how Nigerian smallholder farmers are locked out, and some answers

The food security of Nigeria’s 200 million people depends on smallholder farmers. Despite their importance, most find it difficult to accumulate savings and capital, invest in economic opportunities, adopt technologies to boost production and mitigate risks and build resilience to shocks.

This highlights the need to ensure that they can access and use affordable formal financial services – this is called financial inclusion.

Large numbers of Nigerians do not even have access to basic formal financial services. A government document released in 2018 indicated that just over 58% of the 96.4 million Nigerian adults were financially included in 2016. Just under 40% were banked, 10% were served by other formal institutions and almost 10% were served by informal service providers.

Much research has been done on financial inclusion in countries around the world. But there is a high level of disagreement over what should be measured and how it should be measured. One of the big gaps is that financial inclusion rankings have limited evidence on specific target groups, especially marginalized groups.

In our paper, we sought to establish what the situation was among smallholder farmers in Nigeria. Our study revisited the question of what should be measured. Our original assumption was that having a formal account didn’t reduce it, because it didn’t ensure the kind of inclusion needed to ensure a more secure and secure financial future.

We have adopted a multidimensional financial inclusion index for this group. The study was based on a survey to determine the level of financial inclusion among small rural farmers in Nigeria. It was also designed to help identify areas for policy intervention.

The results indicated that 78% of rural smallholder farmers in Nigeria were financially excluded based on the broader definition. We also found that just over 27% were adequate in the access indicator – those with formal accounts – but only 25% frequently used formal financial services. Likewise, only a third (31%) said they did not have barriers such as high transaction costs, lack of identification and distance in financial participation.

Overall, we found that most of Nigeria’s rural smallholder farmers were the least capable when it came to financial well-being and participation.

Measuring financial inclusion

For the purposes of the survey, we adopted the definition of smallholder households as households that had five hectares of land or less than 50 head of cattle or 100 goats, pigs or sheep or 1000 chickens and where agriculture contributed significantly. significantly to their livelihoods or consumption. There were 2,300 rural respondents in our study.

We found that having a bank account with a formal financial institution was not enough for small rural farmers in Nigeria. It still left people unable to meet some basic requirements. We have considered three areas of financial inclusion.

Financial participation. It is about the extent of access and use of quality financial services and products such as savings, credit, insurance and payments at an affordable cost. We have found that a number of barriers are preventing small farmers from achieving this goal. Many have faced barriers to participation such as high transaction costs of banking services, long distances to access services, and insufficient identification to open a bank account.

Financial capacity: This reflected the ability of people to participate effectively in a formal financial system through financial literacy, consumer protection, and prudent financial decisions and plans. Our study found that only a few small farmers reached the threshold of financial literacy and consumer protection.

Financial well-being: This is also sometimes referred to as financial health. It indicates the extent of financial resilience, which includes control over finances or one’s financial condition. Most of the small rural producers controlled their finances. However, they were only able to meet their basic needs and therefore unable to save. This has made it nearly impossible to manage economic shocks, such as the COVID-19 pandemic.

Barriers

Nigeria has adopted various innovations to alleviate the challenges faced in formal financial participation.

The first is regulation at three levels of know your customer. The main objective is to promote flexible formal account opening and less restrictions on transaction operations.

Another was the request for a biometric bank verification number and a national identification number. The underlying idea was to mitigate the challenges faced in financial inclusion. Both give each client a unique identity that can be verified in formal institutions. This should reduce the problem of lack of identification.

The adoption of a national financial inclusion strategy in 2012 placed emphasis on consumer protection. A consumer protection framework was introduced in 2016. The aim was to promote consumer confidence, trust and fairness in formal financial institutions.

In addition, a financial literacy framework was established in 2013. The idea was to identify financial education programs for various target groups. Financial literacy has been shown to increase the ability of consumers to successfully manage their financial plans. But our evidence suggests that these programs have yet to reach rural smallholder farmers. Indeed, it is difficult to register rural populations and farmers because of the distance and poor infrastructure. This increases the cost of linking innovative country programs with agricultural operations.

Perspectives for policy interventions

Achieving sustainable financial inclusion in Nigeria requires interventions that build financial capacity, participation and well-being, not just formal ownership of accounts.

Our results suggest that financial planning products such as savings, credit, and insurance plans are important for rural smallholder farmers. Indeed, they could help strengthen their resilience to economic shocks and crises such as the COVID-19 pandemic. This in turn would mean that they could continue to produce food and avoid disruptions in the country’s food systems.

Planning products could also help build their confidence to explore new economic opportunities.

In addition, affordable digital services such as mobile money could reduce barriers to financial inclusion such as high transaction costs and remote location.

Formal financial institutions also need to be more responsive to the needs of rural smallholder farmers in Nigeria.

Olayinka Adegbite Received Funding From The World Bank’s Robert McNamara Fellowship Program 2019-2020 As A Fellow

C. Leigh Anderson and Charles Lepepeule Machethe do not work, consult, own shares, or receive funding from any business or organization that would benefit from this article, and have not disclosed any relevant affiliation beyond their academic appointment.

By Olayinka Adegbite, PhD student, University of Pretoria and

Charles Lepepeule Machethe, Professor of Agricultural Economics, University of Pretoria and

C. Leigh Anderson, Professor of Humanitarian Action, International Development and Global Citizenship, University of Washington