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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 8 NO 2, DECEMBER, 2010


 

ASSESSMENT OF LOAN ADMINISTRATION BY A MICRO FINANCE BANK

 

S.O. Ebewore

Department of Agricultural Economics and Extension,Delta State University, Asaba .

E-mail: ebeworesolomon@yahoo.com

 

Abstract

The study evaluates loan administration by a Micro finance Bank (I.C.Global MFB) to farmers in the Isoko South local ogovernment area of Delta State, Nigeria. Using structured questionnaire, data were collected from 78 farmers and 5 bank officials using simple random sampling and purposive sampling respectively. Various descriptive and inferential statistics were used to analyze the data. The findings indicated discrepancy between actual amount of loans disbursed to farmers and what farmers desired, most beneficiaries obtain loans less than N200, 000 and the time of loan disbursement affected farming activities. From the regression analysis, occupational activities, farm size, profit level of the farmers, age, gender, interest rates and family size were significant at 5%. It was recommended that overemphasis on collateral should be reduced, male and female farmers should have equal access to loans and loans should be made available to farmers at the right time and attempt should be made to tackle the problem faced by both farmers and the bank in loan administration.

 

Keyword: Loan administration, collateral, access, farmer.

 


Introduction

Agriculture is the oldest industry known to mankind and it is the source of our food and raw materials for many industries. It can be justifiably referred to as the world's primary industry (Lot, 1985). Agriculture is by far one of the most important sectors of the Nigeria economy (Oji, 2002). However agricultural production in Nigeria is progressively on the decline in terms of its contribution to the Gross Domestic Product (GDP) as well as satisfying the country's food requirement. According to the Central Bank of Nigeria (2002) Nigeria is endowed with great potentials for high production and profitable agricultural sector, but  the sector has been unable to fulfill its most basic and traditional role of being the source of food for the nation; therefore  food import has continue to rise (Odigbo, 2002).

 

The inadequate and frequent dearth of loans for financing agriculture has been a major impediment to agricultural development in most developing countries. Agricultural loans are essential for farmers to take advantage of new technology in the form of farm machinery, pay for such items as improved varieties of seeds and livestock, fertilizer, pesticides, labour and other running cost.

 

It is in realization of the fact that credit (loans and subsidy) is a critical factor in agricultural development that for most governments in the developing countries the channeling of institutional finance to agriculture has increasingly become an 'important policy instrument for increasing agricultural output particularly of the rural farmers. For instance, microfinance banks are obliged to grant a certain and minimum percentage of their loans to agricultural production.

 

In spite of this rapidly expanded agricultural loans in Nigeria, results of conventional agricultural loans credit programmes have seldom measured up to expectation. This is because of a number of reasons which include the fact that not much progress has been made in reaching the small farmers, and where the loan is available, poor loan administration has contributed seriously to poor agricultural performance. It should therefore be emphasized that the problem of financing agriculture should not be confined to the provision of institutional loan able funds to farmers but should more importantly extend to the efficient administration of the available loan able funds. (Agu, 1983).

 

Insufficiency of capital has been a major constraint to agricultural development (Agu, 1998). In order to improved agricultural production modern farm inputs such as fertilizers, improved seed, feeds and plant protection chemicals and agricultural machineries are needed by farmers. Most of these technologies have to be purchased, yet very few farmers have the financial resources to acquire them.

 

Microfinance is assuming increasing importance in many parts of the world in response to the credit needs of less privileged entrepreneurs, like farmers, with limited capital base. Microfinance refers to financial services provided to low income people like small scale farmers (Okoh, Ugwumba and Isitor, 2009). Examples of microfinance products are small loans, savings plans, insurance, payment transfers and similar services that are provided in meager increments to low income individuals (Okoh, et al, 2009). Micro finances are essential in financing micro enterprises (CBN, 2006). According to Iganga (2007) microfinance includes a broad range of services, mainly credits, savings opportunities, insurance and money transfer provided especially for the poor who lack access to borrowing from traditional formal institutions.

 

Ogbunka (2003) and Kimotha (2005) identify three main distinguishing features of microfinance as: smallness of loans granted or savings mobilized, absence of asset based collateral and simplicity of operation.

 

Okoh, et al (2009) opined that the average size of microfinance loan varies from one part of the world to another. According to Oluwalana, Okuneye and Sokoyo (2004) micro credit ranges between N20, 000 to N100, 000. Anyanwu (2004) asserted that the size of such loan in Nigeria is below N20, 000, and is usually use to finance microenterprises like petty trading, hair dressing, sewing and low level agro-allied activities. Operators of small-scale, enterprises and cottage industries do not often have easy access to formal credit (Odedokun, 2003). In view of limited loanable funds and high transaction cost, they are not usually favoured by formal lenders; they' ration out the available funds.

