Smallholder crop farmers’ attributes for formal financial services in Nigeria: An analysis

Abstract

Financial services to the agricultural sub-sector in Nigeria and particularly to small farmers is difficult because financial institutions have specific requirements that must be met. Many small farmers are hardly serviced and this has affected the growth of the sector. Nevertheless, understanding the nature of the sector and peculiarities of categories of farmers will help build an efficient financial system that is beneficial to farmers and financial institutions alike. This study examined attributes of formal financial institutions smallholder crop farmers prefer for better financial services in Nigeria. Data were elicited from the six agro-ecological zones of the country using the extension officers in Agricultural Development Projects (ADP) of the different states. A total of 399 smallholder crop farmers were sampled and the study used the conjoint technique and multinomial logistic technique in analyzing the data. Results revealed that financial services such as loan, insurance, account opening, credit/debit cards, and funds transfer, were highly rated and preferred by most smallholder crop farmers. However, these farmers were more inclined to loans that were customized (flex loans), insurance claims due within 90 days, savings account opening, cash points for credit/ debit cards within a kilometer of their residence, and funds transferred in 24 hours. Conjoint analysis of the key variables showed that funds transfer within 24 hours was the only significant variable; and the interaction effect (trade-off effect) of this variable with others revealed that, an average smallholder crop farmer would rather prefer loan that is customized, insurance claim within 90 days, and a cash point within a kilometer of his residence to funds that would take longer than 24hrs to arrive. The multinomial result showed that a farmer’s level of education, gender, and farm size were key determinants of an average farmer’s choice of a financial institution. The study, therefore, recommends that, financial institutions should optimize their services in terms of funds transfer and accessibility, and should emphasize only services that are important so as to operate maximally. JEL Classification: Q14, G21, G22, G29, G41. Keywords: Formal financial services, Nigeria, smallholder crop farmers, conjoint analysis, multinomial logistic