhancing Wealth Creation across the Agricultural Value Chains. Nigerian farmers refuse to repay Sixty Billion Naira loan’, 2018, Available at https://www.premiumtimesng.com/news/headlines/263324-nigerian-farmers-refuse-to-repay-n60-billion-loan-bank-of-agriculture.html, (Accessed: 2 April 2018).

[14]   | Morris, M. L., ‘Fertilizer use in African agriculture: Lessons learned and good practice guidelines’, World Bank Publications, 2007.
[15]   | Grinstein-Weiss, M., Zhan, M., & Sherraden, M. ‘Saving Performance in Individual Development Accounts: Does Marital Status Matter?’ Journal of Marriage and Family Volume 68. Pp 192-204, 2006.