 

Microfinance institutions were therefore established to ensure easy access of small scale enterprise operators to financial resources. Several microfinance institutions have been identified (Okoh et al, 2009). The microfinance bank (represented by I.C.Global microfinance bank) is the most popular in Isoko South Local Government Area in financing small scale activities. The idea of microfinance banks (MFBs) was conceived in 2005 when the CBN microfinance policy guidelines mandated all Community Banks to convert to MFBs with a minimum capital base of #20million before the end of year 2007. These MFBs are to make funds available to the poor to improve their skill acquisition, accelerate wealth creation and eradicate poverty (Iheduru, 2002).

 

It is against this background that this research was carried out to examine the loan administration of microfinance banks in Isoko South Local Government Area to farmer. In particular the study is focused on loan administration by microfinance bank to agriculture in Isoko South Local Government Area of Delta State. The specific objectives of the study are to:

1)         Examine socio-economic characteristics of respondents.

2)         Determine the volume of loans granted to farmers on gender basis.

3)         Examine the nature of the problems confronting the farmers in obtaining loans from Micro Finance Banks, and the Bank experiences in the disbursement of the loans to farmers.

4)         Determine the repayment rate on gender basis

5)         examine how time of loan disbursements affects farming activities   

 

Research methodology

This study was carried out in Isoko South Local Government Area of Delta State, which shares boundary with Isoko North Local Government Area in the North; in the West by Ughelli North Local Government Area, in the East by Ndokwa East Local Government Area and in the South by Bomadi Local Government Area.

 

The study area lies approximately between latitudes 5010N and 5025N and longitude 600E and 6025E, That is, on the Niger Delta Region in Nigeria with flood plain. The area  covers about 668 square kilometers and has a population of about 227712 persons made up of 114391 males and 113321 females(National Population Census,2006) Ten clans, namely: Oleh, Olomoro, Irri, Aviara, Uzere, Amede, Igbide, Umeh, Araya and Erowah make up the local government area.

 

Seventy eight (78) farmers and five (5) staff of the micro finance bank were randomly and purposively selected for the study. They were interviewed using structured questionnaire designed for bank staff and farmers respectively.

 

Both descriptive and inferential statistics were used for the analysis of data. The descriptive statistics used include frequency tables, percentages, and means, while the the multiple regression analysis was the inferential statistics used.

The Regression equation (linear) is explicitly written as:

Y = b­0 + blX1 + b2X2 + b3X3 + b4X4 + b5X5 + b6X6 + b7X7 + b8X8 + b9X9 + b10X10 + e

Where:

Y = Volume of Loan obtained (dependent variable)

b0 = intercept

bl-b10 = coefficients of multiple regression

Xl = Gender

X2 = Age

X3 = Level of Education

X4 = Marital Status

X5 = Family Size

X6 = Occupational Activity

x7 = Farm Size

X8 = Output

X9 = Profit of Enterprise

X10 = Interest Rates

Ue = Error Term

 

The following null hypothesis was tested: there is no significant relationship between some selected variables and volume of loan obtained by farmers.


 

 

 

 

 

                                     

                                         Results and discussion

Table 1.           Socio-Economic Characteristics of Respondents.

RESPONDENTS

FREQUENCY

PERCENTAGE

Gender

 

 

Male

44

56.41

Female

34

43.59

Sub Total

78

100

 

 

 

Age

 

 

21-30years

17

21.78

31-40years

32

41.00

41-50years

19

24.35

51-60years

9

11.52

61years and above

2

1.4

Sub Total

78

100

 

 

 

Marital Status

 

 

Married

59

75.6

Single

19

24.4

Sub Total

78

100

 

 

 

Educational Background

 

 

Primary Education

16

20.5

Secondary Education

24

30.8

OND/NCE

11

14.1

Degree (B.Sc)

13

16.7

None

14

17.9

Sub Total

78

100

 

 

 

Occupation of Farmers

 

 

Crop farming

35

44.9

Livestock farming

30

38.5

Mixed farming

13

16.7

Sub Total

78

100

 

 

 

Family Size

 

 

1-5

9

11.54

6-10

36

46.16

11 and above

33

42.03

Sub Total

78

100

Farm Size

 

 

Less than 2 hectares

37

47.4

2-4 hectares

39

50.00

Above 4 hectares

2

2.6

Sub Total

78

100

Source: Field Survey 2009

 


Socio economic characteristics of respondents (farmers)    

