This study examined access to agro-credit by farmers in Kaduna state. This study employed survey research methodology which covered the three agricultural zones in the study area. To achieve the objective of the study, five research questions guided the study and one hypothesis was formulated. Hypothesis was tested using Chow test model. The data generated were analyzed using multiple regression and 4-point likert scale rating. A reliability coefficient of 0.78 was obtained using Cronbach Alpha to establish internal consistency. It was shown that, majority of the respondents (40%) were aged between 31 and 40 years, 32.5% where aged between 41 and 50 years and 18.33% were between 21 and 30 years. About 41.20% of the respondents had no formal education, 34.2% attended primary education, 16.7% obtained secondary certificate while 7.5% attended tertiary institution. About 48.3% of the respondents had farming experience of 20 years and above, 19.2% had farming experience of between 10 to 14 years and 17.5% had 15 to 19 years. Majority of the respondents (41.67%) sourced a total amount of between N100,000 and N400,000 from either formal or informal sources, 25.83% sourced less than or equal to N100,000. Others, 10.83%, 15% and 6.67% have obtained credit to the tune of N400,001 – 700,000, N700,000 – N1,000,000 and more than N1,000,000 respectively. Age, marital status, level of education, interest rate and credit awareness were the major determinants of (p<0.05) credit sourced by the farmers in the study area. Sixty-five percent and 52.5% of the farmers obtained their credit from informal sources (personal savings and rotating savings respectively) while 42.5% of them obtained theirs from formal sources. Lack of trust to pay back the credit (2.89), inability to receive the amount applied for (2.93), risk of repaying the credit because of crop failure (2.84), difficulty before getting the credit (2.63) and problem of getting guarantors (3.00) were the major problems under informal sources. For formal sources, time spent on getting the credit (2.58), complicated procedures (2.71), high interest rate (2.80), inadequate collateral security (3.00), repayment time is short (2.55), illiteracy (2.98), lack of good information about agro-credit (2.81) and lack of presence of banks in the rural areas (2.68) were the major problems encountered by farmers.


Title page                                                                                                  i                            Certification                                                                                                              ii

Dedication                                                                                                           iii

Acknowledgement   iv

Abstract                                                                                   v

Table of contents                                                                                       vi

List of tables                   vii   


1.1       Background information                                                            1

1.2       Statement of the problem                                                                       4

1.3       Objectives of the study                                                                         7

1.4       Research hypothesis                                                                             7

1.5       Justification of the study                                                                    8


  • Socio-Economic Characteristics of Farmers in Kaduna State          10

2.2       The concept of interest rate                                   11

2.3      Agricultural Credit                                                                       13

3.4       Sources of Credit Used by the Farmers                                              13

2.5       Effects of Interest Rate on Sources and Volume of Credit Received by Farmers  16                                                                                    

2.6       Problems Encountered in Obtaining Loans from Formal and Informal Sources        18

2.7       Agricultural Sector Policies in Nigeria                              19

2.8       Theoretical Framework                                                                 21

2.9       Analytical Framework                                  24                     

2.9.1    Descriptive Statistics        24                                                                                        

2.9.2    Likert rating scale                                          24

2.9.3    Linear multiple regression model                             25


3.1       The Study Area                                                            27

3.2       Sampling Procedure                                                             28

3.3       Method of Data Collection                                                          28

3.4       Data Analysis                                                                                28

3.4.1    Model Specification                                               29

3.4.2    Likert Scale Rating                                                      29

3.4.3   Linear multiple regression model                                                29


4.1.      Socio-economic characteristics of the farmers.                    31

4.2:      Sources of credit used and amount of credit obtained by farmers                            34

4.2.1:   Sources of credit used by farmers                                          34

4.2.2.   Amount of credit obtained by farmers                                    36

4.3.      Factors affecting the volume of credit sourced by farmers.     37

4.4       Problems encountered by farmers in obtaining credit from formal and informal financial institutions.                        40

4.4.1:   Problems encountered by farmers through formal financial sources                          40

4.4.2:   Problems encountered by farmers through informal financial sources.                      41

4.2:      Test of hypothesis on the socio-economic attributes on the volume of credit sourced                                                        42



Conclusion                                                                                  44

Recommendations                                                                       45

REFERENCES                                                                             46

APPENDIX                                                             53


Tables 4.1        Distribution of respondents according to their socio-economic of the respondents   31

Tables 4.2        Distribution of respondents according to the sources of credit used.   35

Table 4.3.        Distribution of respondent according to the amount of credit obtained.       36

Table 4.4         Determinants of credit volume sourced by farmer 37

Table 4.5.        Distribution of respondents according to problems encountered in obtaining credit from formal sources.                                                             40

Table 4.6:        Distribution of respondents according to the problems encountered in obtaining credit from informal sources     41                   

Table 4.7.        Chow test result showing the significant relationship between the socio-economic characteristics of the farmers and the volume of credit sourced. 42



1.1       Background Information

            With an estimated 140 million inhabitants and a population growth rate of 2.5% annually, Nigeria is the most populated country in sub-Saharan Africa and the 10th most populated country in the World ( National Population Commission [NPC], 2006). Approximately, 49 percent of the population engages in agriculture as their major occupation. The agricultural sector is the mainstay of the majority of Nigerian rural poor, with over 70 percent of the active labour force in rural areas employed in agriculture and the sector contributing over 23 percent of the GDP in 2006 (World Bank, 2007).

