Financial Intermediation and Agricultural Output in Nigeria: An Impact Analysis of Deposit Money Banks’ Credit

Abstract

The study examined the impact of deposit money banks’ credit on agricultural output in Nigeria from 1981 to 2014.Secondary data for the study was obtained from Central Bank of Nigeria. The ordinary least square method was used for data analysis. Unit root was used to test for data stationarity, while Variance Inflation Factor (VIF) and Heterosckedasticity white Test were used for data diagnosis. Findings of the regression analysis revealed that deposit money banks´ credit significantly and positively affected agricultural output while the result for Deposit Money Banks’ lending rate (DMBLR) shows that DMBLR has an inverse and insignificant impact on Agricultural output (AQ). Also the trend in the Deposit Money Banks’ credit to the agricultural sector has contained in the CBN bulletin increased considerably within the period under study. There was, however, a sharp decline in loan stock in 2007. Thus, the study concludes that Deposit Money banks’ credit is a viable source of finance for sustainable growth in the agricultural sector. The study therefore recommends that Deposit Money banks’ should increase the volume of credit facilities to the agricultural sector to sustain food production for the teeming population of Nigeria; they should however concentrate on the real farmers. Also the cost of Deposit Money banks’ credit facilities should be subsidized or be reduced to a single digit lending rate for agric. businesses and should have a longer moratorium to ensure effective performance of both agricultural output and the credit facilities.