Determinants of Supply of Funds to Agricultural Sector from Formal Sources in Nigeria from 1992 to 2012

Abstract

The study was carried out in Nigeria. Specifically the study analyzed performance of formal credit sources by amount of loan disbursed to agriculture from 1992 to 2012 and determined factors that influenced volume of funds supplied to agricultural sector from formal sources in Nigeria from 1992 to 2012. Time series data, covering the periods of 1992-2012, culled basically from the Central Bank of Nigeria's Statistical Bulletin were used. The data collected were analyzed using descriptive statistics and two Stage Least Square regression technique. The result of the performance of the formal credit sources by amount of loan disbursed to agriculture showed that commercial banks under the ACGS performed better than the Microfinance banks and Bank of Agriculture which was evident by the amount disbursed (N48.8bn) by commercial banks, with Microfinance banks disbursing N 32.3m and BOA disbursing N 14.7m to agriculture over the period under review. The 2SLS results showed that the volume of funds supplied to agricultural production from formal sources was affected positively by interest rate and commercial banks' liquidity ratio and negatively by banks' cash reserve ratio (CRR) and index of World Agricultural Commodity Prices. These variables were statistically significant at 1.0 % level of probability except the index of World Agricultural Commodity Prices which was significant at 5.0 % alpha level. The diagnostic statistics posted R 2 and F-ratio values of 0.7904 and 6.46 respectively with Durbin Watson estimates of 2.323311. The federal government must consider interest rate regulation as a veritable tool for making credit accessible to farmers at affordable levels where transaction costs will not be too high as to discourage farmers willing to invest or expand their investment to withdraw from doing so.