Abstract
The interest drawback programme (IDP) as an innovation under the Agricultural Credit Guarantee Scheme (ACGS) was instituted to encourage loan repayment by providing a post payment rebate to loan beneficiaries that honour their loan repayment schedules coupled with the fact that it also presents a reduced effective lending rate for loans under the Scheme. Time series analysis of the operations of the IDP from 2003 till date depicted the IDP as a poor predictor of loans repayment. The long-run estimation showed that both loans guaranteed and IDP payments have been inelastic determinants of loans repaid. For every N 1 million increase in loans guaranteed, loans repaid will increase by N 990,000.00, while for every N 1 million increase in IDP payment, loans repaid will reduce by N 50,000.00. This inverse relationship between loans repaid and IDP payment is contrary to a priori expectation as IDP payment was established to boost loan repayment under the ACGS. The estimation also highlighted a negative long run effect of IDP payments on loans repaid under the scheme. Though the introduction of the IDP has brought about a significant change in the series of loan repayment under the ACGS, however its long run impact on loans repayment should be addressed.
Highlights
Bank agricultural credit policies constitute an important source of stimulating agricultural development and a variety of policy initiatives have been channeled towards addressing the credit needs of farmers
This final specification served as the basis for assessing the influence of loans guaranteed and interest drawback programme (IDP) payments on loans repaid under the Agricultural Credit Guarantee Scheme (ACGS)
The Augmented Dickey Fuller (ADF) and the Phillips-Perron tests were used to verify the presence of unit roots in the individual series of loans guaranteed and loans repaid under the ACGS
Summary
Bank agricultural credit policies constitute an important source of stimulating agricultural development and a variety of policy initiatives have been channeled towards addressing the credit needs of farmers. The agricultural credit demand from commercial banks always exceeds the banks’ supply irrespective of the enabling environment provided by government to bridge the yearning gap This has compelled most farmers to turn to the available alternatives i.e loans from money lenders and other informal sources for their credit needs (Enya and Alimba, 2008). The proponents of the IDP claimed that the programme is a developmental initiative towards encouraging agricultural production and it should be seen as a social cost that should be borne by the government and other stakeholders They argued that the provision of post payment rebate through the IDP have improved loan repayment under the ACGS. Both arguments are based on meaningful economic justifications and an impact assessment of the IDP on loan repayment under the Scheme using statistical measures will further balance the scale in favour or against the programme and justify the present implementation strategy of the programme
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