Assessment of Formal Financial Institutions in Financing Agribusiness Investments in Southeast, Nigeria

Abstract

This study assessed formal financial institutions in financing agribusiness investment in Southeast, Nigeria. A multi-stage random sampling technique was employed to select 900 respondents for the study. Primary data were collected using a well-structured questionnaire and interview schedule. Data were analyzed using both descriptive and inferential statistics. The findings revealed that the predominant formal financial institutions available to agribusiness investors in the study area include the Bank of Agriculture (20.44%), Microfinance Banks (17.67%), and the Ministry of Agriculture (16.78%). Analysis of loan demand indicated that most agribusiness investors requested mid-sized loans, particularly within the ₦300,001–₦400,000 range (21.67%) and ₦200,001–₦300,000 (19.11%), suggesting a dominance of medium-scale operations. However, loan disbursement patterns showed a bias toward smaller loan sizes, with the highest proportions disbursed in the ₦100,001–₦200,000 (21.00%) and below ₦100,000 (18.56%) categories indicating that larger loan categories consistently received less than requested, suggesting cautious lending behaviour by formal financial institutions. Key factors influencing the amount of loan granted included collateral (3.81), loan repayment ability (3.70), government policy (3.61), and farm size (3.60). Furthermore, constraints to financing were categorized into socio-economic and institutional factors. Socio-economic constraints included low repayment rate (0.733) and loan diversion (0.727), while institutional constraints comprised insufficient funds (0.743) and adverse government policies (0.690). It was recommended amongst others that formal financial institutions should adopt flexible collateral policies to enable small-scale agribusiness investors’ access loans more easily.