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Analysis of Microfinance Banks Support to Agricultural Lending in Edo State, Nigeria

Omorogbe I and Aina SO

The study assessed analysis of microfinance banks support to agricultural lending. Key objectives included examining the characteristics of MFBs in the State; identifying the agricultural loan products of the MFBs; determine the percentage of the MFBs’ annual loan portfolio allocated for agricultural lending; To achieve these objectives data were collected from the 18 MFBs in the state by means of questionnaire and interview schedule administered on key informant or company representative in each MFB. Analysis of data collected was done using descriptive statistics, hypotheses formulated were analysed using t-test. Major findings of the study revealed the average operational existence of the MFBs was 15 years while they have operated as licensed microfinance banks for an average of 12 years. The average branch network of the MFBs in the State was 4. Group lending method was the major (55.6%) lending practiced used by MFBs in the state while 44.6% used individual lending method. However, the preferred lending method was group method (100%), reasons being because of guaranteed repayment (83.3%), low default rate (66.7%) and influence of peer pressure in repayment collection (38.9%). Chi-square test suggests that there was no significant difference in the use of individual and group lending practices by MFBs in the state. However, t-test result (t=7.96; p<0.050) revealed that the amount of loan disbursed under the group lending method (N85,595,960) was significantly higher than that disbursed under the individual lending method (N32,127,040). Logit regression analysis showed that staff size (b=9.024) and branch network (b=62.74) were significant variables affecting MFBs probability of using the group lending method. Lack of collateral (mean=4.06), low educational status of farmers (mean=3.89), etc were major constraints affecting MFB lending to the agricultural sector. Instead of demanding for physical collateral before loan disbursement to farmers, MFBs can exploit social collateral.