Impact of Bank Credit on Agricultural Output in Nigeria

Abstract

This study examines the impact of bank credit on agricultural output in Nigeria from 1992-2023, with a particular emphasis on the contributions of both commercial and microfinance bank credit to the agricultural sector growth. The agricultural sector has exhibited weak performance in Nigeria over time, contributing less to economic growth and raising concerns about food insecurity, and questions about whether financial support, particularly bank credit, has been adequate or effective. The study employs the Autoregressive Distributed Lag (ARDL) model to analyse the effect of bank credit on agricultural productivity. The results reveal that both commercial bank credit (p value = 0.012) and microfinance bank credit (p-value = 0.015) have a significant positive effect on agricultural output in Nigeria. These findings suggest that credit from commercial banks enhances agricultural productivity by enabling farmers to procure essential inputs such as improved seeds, fertilizers, agrochemicals, modern equipment, and irrigation facilities, underscoring the crucial role of microfinance institutions in supporting smallholder farmers. The study concluded that both commercial and microfinance bank credits contribute statistically to agricultural productivity in Nigeria and serve complementary functions in promoting sectoral growth. The study recommended improved credit delivery mechanisms, reduced borrowing constraints, and enhanced financial inclusion to sustain agricultural development and foster economic growth in Nigeria.