DETERMINATION OF LOAN REPAYMENT POTENTIAL OF GROUP BORROWER IN OYO STATE OF NIGERIA: A DISCRIMINANT ANALYSIS APPROACH

Abstract

This study attempted to apply discriminant function analysis technique to an institutional credit agency (OYSICC) in Oyo State of Nigeria. The result shows that in giving loan to group farmers, the credit agency should focus attention on two major characteristics namely gross annual income of such groups and the proportion of their land under cultivation. These two characteristics are together responsible for over 82 percent of the predictive power of the function developed in the study. The chances of belonging to one group (good) or the other (bad) will increase when these characteristics also increase in magnitude.

The classification performance of the function is not sufficiently high to alleviate the fear associated with misclassification errors. However, the overall classification performance of 67 percent is tolerable when compared with 75 percent obtained by Bauer and Jordan (1971) and 74 percent recorded by Matiezo (1978). The result will no doubt be improved by searching for more discriminating characteristics.