Efficacy of Formal Versus Informal Sources of Financing Agricultural Growth and Development in Nigeria

Abstract

This study examines the relative efficacy of formal and informal financing sources in driving agricultural growth and development in Nigeria. Specifically, it seeks to determine which category—formal or informal—contributes more significantly to agricultural production and how individual component sources within these categories affect agricultural activities and how these sources can be effectively marketed to the agricultural sectors and the farmers. The study employs statistical techniques, including the T-test, Satterthwaite-Welch t-test, ANOVA F-test, and Welch F-test, to test relevant hypotheses. The results reveal that both formal and informal financing sources significantly impact agricultural growth, with farmers perceiving these sources as effective in supporting agrarian activities. Among informal sources, personal savings, family/village fund pools, and rotational credit schemes (Isusu/Ajo) emerge as the most influential, while among formal sources, commercial banks, the Bank of Agriculture, and the World Bank Group play the most vital roles. However, government financing is deemed suboptimal in fostering agricultural development. The study recommends that government policies should incentivize and strengthen the role of commercial banks, development banks, and international financial institutions in agricultural financing to sustain and expand their contributions to the sector.