Agricultural credit constraints in smallholder farming in developing countries: Evidence from Nigeria

Summary

This nationally representative study of 5,000 Nigerian smallholders used econometric modelling to examine rural credit constraints and their relationship to agricultural technology adoption. Contrary to policy emphasis on supply-side credit barriers, the analysis found demand-side factors (risk aversion, transaction costs, information asymmetry) equally important, and identified inadequate collateral as the key supply-side constraint. The findings suggest interventions should combine collateral enhancement policies with crop insurance, improved information access, and extension services.

Regional applicability

Whilst this study is specific to Nigeria, its findings on the interplay between supply-side and demand-side credit constraints are relevant to United Kingdom smallholder support policy, particularly where rural lending remains constrained. However, the institutional context differs substantially; UK smallholders typically have greater access to formal credit and regulatory frameworks, so direct policy transfer would require adaptation to UK-specific barriers and enabling conditions.

Key measures

Rural credit access, credit constraints, adoption rates of inorganic fertilizer, improved seed, agrochemicals, and mechanization; factors affecting rural credit market functioning

Outcomes reported

The study examined factors affecting rural credit access and the effects of credit constraints on adoption of four agricultural technologies (inorganic fertilizer, improved seed, agrochemicals, and mechanization) among smallholders. It identified both supply-side constraints (inadequate collateral) and demand-side factors (risk aversion, transaction costs, information asymmetry) affecting credit utilisation and technology adoption.

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