Abstract

<p>This study investigates the impact of agricultural finance on the performance of Nigeria’s agricultural sector using annual time series data sourced from the Central Bank of Nigeria (CBN) Statistical Bulletin. Agricultural sector performance was proxied by agriculture’s contribution to Gross Domestic Product (GDP), while the explanatory variables included commercial bank loans to agriculture, government expenditure on agriculture, interest rates, and volume of rainfall.</p>
<p>The study employed Johansen’s cointegration technique to assess the existence of a long-run relationship among the variables, having first ensured a common order of integration among them. Furthermore, the Vector Error Correction Model (VECM) was used to capture the speed of adjustment from short-run deviations to long-run equilibrium.</p>
<p>The empirical findings confirm a long-term relationship between agricultural finance variables and agricultural sector performance. Specifically, commercial bank lending to agriculture and the Agricultural Credit Guarantee Scheme Fund (ACGSF) were found to have a significant and positive long-run impact on agricultural GDP. This underscores the importance of formal credit in driving sectoral growth. Additionally, the coefficient of multiple determination indicates that a substantial proportion of the variance in agricultural GDP is jointly explained by the selected financial and environmental variables.</p>
<p>The study concludes that sustained agricultural financing, particularly through commercial banks and government-backed schemes, plays a critical role in enhancing agricultural productivity and output. It recommends a substantial increase in the annual funding capacity of the ACGSF, alongside robust oversight mechanisms to ensure proper disbursement and utilization. Moreover, commercial banks should be incentivized to expand lending to agricultural enterprises. Government intervention through increased capital expenditure on irrigation infrastructure is also advised to mitigate the effects of seasonal rainfall variability, thereby promoting year-round agricultural production. Enhancing fiscal allocation toward fertilizers, equipment, and mechanization will further improve sectoral efficiency and output..</p>