Agricultural Financing and Agricultural Output in Nigeria
Main Article Content
Abstract
This study examined agricultural financing and agricultural output in Nigeria, focusing on the moderating effect of interest rates from 1978 to 2020. Using vector error correction model estimation, the results indicated that an increase in agricultural bank credit generally leads to an increase in agricultural output. This suggests that a rise in bank credit to agriculture will enhance productivity in the agricultural sector. To ascertain the effect of interest rates on agricultural bank credit and output, interest rates were interacted with bank credit to agriculture. It was observed that considering interest rates in relation to bank credit contributed 15.1% less to agricultural performance growth compared to non-consideration of interest rates. This indicates that agro-economic activities are significantly influenced by both interest rates and bank credit. Furthermore, the study found that bank credit to agriculture, when considered with interest rates, caused changes in agricultural output. This implies that monetary policies favoring bank credit to agriculture will boost agro-productivity in Nigeria. Among the policy recommendations, the CBN should adopt monetary policies and schemes, particularly those related to interest rates, that favor the supply of bank credit to agriculture. This approach will translate to more meaningful growth in agricultural performance.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Your article is protected under Creative Commons CC BY 4.0 user licence, copyright guide.
References
Abbas A. C., Jiang Y., Jam G. M. S. & Shahbaz A. L. (2016). Impact of formal credit on agricultural output: Evidence from Pakistan. African Journal of Business Management. Vol. 10(8), pp. 162-168.
Abdallah, A., Ayamga, M., & Awuni, A.J. (2018). Impact of agricultural credit on farm income under the Savanna and transitional zones of Ghana. Agricultural Finance Review. https://doi.org/10.1108/AFR-02-2018-0009
Adeleye, N. (2018). Explaining descriptive statistics in Eviews (4). Cruncheconometrix Youtube Video. https://youtu.be/S7ZO0cgv2IU.
Adeleye, N., Osabuohien, E. & Asongu, S. (2020). Agro-industrialisation and financial intermediation in Nigeria. African Journal of Economic and Management Studies. https://doi.org/10.1108/AJEMS-02-2019-0078
Adeleye, B.N., Daramola, P., Onabote, A., & Osabohien, R. (2021). Agro‑productivity amidst environmental degradation and energy usage in Nigeria. Scientific Report 11, 18940. https://doi.org/10.1038/s41598-021-98250-y
Adetiloye, K. A. (2012). Agricultural financing in Nigeria: An assessment of the agricultural credit guarantee scheme fund (ACGSF) for food security in Nigeria (1978 – 2006). Journal of economics, 3(1), 39 – 48.
Ahmad, N. (2011). Impact of institutional credit on agricultural output. Theoretical and Applied Economics,10 (563): 99-120.
Ajie, H.A. (2000). Credit administration and control in a deregulated economy. Port Harcourt. Osia Int’l Press Ltd.
Ajudua E., Ojimba, D. J., & Okonkwo, O.N. (2015). A Review of monetary policy and the Nigerian agricultural sector performance. International Journal of Academic Research in Progressive Education and Development, 4 (3): 70-86.
Akinleye, S.O. Akanni, K.A., & Oladoja, M.A. (2003). An appraisal of the agricultural credit guarantee scheme in Nigeria. Department of Agricultural Economics, Olabisi Onabanjo University, Ago Iwoye, Nigeria, 1(1), 1–14.
Akinriola, O. O. & Okunola, A. M. (2017). Performance analysis of Nigerian agricultural credit guarantee scheme: Bounds test approach to cointegration. Journal of Development and Agricultural Economics, 12(2), 75 – 83.
Akpan, U. A. (2022). Analysis of impact of institutional and legal frameworks on agricultural financing in Nigeria. Journal of Economics and Finance, 13(4), 40-46.
Akudugu, M. A. (2016). Agricultural productivity, credit and farm nexus in Africa: A case study of Ghana. Agricultural Finance Review, 76(2), 288 – 308.
