Analysis of formal microcredit transaction costs incurred by arable crop farm-households in Akwa Ibom State, Nigeria

This study estimates the magnitude and determinants of transaction costs incurred by smallholder arable crop farm-households in formal microcredit market in Akwa Ibom State. A multi-stage sampling technique was employed in choosing 108 beneficiaries of formal microcredit. A structured questionnaire was used for the collection of primary data from the respondents. Descriptive statistics was used to calculate the magnitude of transaction costs incurred by the households in the microcredit market and multiple regression technique was employed in determining the significant factors that influence the transaction costs incurred by households in the market. The result obtained showed that the most important transaction cost component was opportunity cost of time (₦ 5576.41), followed by travelling cost (₦ 3272.62). The study also showed that loan size, interest cost and waiting period had significant positive relationship with microcredit transaction cost at 1%; distance to lending institution and savings were both positively signed but significantly related to transaction cost at 10% while education had a significant negative relationship with transaction cost at 1%. To drastically reduce microcredit transaction costs, policies that will enable farmers to attain higher level of education are advocated; credit administrative procedure that is less time wasting should be put in place in financial institutions that offer microcredit to ensure timely disbursement of microcredit facilities to farm households; and sanction in the form of heavy monetary fine should be meted out to financial institutions that fail to ensure timely disbursement of microcredit facilities to farmers. Keywords: Microcredit, transaction costs, arable crop, and household