Effect of Bank Lending on Agricultural Output in Nigeria From 1981 – 2021 (Auto-regresive Distribution Approach)

Abstract

Lending plays a vital role in expediting agricultural modernization and encouraging farmer involvement in the development process. By alleviating financial constraints, lending offers the motivation to embrace new technologies that might otherwise be adopted at a slower pace. This study investigates the effect of bank lending on agricultural activities in Nigeria from 1981 - 2021 using a secondary form of analysis. Different diagnostic tests were carried out, which include descriptive statistics, a pear wise correlation matrix, unit root test, co-integration test, and an auto regressive distributed model (ARDL). The result of the study shows that commercial bank lending to agriculture and interest rates have a positive and statistically significant effect on agricultural output in Nigeria. The study recommends that the government should strengthen financial institutions, which are the credit agencies, in order to ensure efficient disbursement of funds to agricultural and manufacturing sectors and ensure that funds are not misappropriated for other purposes, in order to boost economic growth.

The Impact of Credit Policy Environment on Poultry Production in Nigeria

“…Therefore, poultry farmers/enterprises would swiftly react to an increase in the lending interest rate by reducing production as it will affect resource availability and efficiency. The finding agrees with the reports of Udoka et al (2016); Asekome and Ikojie, (2018) ;Iliyasu, (2019), but contradict the submission of Salisu and Alamu (2023).…”

“…They asserted that increase access to microcredit helps to alleviates rural poverty, reduce unemployment and promote higher productivity among farmers. Salisu and Alamu (2023) asserted that commercial bank loan to agricultural sector and lending interest rate have a positive effect on agricultural output in Nigeria.…”

Agricultural Credit Policy and Livestock Development in Nigeria

“…The result is consistent with the a priori finding, as an increase in the lending rate is known to increase agricultural risk and limit farmers' capacity to expand production and agricultural investment. The finding is consistent with the reports of Udoka et al (2016), Asekome andIkojie, (2018), andIliyasu, (2019); however, it contradicts the submission of Salisu and Alamu (2023). Furthermore, the coefficients of domestic credit to the private sector in the previous year and the previous three-year period show a negative significant association with livestock production in Nigeria.…”

“…In 2009, the Central Bank of Nigeria (CBN), in collaboration with the Federal Ministry of Agriculture and Water Resources (FMAWR), established the Commercial Agriculture Credit Scheme (CACS) to provide finance for agricultural processing, storage and marketing (Olomola & Yaro, 2015). In addition, other credit policies introduced by the Federal government include the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) launched in 2011, and the Micro, Small, and Medium Enterprises Development Fund (MSMEDF) launched in 2013 (Salisu and Alamu, 2023). Furthermore, the manipulation of the macroeconomic environment through tools such as exchange rate policy, lending interest rate policy and other monetary and fiscal policy measures have been deliberately used to stimulate growth in the real sector of the economy (CBN, 2022).…”

“…Umboh et al (2021) found that agricultural credit combined with other agricultural inputs increases the productivity of livestock farmers. Salisu and Alamu (2023) asserted that commercial bank lending to agriculture, along with interest rates, has a positive and statistically significant effect on agricultural output in Nigeria.…”