The Problems and Prospects of Informal Financial Institutions in Financing Agricultural Sector in Nigeria

Abstract

The informal finance has been a major source of finance from ages long even before the introduction of modern banking system. But its major function is in the provision of informal finance to agricultural sector. The study examines the problems and prospects of informal financial institutions in financing agricultural sector in Nigeria using Ado-Ekiti and Oye-Ekiti Local Government Areas of Ekiti State, Nigeria as case study. This study examines the effect informal finance has on the activities of agriculture in Nigeria. The methodology employed was descriptive and data were collected using personal oral interviews and questionnaires which were distributed to the respondents. The data collected were presented and analyzed using percentages and tables. The use of chi-square was also employed for better understanding. The findings from the study revealed that informal financial institutions’ activities have a significant effect in financing agriculture. It also revealed that financial constraint is not the major constraint faced by informal financial institutions in financing agricultural sector. Other problems include lack of storage facilities and the use of crude tools, just to mention but a few. Despite these problems, it is noted that the informal financial institutions if properly monitored have many goodies to offer for improved productivity of the agricultural sector of the country. As a result of the problems faced by the informal financial institutions in financing agriculture, it is recommended among others that there should be more of governmental and financial support to the agricultural sector so as to enhance development, create enabling environment and there is a need for informal financial institutions to improve in their financing function to the sector. It is concluded that informal finance is the “life wire” of agricultural sector.