Lending to Smallholders by the Nigerian Agricultural and Cooperative Bank: The Role and Determinants of Transaction Costs

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Periodical article

Title:	Lending to Smallholders by the Nigerian Agricultural and Cooperative Bank: The Role and Determinants of Transaction Costs
Authors:	Olomola, Ade S. Mabawonku, A.F.
Year:	1993
Periodical:	Eastern Africa Economic Review
Volume:	9
Issue:	1
Pages:	185-193
Language:	English
Geographic term:	Nigeria
Subjects:	agricultural credit small farms Economics and Trade Agriculture, Natural Resources and the Environment Development and Technology
Abstract:	Small-scale farmers (those cultivating less than ten hectares) in Nigeria are not usually favoured by the conventional trading banks in their lending programmes. This is due to the high transaction costs involved and the associated risk. However, the Nigerian Agricultural and Cooperative Bank (NACB) gives priority attention to this category of farmers. This paper seeks to ascertain and analyse the transaction costs of lending to smallholders by the NACB. Attention is focused specifically on administrative costs consisting of loan processing, monitoring and recovery costs. These costs are determined mainly by the borrowers' distance from the loan office and the size of the loan disbursed. Lending transaction costs are found to be a decreasing function of the loan amount and an increasing function of the borrowers' distance from the loan office. The viability of the loan scheme could be enhanced through the diversification of the delivery channels and the adoption of the group lending approach. Bibliogr., sum.