            Agricultural credit plays a critical role in agricultural development (Duong & Izumida, 2002). Farm credit has for long been identified as a major input in the development of the agricultural sector in Nigeria. The decline in the contribution of the sector to the Nigeria economy has been attributed to the lack of a formal national credit policy and paucity of credit institutions. The provision of credit or loanable fund (capital) is viewed as more than just another resource such as labour, land, equipment and raw materials (Rahji, 2010). It determines access to all of the other resources which farmers require (Shephard, 1979). Agricultural practice requires money for the purchase of various factors of production including land. There are two main sources of agricultural financing; formal and informal sources. According to Nchouji (2007), the formal sources are organized and guided by law with effort on the part of the government, examples are Bank of Agriculture (BOA), commercial banks, supervised agricultural credit, cooperative societies and government agencies. Informal sources include friends, relatives, money leaders, saving societies and traditional groups. These sources are meant to facilitate and increase agricultural production. Though farmers may patronize these sources, but the implication involved is the provision of collaterals and other necessary requirement before obtaining those credit facilities. Oladeebo (2003), reported that years of farming experience with credit use and level of education were the major factors that positively and significantly influenced the amount of loan obtained by farmers.

          Agricultural credit access has particular salience in the context of agricultural and rural development in Nigeria. Some 70% approximately of the population live in the rural areas with their main source of livelihood being agriculture. Recent studies showed that the growth rate of investment in the agricultural sector is less than that of the other economic sector. Therefore, financing agriculture is one of the most important factors to develop rural areas in developing countries (Kohansal and Mansoori, 2009). Credit accessibility is important for improvement of quality and quantity of farm products, so that it can increase farmer’s income and reduce rural migration. Credit constraints to farm households thus impose high cost on the society. This is in terms of rural unemployment, rural poverty, and distortion of production and liquidation of assets. Governments in both developed and developing countries attempt to overcome these problems by subsidizing credit, setting up Agricultural Credit Guarantee Fund Schemes (e.g. ACGFS in Nigeria, 1977) and specialized Agricultural Credit Bank (e. g NACB, 1973 now BOA, 2010) and stimulating institutional innovations in the financial system (e.g. People’s Bank, Community Bank, Rural Banking Schemes, etc) (Rahji, 2010).

The Nigerian agricultural sector is among the most heavily regulated sector of the Nigerian economy. The special interest of government in the agricultural sector is due to its relevance in the provision of raw materials for industries and most importantly the provision of food for the teaming Nigerian population and also serving as a source of foreign exchange for the economy (Adofu, Abula & Audu, 2010). The Nigerian agricultural sector is not alone in government intervention in terms of regulation, Akiri and Adofu (2007), opined that the banking industry owing to the nature of the activities and functions it performs in the economy, is also one of the widely and heavily regulated sector in both developing and developed countries of the world.

            Anyanwu, Oyefusi, Oaikhanan, and Dimowo, (1997) opined that, commercial banks encourage savings. Since investments are made out of savings, the establishment of commercial banks especially in the rural areas makes savings possible hence economic development is accelerated. The government most often may think it’s necessary to intervene in the operation of the banking system with the intention of correcting the short comings of the price fixing mechanism to ensure that what is commercially rational for an individual bank is approximately rational for all (Adofu, et al., 2010). Socially, interest rate charged by banks could be regulated to encourage savings mobilization, ensure and foster adequate investment for rapid growth and development, bearing in mind the view of Goldsmith (1969) that the financial superstructure of an economy accelerates economic performance to the extent that it facilitates the migration of funds to the best user i.e. to the place in the economic system where the funds yield the highest social return.

 According to Akiri and Adofu (2007), the existence of externalities and imperfection in the financial markets of most developing economies has often called for intervention by the government through its appropriate agent (the Central Bank of Nigeria in the case of Nigeria) to encourage investment and to re-channel credit to those economic units with high social rate of returns but low commercial rate of returns. Under the deregulated interest rate system, the market forces of demand and supply play a very prominent role in the determination of interest i.e. banks and their customers are free to negotiate to arrive at a suitable interest rate on both deposit and loans. Kohansal and Mansoori, (2009), noted that the main part of financial resources of agricultural bank come through recovery of overdue granted credits while lending activity for banking system is accompanied with some risks and problem. In the other hand, Awoke, (2004), stated that inspite of the importance of loan in agricultural production, its acquisition and repayment are fraught with a number of problems especially in the small holder farming. Therefore, most of the problem arose from poor management procedure, loan diversion and unwillingness to repay. Thus, lending is a risky enterprise because repayment of loans can seldom be fully guaranteed.