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AN ANALYSIS OF THE DETERMINANTS OF CREDIT REQUIREMENT IN GIWA, SABON GARI AND ZARIA LOCAL GOVERNMENT AREAS OF KADUNA STATE, NIGERIA.
ABSTRACT
Cost-effective and sustainable financial services are critically needed by smallholder farmers and are widely acknowledged to be important instruments for improving productivity by promoting a more efficient allocation of resources among resource surplus and resource-deficit agents in the economy and also making it cheaper and less risky to trade goods and services as well as to borrow and lend. The lack of credit has been identified as a limiting factor to agricultural development in Nigeria. The argument has been that the limited availability of affordable capital delays, if not prevents, the adoption of new production technologies and the use of non-labour inputs such as fertiliser which, in turn, slows down output growth and the development of the agricultural sector. The specific objectives of this study were to identify the sources of credit available to farmers in Giwa, Sabon Gari and Zaria Local Government Areas of Kaduna State, highlight the problems limiting access to credit, and determine the relationship between the sampled farmers’ socio-economic characteristics and their credit requirement. Data for this study were obtained from both primary and secondary sources. The primary data were gathered from field survey through sets of questionnaires administered to 120 farmers by trained enumerators, while the secondary data were generated from documents of the Kaduna State Ministry of Agriculture and Natural Resources and those of Giwa, Sabon Gari and Zaria Local Government Areas. The analytical tools used were simple descriptive statistics and multiple regression analysis. The study revealed that credit was obtained by the sampled farmers from the formal, non-formal and, in some cases, both formal and non-formal sources. The main problems identified as limiting access to formal credit were the noninterest costs of acquiring credit, the asset-based nature of lending, illiteracy and unfamiliarity of respondents with lending procedures; while access to non-formal credit was found to be constrained by informal lenders’ limited capital base and short-term liability structure, limited savings capacity, fear of exploitation through high loan premiums and the fear of remaining outside the economic mainstream on account of the isolation and segmentation of informal credit markets. The socioeconomic variables: income, farm size, household size, farming experience and age were found to be significantly related to credit requirement in the study area. Among the recommendations made were the following: the need to explore, identify and introduce mutually beneficial links between informal savings and credit systems and the formal sector with a view to expanding the supply of credit while preserving the flexibility and information advantages of informal credit arrangements; making more credit available to farmers to procure inputs and expand marketed output; adopting the solidarity principle of joint liability of group members to protect against individual and social risks and as an alternative to the more traditional types of collateral such as land title; reducing transaction costs and lending risks by adopting and adapting informal credit practices; provision of entrepreneurial and managerial guidance and training in respect of farm record-keeping and loan use; encouraging and promoting savings mobilization and the formation of cooperative credit and savings associations; and the provision and improvement of agricultural support services to farmers.
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