Amir. (1999). Factor affecting farm access to borrowing in formal credit market in District Peshawar. M.sc (Hon) Thesis Dept. Agriculture Economics. NWFP Agric. Univ. Peshawar.
Ammani, A. A. (2012). An investigation into the relationship between agricultural production and formal credit supply in Nigeria. International Journal of Agriculture and Forestry 2(1): 46-52. DOI: 10.5923/j.ijaf.20120201.08.
Amassoma, J.D., Nwosa, P.I & Ofere, A.F. (2011). The nexus of interest rate deregulation, lending rate and agricultural productivity in Nigeria. Current Research Journal of Economic Theory, 3 (2): 53-61.
Anetor, F.O. Ogbechie, C Kelikume, & Ikpesu, F. (2016). Credit supply and agricultural production in Nigeria: A Vector Autoregressive (VAR) Approach. Journal of Economics and Sustainable Development, Vol.7, No.2, 131-143.
Anh, N. T., Gan, C. & Anh, D. L. T (2020). Does credit boost agricultural performance? Evidence from Vietnam. International Journal of Social Economics. Retrieved from 10.1108/IJSE-04-2020-0238.
Anthony, B. O., Tijjani, B. (2022). Financing agricultural sector, a panacea for food security in Nigeria. Journal of Economics, Management and Trade, 28(11): 45-55
Arikpo, O. F & Adebisi, A. W. (2017). Deposit money banking financing and its effect on real sector output in Nigeria: evidence from trade and agricultural sectors. Advances in Social Sciences Research Journal, 4(14) 22-37
Awotide, B. A., Abdoulaye, T., Alene, A. & Manyong, V. M. (2015, August). Impact of access to credit on agricultural productivity: Evidence from smallholder cassava farmers in Nigeria. Paper presented at the International Conference of Agricultural Economists (ICAE), Milan, Italy.
Bahsi, N. & Ceti, E. (2020). Determining agricultural credit impact on agricultural production value in Turkey. Ciencia Rural, 50:(11), 1 – 13.
Balogun, E. & Out, M. F. (1991). Credit policy and agricultural development in Nigeria. CBN Economic and Agric. Review, Lagos.
Borio, C. & Gambacorta, L (2017). Monetary policy and bank lending in a low interest rate environment: diminishing effectiveness? BIS Working Papers No 612. Monetary and Economic Department
Black, L.K, Hancock, D. & Passmore, W. (2010). The bank lending channel of monetary policy and its effect on mortgage lending. Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.
Central Bank of Nigeria (CBN) (2002). Annual Reports.
Central Bank of Nigeria (2016). Central Bank of Nigeria Communiqué No. 105 of the Monetary Policy Committee Meeting of Monday and Tuesday, January 25 and 26, 2016. In C. B. O. N. Research Unit (Ed.)
Central Bank of Nigeria (CBN) (2016). Interest rate. Education in Economics Series 3, 1-23. Research Department, CBN.
Chachar, A. (2007). Agricultural credit: the way forward. Dawn group of newspapers. www.dawn.com/2007/12/03/ebr5.htm
Chandio, A. A., H. Masgsi, A. Rehman & J.G.M. Sahito. (2017). Types, sources and importance of agricultural credit in Pakistan. J. Appl. Environ. Biol. Sci. 7(3): 144- 149.
Chinedu B.-M. O., Chigozie C. I. & Ikenna. C. E. (2022). Effect of microfinance credit on agricultural sector output in Nigeria. International Journal of Trend in Scientific Research and Development (IJTSRD), Vol. 6, pp.1744- 1752.
Chisasa, J. & Makina, D. (2013). Bank credit and agricultural output in South Africa: A Cobb-Douglas empirical analysis. International Business and Economics Research Journal, 12 (4): 387-397.
Chisasa, J. & Makina, D. (2015). Bank credit and agricultural output in South Africa: Cointegration, short run dynamics and causality. Journal of Applied Business Research, 31 (2): 489-500.
de Janvry, A. (1972). The generalized power production function. American Journal of Agricultural Economics. 54:234-37.
