Financing Growth, Fueling Loss? Unpacking the Dual Impact of Agricultural Credit on Farm Productivity and Deforestation in Nigeria

Forests are vital ecosystems that support biodiversity, regulate the climate, and sustain rural livelihoods. In agricultural regions, access to credit can increase productivity by enabling investments in resources such as seeds, equipment, and irrigation systems. However, when funds are used to clear land for farming, credit can contribute to deforestation. This study, guided by utility-maximization theory, examines the link between agricultural credit and deforestation among 770 Nigerian farmers. Data were collected through interviews from January to April 2021. Results from Propensity Score Matching (PSM) show that, on average, farmers cleared 0.5 hectares of forest, with 25% engaging in deforestation, 25% of which was directly credit-induced. Farmers who received credit cleared an estimated 0.75–0.79 hectares more than non-recipients. Encouragingly, nearly two-thirds of credit recipients adopted sustainable intensification practices. While agricultural credit is not the sole cause of forest loss, it contributes significantly to it. These findings underscore the importance of incorporating training on sustainable farming practices and promoting eco-friendly intensification into credit policies. Integrating environmental education into credit schemes that align with conservation objectives can support rural development while safeguarding forest ecosystems.