Effect of Informal Credits on Farm Household’s Welfare in South East, Nigeria: a Quantile Regression Approach

Abstract

The study estimated the effect of informal credits on farm household’s consumption expenditure in Southeast Nigeria. Primary data were collected using a well-structured questionnaire administered to 240 farm households that had at least borrowed once during the 24 months prior to the survey which were selected using multistage and simple random sampling techniques. Data collected were analysed using: descriptive statistics, ordinary least square regression model and quantile regression model. The effect of informal credit on consumption expenditure at the 25^th quantile was positively influenced by gender (P<0.01), age (P<0.05), education (P<0.01), participation (P<0.01), non-farm income (P<0.01), farm size (P<0.01) and asset (P<0.01) while negatively influenced by main occupation (P<0.01), household size (P<0.01) and remittance (P<0.01). At the 50^th quantile, it was positively influenced by gender (P<0.05), education (P<0.01), participation (P<0.01) and negatively influenced by household size (P<0.01) and remittance (P<0.05). At the 75^th quantile, it was positively influenced by gender (P<0.01), education (P<0.01), participation (p<0.01) and assets (P<0.01) while negatively influenced by farm income (P<0.01), dependency ratio (P<0.05), household size (P<0.05) and remittance (P<0.01). Participation of farmers should be encouraged through farmers association to help unleash the inherent social capital and information advantages for improved informal financing. Also, government and policy makers should pay more attention on finding relevant credit policy for the poor and disadvantaged households to assimilate informal financial institution into federal government’s overall rural banking policy thereby unleashing its potential for accelerated growth and development.