Impact of the Interest Drawback Programme (IDP) On Loan Repayment under the Agricultural Credit Guarantee Scheme (ACGS)

Musa Adedokun Olasupo, Carolyn A Afolami, Adebayo M Shittu

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 N1 million increase in loans guaranteed, loans repaid will increase by N990,000.00, while for every N1 million increase in IDP payment, loans repaid will reduce by N50,000.00. 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.


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DOI: http://dx.doi.org/10.5296/rae.v6i1.4554

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