Financing differentials among small scale agribusinesses in Abia State, Nigeria

Abstract

This research was carried out in Abia State, Nigeria. The study specifically described small scale agribusiness production and firm characteristics; identified their sources of finance; identified determinants of differentials in financing of small scale agribusinesses; and identified problems militating against financing of small scale agribusinesses. A structured questionnaire was used to collect data from 120 small-scale agribusiness firms chosen using simple random sampling technique. Descriptive statistics and discriminant function model were used to analyze the data. The main sources of finance for small-scale agribusinesses were equity financing in the form of ploughed back profit/retained earnings (70.8%) and owners’ savings (65.8%). Discriminant analysis revealed that firm size, output level, asset value, and equity amount were significant determinants of firm financing differentials. The model revealed that firm size, asset value, loan amount obtained, equity amount and output level all contributed significantly to the total discriminant score, accounting for 63.86%, 14.12%, 10.17%, 9.82%, and 2.03%, respectively.  High-interest rates (68.3%), insufficient collateral (64.2%), and low patronage of locally produced goods were major barriers to financing small-scale agribusinesses (60.8%). We recommended that the Central Bank of Nigeria, the Ministry of Finance, and other relevant government agencies in charge of managing Nigeria’s economic process step up efforts to create a favorable macroeconomic environment for small-scale agribusiness financing.