Business Operations of Agrodealers and Their Participation in the Loan Market in Nigeria
68 Pages Posted: 7 Jan 2015
Date Written: December 31, 2014
The weaknesses in the financial and technical capacity of Nigeria’s agrodealers came to light when many of them could not provide the financial backing for their role in distributing inputs under the growth enhancement support scheme. They are also not adequately equipped, organized, or buoyant enough to be able to access adequate loan facilities from commercial banks. These weaknesses underscore the need to examine the various aspects of agrodealership financing and to unravel agrodealers’ participation in the loan market. It is also important to look at the extent to which agrodealers are credit rationed in order to articulate suitable financing mechanisms that will enable them to discharge their responsibilities in a sustainable fashion. This study employs primary data collected through structured questionnaires from 300 agrodealers and uses a Tobit type-II model for the analysis. The results show that interest rate, debt, value of asset, membership of trading association, and source of credit are major determinants of loan demand. Agrodealers need to organize themselves into input trading associations to enhance their creditworthiness and to unleash the inherent social capital and information advantages for improved agrodealership financing. Moreover, diversification of product coverage by agrodealers and a value-chain approach that links internal financing in the form of trade credit within the agro-input sector, with external financing from the commercial banks, are strongly recommended.
Keywords: agrodealers, loan demand, credit rationing, value-chain financing
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