The socio economic characteristics of the respondents are presented in table 1. the table result shows that 56.41% of the farmers granted loans were male while 43.59% were female. This result suggests that more males were granted loans by the microfinance bank. This result confirms observations by Okoh, Ugwumba and Isitor (2009) that more males were given loans by micro finance institutions. Table 1 shows that majority of the respondent (farmers) are still in their economically active age because 87.13%of the respondent fall between the ages of 21-60 years. Age is a crucial factor and determinant of attitude. According to Oloruntoba (2000) age is very important in job performance. 75.60% of the farmers are married. Dikito Watchtmeister (2001) opined that marital status is an important factor in shaping social rural participation and acceptance Oladoja, Adedoyin and Adeokun (2008) asserted that marriage is an important factor in the livelihood of individuals in our society as it is perceived to confer responsibility on individuals. Majority of the respondents (82.10%) had one form of formal education or the other. The high level of education is an indication of high literacy rate among the respondents. Schooling is a crucial factor in the adoption of innovation and technology (Zegeye,1990; Amara et al,1999). About 44.90% of the respondents are crop farmers, 38.50% are livestock farmers while only 16.7% are mixed farmers. Table 1 also revealed that 46.16%of the respondents have between 6-10 children while only 11.54% have less than six children. Banmeke (2003) opined that house hold size is an important index in any rural development intervention which can affect the out come of such intervention. The farm sizes of most of the respondents are small as majority of them (97.40%) have holdings of less than five hectares.          

 


Table 2.           Actual and desired amount of loan disbursed to farmers

Amount of loan (N)

Actual Amount of Loan

Desired Amount of Loan

Frequency

Percentage

Frequency

Percentage

100,000 and below

27

34.6

15

19.2

101,000-200,000

29

37.2

35

44.9

201,000-300,000

15

19.5

10

12.8

301,000-400,000

5

6.4

11

14.1

401,000 and above

2

2.6

7

9.0

Total

78

100

78

100

Source: field survey 2009       

 


Table 2 shows that the actual amount of loan of 101,000-200,000 range have the highest percentage at 37 .2%. Loan of <100,000, 201,000 - 300,000, 301,000-400,000 and 401,000 and above accounted for 34.6%, 19.5%, 6.4% and 2.6% respectively of the beneficiaries. Table 2 therefore reveals that the Microfinance Bank granted most of its loans between the range of 101,000-200,000 naira. In all cases, there was discrepancy between the actual amount of loans and what the farmers actually desired.


Table 3. Beneficiaries of Loan on Gender Basis.

Amount of loan (N)

Male

Female

Frequency

Percentage

Frequency

Percentage

100,000 and below

7

8.97

20

25.64

101,000-200,000

15

19.23

14

17.95

201,000-300,000

15

19.23

0

0.00

301,000-400,000

5

6.42

0

0.00

401,000 and above

2

2.56

0

0.00

Total

44

56.41

34

43.59

Source: field survey 2009       

 


From Table 3, it is clear that the female farmers acquire the lowest amount of loan compared to their male counterparts. It is only the males that were granted loans of more than N200, 000. The reason is because most females do not have enough collateral to secure huge amount of loan.

Gender analysis of loan repayment

From the Study, 25 (56.8%) of the male farmers repaid their loans while 30 females representing 88.2% repay their loans. The males have low repayment rate compare to their female counterparts. Similar results have been obtained in previous studies (Adeolu and Taiwo, 2004; Okoh, et al, 2009). The males usually divert their loans to non agricultural activities (Okoh et al, 2009)

Effect of time of loan disbursement on selected farming activities

Table 4 shows the effect of time of loan disbursement on farming activities. From table 4  it was concluded that time of loan disbursement is a major factor to be looked upon during loan administration by micro finance bank in Isoko South Local Government Area of Delta State.


 

Table 4. Effect of Time of loan disbursement on selected farming activities

Farmers

Frequency

Percentage

It enable farmers to embark on early farming

 

 

 Yes

22

28.2

No

 36

46.2

Undecided

20

25.6

Total

78

100

 

 

 

1 rear/plant crops or livestock at the appropriate time

 

 

Yes

22

28.2

No

 36

46.2

Undecided

20

25.6

Total

78

100

 

 

 

It resulted in my using the loan for non-farming activities

 

 

Yes

24

30.8

No

 36

46.2

Undecided

 18

23.1

Total

 78

100

 

 

 

It did not allow me to plant the: appropriate crop combination

 

 

Yes

36

46.2

No

29

37.2

Undecided

13

16.7

Total

78

100

 

 

 

It made pest/disease control difficult

 

 

Yes

23

30.8

No

33

42.3

Undecided

21

26.9

Total

78

100

Source: field survey 2009       

 


From table 5, It was observed that the problems confronting farmers in obtaining financial assistance from microfinance banks are serious because the values of the means obtained are greater than three. (Akwiwu, Nwayiba, Nnadi,  2000


Table 5.           Problems encountered by farmers during loan acquisition

Problems

Means

Standard Deviation

Rank of the mean

Inaccessibility to loan

3.85

1.52

1

Bucreacratic bottle neck

3.75

1.25

2

Lack of Collateral

3.69

0.88

3

Untimely release of loan

3.68

0.77

4

Source: Field Survey Data, 2009.