Dilshad A., Muhammad, I.C., & Muhammad A. (2018). Impact of Formal Credit on Agricultural Output: Empirical Evidence from Pakistan. Sarhad Journal of Agriculture, 34 (3): 640-648
Dobrinsky, R. & Markov, N. (2003). Policy regime change and corporate credit in Bulgaria: asymmetric supply and demand responses. William Davidson Institute Working Paper Number 607.
Drehmann, M. Sorensen, S., & Stringa, M. (2006). Integrating credit and interest rate risk: A theoretical framework and an application to banks' balance sheets. https://www.bis.org/bcbs/events/rtf06stringa_etc.pdf
Egwu, P.N. (2016). Impact of Agricultural financing on agricultural output, economic growth and poverty alleviation in Nigeria. Journal of Biology, Agriculture and Healthcare, 6 (2): 36-42
Enyim, O.B., Ewno, E. N., & Okoro, O. T. (2013). Banking sector credit and the performance of the agricultural sector in Nigeria. European Journal of Scientific Research, 23(2), 35-55.
Eyo, E. O., Nwaogu, M. A., & Agenson, M. E. (2020). Agricultural credit guarantee in Nigeria and the uncertainties of the macroeconomic environment. International Journal of Economics and Financial Issues, 10(20), 20 – 29.
Ezeanyeji, C. I. (2014). An assessment of the impact of interest rate deregulation in enhancing agricultural productivity in Nigeria. Journal of Economics and Sustainable Development, 5 (8),17-23.
Florence, N. & Nathan, S. (2020). The effect of commercial banks’ agricultural credit on agricultural growth in Uganda. African Journal of Economic Review, 3(1), 162 – 175.
Fowowe, B. (2020). The effects of financial inclusion on agricultural productivity in Nigeria. Journal of Economics and Development, 22(1), 61 – 79.
Froehlich A. (2015). Mediating versus moderating variables. YouTube video. Youtube.com/watch?v=QQnqXGpOWbY.
Gul, S. & Khan, M.N. (1993). A Critical assessment of the supervised credit scheme of the agricultural development bank of Pakistan: A Case Study of Mardan District. J. Rural Dev. Adm. Pak. 25(2): 119-126
Idris, O. B. (2010). Review of small farmer access to agricultural credit in Nigeria. International Food Policy Research Institute (IFPRI), 2-11PP.
Ijere, M. O. (1996). New perspective in financing Nigeria agriculture. Enugu: Dimension Publishers, 6-55pp.
Imoisi, A. A., Sogules, I. W. & Ekpeyoung, B. I. (2012). An appraisal of credit facilities on agricultural output and productivity in Nigeria: 1970-2010. British Journal of Humanities and Social Sciences, November 2012, Vol. 7 (2)
Iqbal, M., Ahmad, M., & Abbas, K. (2003). The impact of institutional credit on agricultural production in Pakistan. The Pakistan Development Review, 42 (4): 469-485.
Iqbal, M., Ahmad, M., Abbas, k., & Mustafa, K. (2004). The impact of institutional credit on agricultural production in Pakistan. The Pakistan Development Review, 42(4), 469 – 485.
Isiorhovoja, R. A. & Chukwuji, C. O. (2009). Effects of the operations of the agricultural credit guarantee scheme fund on cash crops. International Journal of Rural Studies, - 16(1), 1 – 7.
Islam, M. M. (2020). Agricultural credit and agricultural productivity in Bangladesh: An econometric approach. International Journal of Food and Agricultural Economics, 8(8), 247 – 255.
Itodo, A.I., Apeh, S. & Adeshina, S. (2012). Government expenditure on agricultural sector and economic growth in Nigeria. Journal of Humanities and Social Science, 8(4), 62 – 67.
Jhingan, M.L., (2006). The economics of development and planning. 38th Edition. Virnda Publication (P) Ltd., Delhi.
