ABSTRACT

This study was designed to investigate the loan size and repayment performance of smallholder oil palm producers and processors in Abia State using a credit rating approach. The aim was to develop a scoring index that will enable the researcher classify the study group as either credit worthy or non-credit worthy using some hypothesized variables as determinants of group membership. Ninety (90) respondents, comprising 54 producers and 36 processors were randomly selected and interviewed. Simple statistical tools such as means, frequencies, percentages, multiple regression analysis and discriminant analysis were used in analyzing the data and drawing conclusions. The analysis of data revealed that loan size by oil palm processors were significantly determined by processing experience, gross annual income and interest rate. For the farmer-borrowers, the major determinants of loan size were educational level and interest rate all of which fell in line with a priori expectations as indicated by the signs of the coefficients of relevant variables. On loan repayment rate and credit worthiness rating, results of data analysis showed that loan-asset ratio and distance between home and source of loan were significant determinants of loan repayment rate. On the discriminating independent variables that determined credit worthiness among the respondents; loan acquisition cost was the major determinant among the producers and the processors. The final profile of independent variables critical to the determination of credit worthiness using the pooled data were age of the respondent, interest rate and loan acquisition cost. In rating the beneficiaries, the scoring index developed identified twenty seven percent of the processors as not being qualified as the model captured only fourteen processors as credit worth as against twenty two processors using repayment rates. The discriminant analysis had high level of accuracy in the error analysis with the group centroid of non- credit worthy respondents being 1.742 while that of the credit worthy group was - 1.216. Using Fisher’s function coefficients , data analysis showed that loan-asset ratio ranks top as the most critical positive discriminating variable for credit worthiness, followed by interest rate , income - expenditure ratio and age of beneficiaries as these variables crossed the 1 unit credit worthiness benchmark. The Eigen Value Test used to check the relative importance of the discriminating variables in determining group membership was significant at 2.167 (>1). This means that there exist strong relationship between the discriminant functions and the group variables in classifying the respondents into credit worthy and noncredit worthy groups using the theorized variables.