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The Impact of Microfinance Credit on Agricultural Productivity in Nigeria

The Impact of Microfinance Credit on Agricultural Productivity in Nigeria

The Impact of Microfinance Credit on Agricultural Productivity in Nigeria

Chapter One

Objectives of the Study

The aim of this study is to assess the impact of micro-finance credit on the productivity of the agricultural sector. Specifically, the study seeks to:

  1. Determine the impact of micro-finance credit on agricultural production in Otuoke.
  2. Assess the level of credit accessibility by farmers in Otuoke.
  3. Examine the size of credit financing received by farmers.



In this chapter, the focus will be to review related and relevant literatures .on Agricultural productivity and credit financing. This review will be categorized into theoretical review and the empirical review.

 Theoretical Literature Review

 Risk and Uncertainty

Theory Risk and uncertainty concepts in agriculture are subjects internationally discussed by theoretical economists and empirical analysts. The operations of a farm enterprise are not as protected as in the case of commercial and industrial enterprises. Forecasting farm income is a difficult task. Agriculture suffers from various risks and uncertainties for example risks emanating from natural hazards and calamities, risks of loss of property by fire, thefts, loss due to abrupt and wide fluctuations in prices of farm products and the risk arising out of the death or disability of the farmer. Credit risk is faced by both lenders and borrowers. An increase in farm investment will take place only when the risks and uncertainties in the minds of farmers are removed (Jugale, 1991)

 Demand and Supply Theory

The theory of demand plays a very important role in business management because it looks at the concept of elasticity of demand and the determinants. It enables a firm to determine what to produce into the market, how much of it, when and where. Theory of demand forms the basis of pricing and it enables firms to measure the reaction of customers towards critical market forces. With intense knowledge and understanding of demand and supply theory, production and the subsequent sale of the produce is well forecasted.

This reduces losses attributed to excess supply. According to Singh and Nyandemo (2007), quantities demanded will change whenever there is a change in the determinants of demand and supply. This therefore means that knowledge of elasticity of demand and supply is necessary because it is a measure of the responsiveness of demand or supply of a commodity to the changes in its price or changes in the income of the consumer.

 Agency Theory

The effect of employing external debt rather than equity financing is that it reduces the scope for managerial perquisite consumption, which can have an adverse effect on the value of the firm. With debt outstanding, the most of excessive perks consumption will result in managers losing control of the company due to default and bondholders seizure of the company assets.

Thus external debt serves as a bonding mechanism for managers to convey their good intentions to outside shareholders. Because taking on debt validates that managers are willing to risk losing control of their firm if they fail to perform effectively, shareholders are willing to pay a higher price for the levered firms. The use of debt to control the agency of external equity can be accomplished in two ways: Debt forces managers to be monitored by the public capital. If investors have negative view of management‟s competence, they will charge high interest rate on the money they lend to the firm or they will insist on restrictive bond covenants to constrain management‟s freedom or both.

Outstanding debt limits management‟s ability to reduce firm value through incompetence or perquisite consumption, (Jensen, 1986). The discipline that debt provides has been further explored by Jensen (1989) and Ofek (1993). They argue that high leverage can provide benefits in the dynamic sense that companies with high leverage ratios may respond more quickly to the development of adverse performance than companies with low debt to equity ratios.

Ofek (1993) argues that: A choice of high leverage during normal operations appears to induce a firm to respond operationally and financially to adversity after a short period of poor performance, helping to avoid lengthy periods of losses with no response. The existence of debt in capital structure may thus help to preserve the firm‟s going concern value. The above however, are still considered to be insufficient to outweigh the agency cost of debt. The cost entail writing detailed covenants into bond contracts which sharply constrain the ability of the borrowing firm‟s managers to engage in expropriate behavior. The agency cost reduces the benefits of the debt interest tax shield. However an optimal (value maximizing) debt to equity ratio is reached at the point where the agency cost of debt equals agency cost of equity.

Need for increased agricultural productivity

Increased agricultural productivity is essential around the world to feed the global hungry people. Agricultural productivity is low in Sub-Saharan Africa in compared to other developing regions like South Asia and Lain America (ECG, 2011). For example, an average farmer in Sub-Saharan Africa gets a maximum of 2 metric tons grain per hectare whereas an Indian farmer receives double, a Chinese farmer gets four times more, and an American farmer gets five times more of what an average farmer of Sub-Saharan Africa gets (AfDB-IFAD, 2010). Hence, productivity should be increased in Sub-Saharan Africa. To increase agricultural productivity in Sub-Saharan Africa, it is necessary to know about the obstacles of agricultural production as well as productivity growth in agriculture in that region. Limited land rights, inadequate access to water, insufficient access to credit, underdeveloped rural roads and transport infrastructures, narrow market support, underprivileged agribusiness activities, and underinvestment in research and extension etc. are some of the major constraints in agricultural productivity in that region (IEG 2010).

In addition, institutions like coordination within organizations and among the donor agencies are also most difficult task and are related to market failures and property rights. Six action areas namely i) access to land and formation of land rights, ii) access to water, iii) access to credit, iv) improve transport and marketing facilities, v) market opportunities, agribusiness activities and policy reforms, and vi) investment in research and extension have to be prioritized to improve agricultural productivity in SubSaharan Africa (ECG, 2011).