Kareem, R.O., Bakare, H.A., Raheem, K.A., Ologunla, S.E., Alawode, O.O. & Ademoyewa, G.R., (2013). Analysis of factors influencing agricultural output in Nigeria: Macroeconomics perspectives. American Journal of Business, Economics, and Management, 1(1):9-15
Khan, M.H. (1981). Undeveloped and agrarian structure in Pakistan. Boulders Colorado West View Press
Kohansal, M.R., Ghorbani, M. & Mansoori, H. (2008). Effect of credit accessibility of farmers on agricultural investment and investigation of policy options in Khorasan- Razavi Province. Journal of Applied Sciences 8 (23): 4455-4459.
Korkmaz S. (2015). Impact of bank credits on economic growth and inflation. Journal of Applied Finance & Banking, vol. 5, no. 1: 57-69
Kumar, A., Singh, K.M. & Sinha, S. (2010). Institutional credit to agricultural sector in India: Status, performance and determinants. Agricultural Economics Review, 23: 223-264
Mackinnon, R. (1973). Money and capital in international development. The Brokenness Institution Washington. DC.
Matthew, O., R. Osabohien, E. Urhie, O. Ewetan, O. Adediran, E. Oduntan, & C. Olopade (2019). Agriculture as a stimulant for sustainable development in ECOWAS. Sustainability: The Journal of Record 12 (4): 215–225.
Mboulou, S. R. (2020). Determining the magnitude of the impact of agricultural credit on productivity. Journal of Economics and Development Studies, 8 (4): 68-82.
McElroy, F. W. (1969). Returns to Scale, Euler's Theorem, and the Form of Production. Econometrica, 37:275-79
McKinnon, R. (1973). Money and capital in economic development. Washington DC: Brooklings institutions.
Lau, L. J., & Yotopoulos, P.A. (1972). Profit, Supply, and Factor Demand Functions. American Journal of Agricultural Economics 54:11-19.
Nasir, J. (2007). Downsize of informal agricultural credit. Dawn group of Newspapers.
Ngong, C. A., Thaddeus, K. J. & Onwumere, J. U. (2020). Banking sector development and agricultural productivity in Central African Economic and Monetary Community (CEMAC). Journal of Agricultural Science and Technology, 10, 68 – 82.
Nnamocha, P. N. & Eke, C. (2015). Bank credit and agricultural output in Nigeria (1970 – 2013): An error correction model (ECM) approach. British Journal of Economics, Management & Trade, 10(2), 1 – 12.
Nwaigbo, E.C. (1991). Problems of agriculture and agricultural finance in Nigeria. Paper No.6 presented at a seminar organised by CBN, Lagos, April, Pages 27-30.
Nwankwo, F.N. (1999). Nigeria’s agriculture. www.nigeriabusinessinfo.com/agricdata.
Nwankwo, O. (2013). Agricultural financing in Nigeria: An empirical study of Nigerian agricultural co-operative and rural development bank (NACRDB):1990-2010. Journal of Management Research, 5(2), 28-44. https://doi.org/10.5296/jmr.v5i2.2806
Nwanyanwu, O.J. (2012). An analysis of banks' credit on the Nigerian economic growth (1992- 2008): Jos Journal of Economics, 4(1), 43- 58.
Nweze, N.J. (1994). Indigenous financial practices among farmer in Nigeria. Indigenous Knowledge and Development Monitor 1-99pp.
Nwosu, F.O., Oguoma, N.N.O., Ben-Chendo, N.G. & Henri-Ukoha, A. (2010). The agricultural credit guarantee scheme: Its roles, problems and prospects in Nigeria’s quest for agricultural development. Researcher, 2 (2): 87-90.
Obilor, S. I. (2013). The impact of commercial banks’ credit to agriculture on agricultural development in Nigeria: An econometric analysis. International Journal of Business, Humanities and Technology, 3 (1): 85-94
Obua, N. (2003). Nigeria’s agricultural sector business investment opportunities. www.nigeriabusinessinfo.com/agricdata.
