ABSTRACT

The Nigerian farmers and indeed rural entrepreneurs are known to be economically weak with little or no capital for investment. Low agricultural productivity resulting in low farm income has resulted in very small private capital investment in agriculture. It was to obviate this sordid situation and to create a virtuous cycle of low productivity and income, credit, high productivity and income, more credit, higher productivity and income, etc that successive governments in Nigeria made various attempts to bridge the credit gap in the agricultural sector. These attempts involved the establishment of many credit policies, programmes and institutions. Besides, the informal financial intermediaries offer credit facilities to farmers and other non-farm borrowers. To what extent has these formal and informal sources of credit been able to address the credit gap in the rural economy is a different question. Therefore, this study examined the rural crecit markets and arable crop production in Imo State of Nigeria. Specifically, it aimed at describing some of the socioeconomic characteristics of the credit using and non credit using farmers; examining the interest rate, credit demand and supply functions and the determinants of loan repayment in these markets. It also examined the effects of rural credit on resource use in arable crop farming by comparing the production efficiencies of credit using and non credit using farmers. Relative elasticities of production and returns to scale of the defined farmer groups were examined. Primary data collected from random samples of 47 rural lenders and 132 arable crop farmers consisting of 57 credit users and 75 non credit users were used in this study. Data analysis consisted of the use of such statistical and econometric tools like percentages, frequencies, multiple regression analysis by the ordinary least squares, the two stage least squares technique and the stochastic frontier production function modeling. The analysis of data revealed that credit demand and supply functions were significantly determined by interest rate and signed according to a priori expectations in each case. The interest rate elasticity of credit demand was derived as 1.144 signifying that credit demand is elastic. That for credit supply was determined as 0.131, which implies that credit supply is inelastic. Other non price determinants of credit demand include educational level of the farmer, amount borrowed previously, farm size and gross savings. Those for credit supply were gross income of the lender, total cost of lending, source of loan, worth of loan application and previous loan repayment. Statistically significant determinants of loan repayment were membership of socioeconomic associations, household size, interest rate, loan application costs, size of previous loans, experience in farming and gross income. The results further show that the credit user farmers are more technically efficient than their non credit user counterparts. Furthermore, age, household size, level of formal education, farming experience and membership of socioeconomic associations was shown as statistically significant factors influencing technical efficiency. The ranges of technical efficiency were 0.351 to 0.981 with a mean of 0.497 for the credit user farmers and 0.311 to 0.911 with a mean of 0.438 for the non credit user farmers. None of the farmer groups achieved optimum allocation of any of the inputs. The credit user farmers over utilised hired labour, material inputs, fertilizer and capital and under utilised Farmland. The non credit user f?rmers over utilised hired labour, family labour and capital and under utilised Farmland and material inputs. Based on these results, appropriate policies and programmes that could strengthen the farmers' participation in rural credit markets and for enhancing the efficiency in resource use were recommended.