Moreover, weakness in institutions and in any of these action areas can slow down the agricultural productivity in these regions. Hence, appropriate institutional framework is also necessary for that region. Interventions in these areas can create different scenarios in agricultural production  in Sub-Saharan Africa. For example, investment in agribusiness, which can help in increasing productivity, improving market opportunities for smallholders, delivering reasonably priced, nutritious and healthy foods to growing urban and semi-urban populations, increasing employment opportunities, and eventually improving food security and may contribute in rural and regional economic growth in Sub-Saharan Africa.





In this chapter, focus will be to elucidate on the methods and approaches employed to collect data, analyse it and interpret the results.

 Research Design

This study employed the descriptive survey design. This design allows the researcher to selected a research audience where their thoughts, opinions and views considered to be relevant to the study were sampled and validated for judgement. This study ensures that data collected were unbiased as respondents were allowed to express views freely and participants were based on consent.

Population and Sample

The population of this study was based on the population of Otuoke Ogbia local government area of Bayelsa state. Otuoke is a suburb in Ogbia local government area of Bayelsa State in the Niger Delta region of Nigeria (Jibueze, 2015) Majority of its inhabitants are farmers and fishermen (the nation, 2014). Reports from wikipedia shows that Otuoke has a population of 7000. furthermore, to the vast population, the researcher employed the taro yamane sampling technique to select a reachable audience.




It is the aim of this chapter to comprehensively present the data and interpret the corresponding findings. A total of 378 participant (farmers) in Otuoke were enrolled in this study and also from different wards in OGBIA local government. This is from the understanding that farmers in Otuoke may have different views from farmers in Oloibiri, Opume, Otakeme and Otuabula. More so farming for this study encompassed activity such as crop farming, fish farming and livestock. A total of 284 responses were received and validated for this study.





The focus of this chapter is to summarise the findings from this study and make possible recommendations that is hoped will be useful for policy maker in ensuring that adequate credit facility will improve agricultural productivity.


This study was carried out to assess the place of micro-finance credit in Agricultural productivity. Specifically this study sought to determine the various benefits of micro-finance credit to farmers in Otuoke and OGBIA local government area. Further aims were to assess the frequency of this credit, size of credit and challenges faced by farmers in accessing credit from micro-finance banks.

To achieve these goals, the quantitative approach was adopted while survey research design was employed. A total of 387 respondents were enrolled in the study. However 284 responses were received and validated for this study. The findings from this study revealed that there is a significant positive relationship between micro finance credit facility and increased agricultural productivity.

Additionally, further findings proved that farmers in Otuoke and OGBIA local government area have access to credit facility byu the micro finance banks. These findings are in line with Carter (1989) who opines that, Agricultural credit can move farmers along the production surface more efficiently: firstly, credit influences the efficient resource distribution by overcoming constraints to purchase inputs and use them optimally which shifts the farmer along a given production surface to a more intensive input use; secondly, credit may help to purchase a new technological package that will shift the production surface; and thirdly it may help to use more intensively the use of fixed inputs.


Agriculture plays and undeniable role in the provision of food to Nigeria’s over 200 million population. It ensure food security in the country eliminating drought and scarcity. Agriculture provides other sectors of the economy with raw materials needed for service efficiency and effectiveness. Higher production for farmers implies that there will be increased farm produce for consumption in the economy while low production will mean scarcity and ultimately inflation. Other negative occurrence  could be malnutrition , hoarding and theft. However, the agricultural sector have suffered negligence as the government are focused on petroleum and rely on imports. More so, private individuals consider agriculture as undeserving venture, hence the strife for white collar jobs.

Nevertheless, adequate funding from micro-finance banks and other financial institutions can improve the status of farmers and agriculture in Nigeria. Increased Credit facility by micro-finance banks, and other financial institutions has the continuous potential of increasing agricultural productivity and reduce food scarcity and poverty in the country.


Based on the findings revealed in this study, the following recommendations are suggested:

  1. There should be a right sensitization for private individuals (young people) to consider agriculture as source of livelihood and job.
  2. Companies and organizations should be encouraged to continue to invest in Agriculture.
  3. The federal and state government should support agriculture by initiating favourable credit policies and programs. government needs to recognize its role in the creation and maintenance of a financial infrastructure that supports agricultural credit financing. It should direct prudential regulation and supervision, especially for those institutions handling deposits, demanding information that clarifies the financial performance of banks, thereby ensuring transparency.


  •  Adewumi, m., Ayinde, o., Falola, a. And Adeyemi, o. (2013) Economic Analysis Of The Role Of Microfinance Banks In Funding Agriculture In Rural Areas Of Kwara State, Nigeria International Journal of Development and Management Review (INJODEMAR) Vol. 8, No 1, June 2013
  • AfDB-IFAD, (2010). “Towards Purposeful Partnerships in African Agriculture”. AfDB-IFAD Joint Evaluation on Agriculture and Rural Development in Africa. Tunis: AfDB-IFAD.
  • Ahma, W. (2010). Meeting the financial needs of smallholder farmers in Ethiopia. Africansmallholders. Food Crops, Markets and Policy, 156
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  • Akwaa-Sakyi, E. K. (2013). Impact of microcredit on rural farming activities: The case of farming communities within Sunyani area. Management Science and Engineering, 7 (4), 23.
  • Auchan, (1986) An Empirical Study of the Impact of Agricultural Credit at Farm Level in Funtua Local Government Area of Kaduna State, Nigeria. Unpublished M.Sc. Dissertation. Zaria: Department of Agricultural Economics and Rural Sociology, Ahmadu Bello University.
  • Ayegba, O., and Ikani, D. (2013). An Impact Assessment of Agricultural Credit on Rural Farmers in Nigeria. Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.4, No.18, 2013
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