Ogbuabor, J.E. & Nwosu, C.A. (2017). The impact of deposit money bank’s agricultural credit on agricultural productivity in Nigeria: Evidence from an Error Correction Model. International Journal of Economics and Financial Issues, 7 (2):513-517
Ogundajo, G. O., Ajala, O, M. O., Lawal, B., Oyegoke, K. S., Jimoh, M. J. (2022). Credit financing, monetary policy and performance of the agricultural sector of the Nigerian economy. South Asian Research Journal of Business and Management, 4(5), 171- 181.
Ogundipe, A. A., Ogunniyi, A. Olagunju, K., & Asaleye, A.J. (2019). Poverty and Income Inequality in Rural Agrarian Household of Southwestern Nigeria: The Gender Perspective. The Open Agriculture Journal 13: 51–57.
Ojo, M. P., & Ayanwale, A.B. (2019). Estimating farm-level financing gap: A technical efficiency approach. Agricultural Finance Review 79 (2): 74–191.
Okafor, C. A. (2020). Commercial banks credit and agricultural development in Nigeria. International Journal of Business & Law Research, 8 (3): 89-99.
Okoria, A. (1986). Major determinants of agricultural smallholder loan repayment in a developing economy: Empirical evidence from Ondo State, Nigeria Savings Development, 12-87pp.
Olowofeso, Adeboye, Adejo, Bassey & Abraham (2017). Agricultural sector credit and output relationship in Nigeria: Evidence from nonlinear ARDL. CBN Journal of Applied Statistics, 8(1), 101 – 122.
Oluwaseyi, P., Risikat, D. (2020) Agriculture financing and growth performance in Nigeria: pre-2000 and post-2000 Analyses. The Romanian Economic Journal, XXIII (75), 16-37
Onoja, A. O., Onu, M. E. & Ajodo-Ohiemi, S. (2012). Contributions of Financial Sector Reforms and Credit Supply to Nigerian Agricultural Sector (1978-2009). CBN Journal of Applied Statistics 02 (2): 83-98
Onyishi, L.O., Arene, C.J & Ifiorah, C.M. (2015). Impact of interest rate reform on agricultural finance and growth in Nigeria. Russian Journal of Agricultural and Socio- Economic Sciences, 37(1): 29-37.
Oparinde, L. O., Amos, T. T. & Adeseluka, M. (2017). Influence of agricultural credit guarantee scheme fund on fishery development in Nigeria. Scientific Papers Series Management, Economic Engineering in Agriculture and Rural Development, 17(1), 323 – 332.
Orji, A., Ogbuabor, J. E., Anthony-Orji, O. I. & Alisigwe, J. N. (2020). Agricultural financing and agricultural output growth in developing economies: Any causal linkage in Nigeria? International Journal of Finance, Insurance and Risk Management, 2, 34 – 43.
Orok, A. B. & Ayim, S. A. (2017). The impact of agricultural credit guarantee scheme fund on agricultural sector development in Nigeria. International Review of Management and Business Research, 6(3), 1104 – 1116.
Osabohien, R., A. Afolabi, & A. Godwin. (2018). An econometric analysis of food security and agricultural credit facilities in Nigeria. The Open Agriculture Journal 12 (1): 227–239 http://doi.org/10.2174/1874331501812010227
Osabohien, R., Osabuohien, E., & Ohalete, E. (2019). Agricultural sector performance, institutional framework and food security in Nigeria. Bio-based and Applied Economics 8 (2): 161–178.
Osabohien, R., Matthew, O. Gershon, O. Ogunbiyi, T. & Nwosu, E. (2019). Agriculture development, employment generation and poverty reduction in West Africa. The Open Agriculture Journal 13: 82–89.
Osabohien, R., Osabuohien, E., & Urhie, E. (2018). Food security, institutional framework, and technology: Examining the nexus in Nigeria using ARDL approach. Current Nutrition and Food Science 14 (2): 154–163
Osabohien, R., Adeleye, N. & De Alwis, T. (2020). Agro-financing and food production in Nigeria. Heliyon 5 (6): e04001. https://doi.org/10.1016/j.heliyon.2020.e04001.
