Determinants of Loan Acquisition and Utilization among Smallholder Rice Producers in Lagos State, Nigeria

Abstract

Agriculture is a major contributor to economic development in most developing nations, with smallholder farmers playing a critical role, but their productivity and growth are impeded by a lack of access to agricultural loans. The affordability of loans is critical for sustainable agricultural development. Therefore, this paper investigates farmers’ loan acquisition and utilization, as well as their choice of loan sources using a two-part model and multinomial logit model. A total of 281 smallholder rice farmers were surveyed in Lagos State, Nigeria. The empirical findings show that marital status, farm size, and interest rate were all positive and significant influences on farmers’ loan sources of choice. In addition, annual farm revenue and the interest rate have a significant positive impact on loan access, whereas education, farming experience, farm size, off-farm income, and farm income have a major impact on loan use. The study also reveals that the preferred loan source differs according to the characteristics of farm households. The study concluded that access to loans increases farmers’ income in the region. It was recommended that the socio-economic characteristics of rice farmers should be considered when formulating and implementing policies to improve smallholder farmers’ access to agricultural loans.