Default in a Government-Sponsored Agricultural Loan Programme in South-Eastern Nigeria

Abstract

Purpose
– The Imo State Supervised Agricultural Credit Loans Board (ISACLB) has outright default rates of more than 50 percent. Thus, the purpose of this study is to identify the major characteristics of the Board's beneficiaries who completely failed to honour their repayment commitment as opposed to those who partially repaid.

Design/methodology/approach
– Data on 36 potential causes of delinquency were collected through questionnaires distributed to 182 defaulters across ISACLB's three regional zones from 1987 to 1997; ISACLB's only completed loan cycle. Descriptive statistics were obtained using the odds ratio technique. Thereafter, a binary logistic regression estimated the marginal effect on the outright default probabilities of each factor.

Findings
– ISACLB's large overdue problem was strongly linked to four key factors: age of borrowers, frequency of visits by loan officers-cum-extension agents, amount of savings deposits with informal clubs and total annual savings.

Research limitations/implications
– The primary drawback is the small size of the sample study, as well as the failure to correctly classify the partial defaulters in terms of the stage in the loan cycle at which they actually ceased to repay.

Practical implications
– In general, initiatives to attract young entrepreneurs, as well as to incorporate a FINCA-type savings scheme into the design of ISACLB's future lending programme should help to resolve its overdue dilemma.

Social implications
– Older traditional farmers are the principal defaulters. A targeted monitoring, training and information provision appears to be required.

Originality/value
– There are very few econometric studies dealing specifically with the characteristics of outright and partial microcredit defaulters