Risk Differentials In Livestock Financing: A Comparative Study Of Formal And Informal Credit Markets In Imo State, Nigeria

This study investigated the risk differentials in livestock financing between formal and informal credit markets in Imo State, Nigeria. A total of 120 livestock farmers were sampled, and data were analyzed using both descriptive and inferential statistics. Findings revealed that access to financial institutions revealed a significant gender disparity, with males dominating both formal (55.0%) and informal (56.7%) financial institutions. Most livestock farmers financed by formal financial institutions (46.7%) had a mean of 7 years of experience in livestock production, whereas those financed by informal financial institutions (55%) had a mean of 8 years of experience. Most livestock farmers financed by formal financial institutions (46.7%) and those financed by informal financial institutions (58.3%) had secondary education. Formal credit sources provided significantly higher loan amounts (₦1,515,833), charged higher interest rates (7.03%), and offered longer repayment periods (18 months) compared to informal sources, which provided an average of ₦244,167, with lower interest rates (0.73%) and shorter durations (7 months). Formal credit also exhibited higher financial risk, evidenced by greater variance (₦92.83 billion) and standard deviation (₦304,681.07) in earnings, relative to informal credit (variance: ₦16.58 billion; SD: ₦128,743.93). The major factors militating against accessing formal credit included savings deposit requirements (95.0%), insufficient collateral (85.0%), lack of guarantors (83.3%), and years of account holding (75.0%). In contrast, informal credit access was limited primarily by insufficient loan amounts (90.0%), years of group membership (80.0%), and collateral (76.7%). These results underscore the trade-off between loan size and financial risk in credit market choice. To enhance livestock financing, policymakers should promote reforms that reduce entry barriers to formal credit, regulate interest rates, and strengthen risk management frameworks within formal financial institutions.