Analysis of formal lending to the agricultural sector in Nigeria: 1978 - 1998

Abstract

The objective of this paper is to estimate the relationship between formal lending to agriculture and some assumed determinants of agricultural credit lending during the 1978-98 sample period. Lending by financial institutions to the agricultural sector was viewed for the purpose of model development in this study as the "supply of credit" to agriculture. Thus, the sets of determinants of agricultural credit supply to the Nigerian agricultural sector was assumed to consist of economic theory, policy and other variables. The models specified were estimated using the usual least squares procedure. The interest rate variable was negatively related to agricultural credit supply during the 1978- 86 sub-period, contrary to expectations. This was explained based on the regime of interest rate regulation prevailing prior to 1987. However, there was a net positive response of agricultural credit lending to the lending rate after interest rate deregulation from 1987, inclusive.