Determinants of Credit Rationing: A Study of Formal Credit Groups in Ekiti State Farmers Development Union

Abstract

SUMMARYFailure of investment, failure of farmers to use borrowed funds for production and the refusal to return borrowed funds are some of the causes for low repayment performance: hence the need for credit rationing. The study was therefore aimed at determining factors affecting credit rationing among groups in Farmers Development Union (FADU) of Ekiti State.The study was carried out in four local government areas (Ikere, AdoEkiti, Ayedun and Ijan Ekiti) in Ekiti State, Nigeria. A total sample size of 33 farmer groups within the union comprising of 10 members each were selected via sampling proportionate to size. Secondary data obtained from records of the groups spanning a single year period was used for the study in addition to interview schedule.Findings, however, revealed that loan beneficiaries of FADU must be registered members of the organization and must have at least 25% loan request as savings before loans could be granted to them. Also, 66.7% of the beneficiaries were in their active working age and 84.8% of the groups consisted mainly of women with trading as their major occupation. All the beneficiaries were married with 36.4% of the women having a mean household size of 6 people. The regression analysis showed that educational level and income were socio-economic characteristics that positively affect repayment performance. Also, the probit model revealed that income, outstanding debt and leverage of beneficiaries were significant determinants of loan rationing. However, to fully harness the benefits inherent in credit rationing by microcredit institutions; proper monitoring of borrowed funds was encouraged as repayment performance and credit rationing are interwoven.