Likert-scale coded:      Very serious (5), Serious (4), Don't know (3), Not serious (2),

Not very serious (1).

 

).

 

Table 6.           Problems experienced by the micro-finance bank in disbursement of loans farmers

Problems

Means

Standard Deviation

Rank of mean

Repayment problem

4.2

1.04

1

Farmers complete application form wrongly

3.8

1.09

2

Farmers not providing the necessary security

3.5

1.55

3

Lack of personnel to supervise farms

3.4

1.34

4

Insufficient fund

3.3

1.34

5

Farmers do not apply on time

3.2

1.29

6

Logistic problems

2.5

0.85

7

Source: Field Survey Data, 2009.

Likert-scale:     Very Serious (5) Serious (4), Don't know (3), Not serious (2),

Not very serious (1).

 


Table 6 indicated that the problems  experienced by microfinance banks in disbursement of loans to farmers are many and serious. This is in agreement with (Akwiwu, Nwayiba, Nnadi, 2000) who asserted that on the likert scale rating value more than three (3) indicates a serious problem. Okoh et al (2009) identified logistic problems, lack of repayment and inadequate fund as some of the problems of microfinance institutions.


 

Regression results

 

Model Summary

Model

R

R Square

Adjusted R square

Standard Error of the Estimate

1

.780

.609

.550

66007.74

Predictors: (Constant) Gender, Age, Educational Level, Marital Status, Family Size, occupational Activity, Farm Size, Output in Naira, profit from Enterprise, Interest Rate on Loan.

Coefficients

Model

Unstandardized Coefficients

Standardized Coefficients

 

B

Std. Error

Beta

t

Sig.

(Constant)

-426317

193345.1

0.250

-2.205*

0.031

Gender

49334.929

17958.5

0.320

2.747*

.008

Age

3458.272

933.6

0.103

3.764*

.000

Educational level

-7140.872

5556.9

388

-1.285**

.203

Marital Status

-88295.2

31584.6

237

-2.796*

.007

Family Size

-576.015

333.8

478

-1.726**

.089

Occupational Activity

63833.384

12164.0

295

5.248*

.000

Farm Size

52759.422

15887.2

265

3.321*

.001

Output in Naira

.2001

.071

267

2.840*

.006

Profit Level

3462.445

9215.9

029

.336**

.723

Interest Rate

34166.575

17060.6

165

2.003*

.049

Dependent Variable: Volume of Loan

*    Significant at 5%        

**  Non Significant

 


The independent variable in the model such as gender (X1) age (X2), marital status (X4) occupational activities (X6), farm size (X7), output (X8) and interest rate (X10) are all significant in determining the amount of loan obtained from the microfinance banks.

 

With an R-square (R2) of 0.61, It implies that 61% of loan obtained from microfinance bank were as a resulted of the independent variables entered in the model which are age, gender, educational background, marital status, family size, occupational activities of loan on profit and interest rate on loan obtained.

 

Conclusion

This study was designed to examine loan administration by microfinance banks to farmers in Isoko South Local Government area of Delta State. Seventy Eight (78) farmers and five (5) bank officials were sampled and interviewed. Data were collected by use of questionnaire, were coded and analyzed by use of simple percentages, means and multiple regressions.

 

The level of loan administration by microfinance banks in Isoko South Local Government area to farmers is still at a low level. While most farmers find it difficult to acquire loan on grounds of lack of collateral inaccessibility to loan, most of those who succeeded in getting the loans do not repay on time. The bank also faces some difficulties in administering loans to farmers

 

 

However, considering the fact that farmers constitute the bulk of the producers of food and raw materials for our ever-increasing population, they certainly need more assistance by banks to fund their farm operation. This will go a long way towards ensuring food security and increasing the Gross Domestic Products (GDP) of the country in the years ahead.

 

 

Recommendations

In view of the findings of the study, the following recommendations are made:-                    The over-emphasis on as an over-riding condition for granting loan to farmers should be de-emphasized. Farmers should be encouraged to apply for loans on cooperative basis where collateral may not be required (Akanji, 2002; Oke, Adeyemo and Agbonlahor, 2007).

    Microfinance banks should make the loans available to farmers on time so that they can actually fund their projects not after the planting seasons.

    The minimum size of loans to farmers, especially female ones, should be substantial enough to improve their farm holdings and farming methods thereby leading to increase in yield.

    Male and female farmers should have equal access to loan irrespective of their social status.

    The problems facing both farmers and the bank should be tackled. For instance farmers can be educated on how to fill loan forms and how to use loans for the intended purpose.

 

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