Informal finance: its drivers and contributions to farm investment among rural farmers in Northcentral Nigeria

Abstract

Purpose

The problem of inaccessibility of finance for farm investment is a common phenomenon among farmers, especially the rural dwellers. Thus, there is a need to know how the accessibility of informal finance can be increased to increase farm investment. Therefore, this study evaluates farmers’ access to informal finance and its contribution to farm investment among rural farmers in Northcentral Nigeria.

Design/methodology/approach

A three-stage random sampling technique was employed to select 160 farmers. Primary data collected were analysed with descriptive statistics and the Heckman selection model.

Findings

The study revealed that cooperative society is the major informal means of loan acquisition used by the farmers followed by Rotational Savings and Credit Associations (RoSCAs). Informal loans contributed to agricultural investment through the various operational activities involved in production. Factors influencing farmers’ access to informal loans were the age, farm size and income of the farmers. Interest charged, farmers' age, farming experience, household size, education and loan duration were the drivers of the amount borrowed from the informal financing sector.

Practical implications

The findings of the study call for policies that will sustain informal financial institutions in developing economies, like Nigeria. Thus, the government through its regulatory agencies should assist informal finance providers with the necessary resources to achieve more goals. This is because the informal credit lenders help in bridging financial gaps created by formal financial institutions, such as commercial banks.

Originality/value

Unlike the previous research studies, this study investigated the driving factors of the amount borrowed from informal finance and its use in farm investment.

Citation

Falola, A., Mukaila, R. and Abdulhamid, K.O. (2022), "Informal finance: its drivers and contributions to farm investment among rural farmers in Northcentral Nigeria", Agricultural Finance Review, Vol. 82 No. 5, pp. 942-959. https://doi.org/10.1108/AFR-08-2021-0116