Credit Rationing in Semi-Urban Agricultural Markets

Nigeria's formal agricultural credit system relies on collateral-based lending models that require documented land ownership. The Land Use Act of 1978 vests all land in state governors, creating a dual system where customary land tenure operates alongside formal registration.

The institutional mechanism operates through interconnected barriers:

• Collateral requirements: Commercial banks require Certificate of Occupancy (C of O) or formal land titles that fewer than 3% of rural landholders possess in Kaduna State.
• Registration costs: Formal land title registration costs between ₦150,000–₦500,000, exceeding annual income for most smallholder farmers.
• Information asymmetry: Banks lack mechanisms to assess creditworthiness of farmers operating within customary land tenure systems.

The result is a credit market that formally serves agricultural development while structurally excluding the farming populations most in need of capital access.

Formal agricultural credit systems in Nigeria reproduce existing inequalities by requiring documentation standards that are structurally inaccessible to the majority of rural producers. The collateral-based lending model assumes a land tenure system that does not reflect ground realities.

Customary land tenure, which governs the majority of rural land use, remains invisible to the formal credit system. This creates a structural gap where productive agricultural activity cannot be leveraged for capital access.

Policy interventions focused on expanding agricultural credit without addressing the underlying land documentation gap are unlikely to reach the populations they intend to serve.