Facilitating Smallholder Farmers’ Market Access
In the OIC Member Countries
42
starch, for example, is 30 percent higher in Nigeria than in Thailand, one of the world’s
leading starch producers.82
In a recent survey of 75 companies to gain investors’ perspective on Nigeria’s agribusiness
sector, 72 percent of respondents identified problems with infrastructure as the greatest
barrier to investment.83 Dramatic improvements in Nigeria’s rural road network are
needed to link farmers more effectively to input and output markets. Similarly,
agribusinesses located in and around urban areas will not obtain reliable supplies of low-
cost, high-quality raw materials without improved access to rural production zones.
Nigeria’s long internal transit times create high logistics costs for businesses.84 The
inadequate road network hinders the development of efficient trucking and transport
systems to reach small farmers and facilitate agricultural marketing and agribusiness
development. Sixty percent of rural roads are classified as poor, compared to 37 percent of
the federal highway network. Nigeria’s road density would have to rise seven-fold from its
current level (97 kilometers per thousand square kilometers) to match that of India in
1950.85 Nigeria’s port infrastructure and customs facilities are undersized and overtaxed.
Smallholders tend to be dispersed over wide geographic areas that are poorly connected
by roads, transport, and other infrastructure. The value chains in which they participate
are also diffuse, characterized by a multitude of informal processors and traders and few
points of aggregation. Physical banking infrastructure is limited in rural areas, but the
penetration of mobile technology and deployment of mobile banking platforms could
significantly increase smallholders’ access to finance without necessitating the
construction of brick-and-mortar banks.86 As mobile phones arrive in hard-to-reach rural
areas, even farmers who do not belong to cooperatives or some other kind of producer
organization will have new ways to connect with lenders.
ACCESS TO FINANCE
A recent study finds that one of the main factors limiting agricultural growth in Nigeria is
that most farmers have poor access to the banking system.87 In 2012, only 14 percent of
the rural population used the formal banking system, and only about 18 percent of
smallholders received credit from either formal or informal sources.88 Agriculture
accounts for more than 20 percent of GDP, yet only 2 percent of the credit supplied by
commercial banks goes to agriculture. Farmers, especially smallholders, face numerous
barriers to obtaining financing, including the high cost of borrowing. In 2011 formal
lending institutions charged 22–30 percent interest on loans to agricultural borrowers,
compared to 12–14 percent for other core sectors of the economy.89 Insufficient collateral
is another major obstacle for smallholder farmers. Financial instruments such as
82 World Bank (2006a).
83 Federal Ministry of Agriculture and Rural Development (2013).
84 World Bank (2006a).
85 World Bank (2006a).
86 Dalberg Global Development Advisors (2012).
87 World Bank (2014f).
88 World Bank (2014f).
89 World Bank (2014f).