MICROFINANCE INSTITUTIONS AND THE PERFORMANCE OF AGRICULTURAL SECTOR IN NIGERIA

Abstract

Microfinancing emerged to support low-income earners and small businesses, including farmers in the agricultural sector. Despite the critical role of agriculture in food production and raw material supply, Nigeria's economy remains dominated by the oil sector, leaving the agro-industry inadequately supported. This imbalance has spurred studies exploring the relationship between micro financing and agricultural performance, yet empirical findings remain inconclusive, necessitating further investigation. This study examines how microfinance institutions impact agricultural performance, focusing on microfinance credit, deposits, and investments. Guided by the neoclassical production theory and supply-leading theory, the research employs a model incorporating microfinance variables alongside factors such as capital, labor, inflation, rainfall, and fertilizer supply. Using time-series data from 1992 to 2023, sourced from the World Bank and the Central Bank of Nigeria, the study applied the Auto-Regressive Distributive Lag model. The findings reveal that microfinance credit and investments positively influenced agricultural productivity, growth, and output, implying that operation of microfinance institutions in Nigeria positively impacts the performance of the agricultural sector. Therefore, sustainability of microfinance institutions and increased access of farmers to their services should be encouraged through formulation of appropriate policies.