An Investigation into the Relationship between Agricultural Production and Formal Credit Supply in Nigeria

Nigerian agriculture by nature is essentially traditional and subsistence. Limited access to credit facilities has been implicated as hinderance to the growth and productivity of the agricultural sector. Thus, the need arises for the provision of credit to the majority of Nigerian farmers. To increase farmers’ access to credit from formal sources, the Federal Government of Nigeria established the Agricultural Credit Guarantee Scheme Fund (ACGSF) in 1977, with the purpose of increasing the level of bank credit to the agricultural sector through the provision of guarantee in respect of loans granted by any bank for agricultural purposes. This paper set out to investigate the relationship between agricultural production and formal credit supply in Nigeria. The methodology employed in the study involved the development and estimation of three simple regression models relating agricultural output with formal credit while holding other explanatory variables constant. Findings of the paper indicates that formal credit is positively and significantly related to the productivity of the crop, livestock and fishing sectors of Nigerian agriculture. Based on the findings it is recommended that government should continue to encourage the expansion of formal credit sources to reach as much farmers as possible.