ABSTRACT

The study specifically analyzed the factors that influence arable farm-households’ participation in microcredit market, level of access to microcredit and credit source selection in Akwa Ibom State. It also estimated microcredit transaction costs incurred by participants and the determinants of such costs.  Multi-stage sampling technique was employed to obtain cross sectional data from 240 respondents.  Descriptive statistics were used to evaluate respondents’ socioeconomic profiles and transaction costs incurred by market participants.  Hecman two-stage model was used to examine the determinants of households’ participation in the market and level of access to microcredit.  Linear Probability Model and multiple regression technique were respectively utilized in assessing the determinants of choice of microcredit source and transaction costs.  The result obtained showed that the most important transaction cost component was opportunity cost of time (N5576.41), followed by travelling cost (N3272.62).  The study also showed that loan size, interest cost and waiting period had significant positive relationship with microcredit transaction cost at 1%; distance to lending institution and savings were both positively signed and significantly related to transaction cost at 10% while education had a significant negative relationship with transaction cost at 1%.  The study further showed that transaction cost, distance to lending bank, number of guarantor and road condition were all significant at 10% and negatively related to participation in microcredit market; qualifying account relationship period, number of visits to lending bank and number of hours spent in a financial institution all had significant negative relationship with market participation at 5%; while gender was significant at 10% and positively related to market participation.  Interest and transaction costs were significant at 1% and negatively related to households’ access to microcredit; while annual income and moratorium period had positive and negative significant relationship with access to microcredit respectively at 10%.  Education, dependency ratio and borrowing experience all had significant and positive relationship with households’ microcredit source selection at 5%, 10% and 1% respectively while interest amount was significant at 5% but had negative relationship with choice of credit source. Policies that are aimed at ensuring the proliferation of pro-poor financial institutions in rural areas such as; reduction in compensating balance rate, timely disbursement of microcredit to farm-households and provision of grants to farm-households for higher education are advocated to encourage participation in microcredit market, ensure increased access to microcredit, reduction in microcredit transaction cost and enhance informed choice of microcredit source.