Determinants and Preferences of Credit Risk Management in Farming: Evidence from Rice Enterprise in Nigeria

Abstract

Background: This research was conducted in Enugu State. Nigeria is motivated by the fact that small scale rice farmers in Nigeria are faced with severe credit risk. This has increased their instability in productivity and resulted in high loan default. A multiplicity of research in Nigeria has neglected the aspect of credit risk management, especially in crop farming. The study explores the determinants and preferences of credit risk management in rice farming in Nigeria. Methods: A multi-stage sampling technique was used to select the respondents for the study. Specifically, a random sampling technique was used to select 10 crop farmers from eight selected communities, which gave 80 respondents for the study. However, after data cleaning and other exercises of data editing, 75 questionnaire were collected and used for the analysis. Finally, in the selection of financial institutions, a purposive sampling technique was used to 16 formal financial institutions that had operated for more than ten years in each of the selected local government areas. Result: The study identified that credit risk management is affected by education, diversification of income sources, farming experience, banking with commercial banks and informal financial institutions, amount of credit and experience in the past credit risks. In addition, the preference of rice farmers to credit risk aversion is appropriate management of production risks, price risks and moratorium risk.