Determinants of Loan Repayment Behaviour of Smallholder Cooperative Farmers in Yewa North Local Government Area of Ogun State, Nigeria: an Application of Tobit Model

Abstract

The loan repayment performances of smallholder farmers were examined along with their determinants using data from selected cooperative members in Yewa area of Ogun State, Nigeria. A multistage random sampling technique guided the selection of 110 respondents on whom data were collected using structured questionnaire. Data were analyzed using descriptive statistics, correlation, and multivariate regression analytical techniques. Results revealed that the average age of respondents was 44.7 years with 36.4% falling into the 20-40 years active working population. Loan distribution showed that 67.3% of respondents received cooperative credit while the remainder received loan from other sources. Only 74.0% of all loans was fully repaid at due dates. Respondents’ average credit use experience was 9 years. A negative association was found between age and repayment performance, suggesting that younger farmers were better performers. From regression results, repayment performances were positively influenced by non-farm income (p<0.05) but negatively affected by loan size (p<0.01). Rates of response were inelastic for all variables: a 100% increase in loan size caused a 27.7% decrease while corresponding increase in non-farm income resulted to a 14.5% increase in repayment performance. Decomposed elasticities revealed that a small change in each variable resulted to a relatively higher change in the elasticity of repayment intensity than it had in elasticity of probability to repay by borrowers that have started repaying. The synergy between repayment performance and non-farm income underscored the strength of livelihood strategies and diversification in boosting economic activities of rural farmers. Loan packages that recognize this synergy and educate borrowers on befitting complementary livelihood options would likely achieve less rates of default from beneficiaries.

Keywords: Farm credit, repayment performance, smallholder, cooperative farmers, Nigeria.