Credit allows borrowers to access funds required to make an investment before returns materialize. For smallholder farmers, who must invest in agricultural inputs (i.e., seeds, chemicals, equipment, land, and labor) during the planting season before earning income from the sale of agricultural produce after harvest, credit helps alleviate liquidity constraints and promotes the ability of local agricultural production to support nutrition and food security. In rural Nigeria, access to credit—especially formal credit from financial institutions—is limited. Data collected in 2020 show that less than a third of households in rural Nigeria report using credit in the previous 12 months and only two percent of rural households borrowed credit from a financial institution. The rest is borrowed informally from friends, family, or local money lenders. In the absence of credit, smallholder farmers must cover the costs of agricultural production with their own funds that they have available during the planting season. This constrains agricultural production and contributes, in part, to the large gaps in agricultural productivity between high-income and low-in come countries around the world.
Published by: CGIAR Rethinking Food Markets
Authored by: Ambler, K. | Balana, B. | Bloem, J R. | Maruyama, E | and Olanrewaju, O.
Publication Date: Dec 19th, 2023