Osabohien, R. Mordi, A. & Ogundipe, A. (2020). Access to credit and agricultural sector performance in Nigeria. African Journal of Science, Technology, Innovation and Development, 1-9.
Patrick, H. T. (1966). Financial development and economic growth in underdeveloped countries, Economic Development and Cultural Change, 14(1), 174-189.
Popovic, S., Janković, I., & Stojanović, Z. (2018). The importance of bank credits for agricultural financing in Serbia. Economics of Agriculture, 65 (1): 65-80
Qureshi, S. Khan & Shah, A. H. (1992). A critical review of rural credit policy in Pakistan. The Pak. Dev. Rev. 31 (4): 781-801
Rehman, M. (2003). The role of ZTBL in enhancing farm productivity through agriculture credit in district Swat. M.sc (Hon) Thesis IDS. NWFP Agric. Univ. Peshawar.
Reuben, J., Nyam, C. M. & Rukwe, D. T. (2020). Agricultural credit guarantee scheme fund and its effect on agriculture output in Nigeria. Review of Agricultural and Applied Economics, 23(2), 102 – 111.
Saeed, R., Abid, H. & Muhammad T. (2014). Impact of agricultural credit on agricultural productivity in Pakistan: An empirical analysis. International Journal of Advanced Research in Management and Social Sciences, 3 (4): 125-139.
Sassi S. (2014). Credit markets development and economic growth: Theory and Evidence. Theoretical Economics Letters, 4, 767-776. http://dx.doi.org/10.4236/tel.2014.49097.
Saqib, L., Zafar, M.A., Khan, K., Roberts, K.W. and Zafar, A.M. (2015). Local agricultural financing and Islamic banks: is Qard-al-Hassan a possible solution? Journal of Islamic Accounting and Business Research, 6(1), 122-147
Shaw, E.S. (1973). Financial deepening in economic development. Oxford University Press Oxford.
Shinde, S. S., Patil, P. B. (2014). Role of state bank of India in agricultural finance (with reference to study of agricultural financing of Niphad (Nashik) Branch). Journal of Commerce and Management Thought, 5(3), 409-423
Sial, M. H., Awan, M. S. & Waqas, M. (2011). Role of institutional credit on agricultural production: A time series analysis of Pakistan. Munich Personal RePEc Archive Paper No. 31815. https://mpra.ub.uni-muenchen.de/31815/
Tahir, S.H., Shehzadi, I., Ali, I. & Ullah, M.R. (2015). Impact of bank lending on economics growth in Pakistan: An empirical study of lending to private sector. American Journal of Industrial and Business Management, 5, 565-576.
Tarasov, A. (2013). Impact of interest rates on the decision to insure in agricultural production. Studies in Agricultural Economics, 115, 1-7.
Udensi, A.I., Orebiyi, J.S., Ohajianya, D.O. & Eze, C. C. (2012). Determinants of macroeconomic variables that affect agricultural production in Nigeria. International Journal of Agricultural and Rural Development, vol. 15, no. 3, pp. 1169-1173
Udih, M. (2014). Bank credits and agricultural development: Does it promote entrepreneurship performance? International Journal of Business and Social Science, 5(11), 102 – 107.
Udoka, C. O., Mbat, D. O. & Duke, S. B. (2016). The effect of commercial banks’ credit on agricultural production in Nigeria. Journal of Finance and Accounting, 2016, Vol. 4, No. 1, 1-10. DOI:10.12691/jfa-4-1-1
Weiss, M.A. (2007): Underwriting cycles: a synthesis and further directions. Journal of Insurance Issues 30 (1), 31-45.
Zuberi, H.A. (1990). Institutional Credit and Agricultural Development. Journal of Economic Development, 2(1): 12-35.
Zuberu.E., Ari. M. A. & Iliya B. (2019), Effect of Agriculture financing on agriculture productivity in Nigeria. International Journal for Innovative Research in Multidisciplinary Field, Vol 5, PP 2455-0620.