Analysis of Credit Market Imperfections and Their Implications for Smallholder Agricultural Productivity in Adamawa State

Credit market imperfections including information asymmetries, collateral constraints, and high transaction costs create systemic barriers to agricultural finance access for smallholder farmers in many Nigerian states. In Adamawa State, where the formal banking sector has limited rural presence, understanding the mechanisms and productivity consequences of credit market failures is important for financial inclusion policy. This study analysed credit market imperfections and their implications for smallholder agricultural productivity in Adamawa State using data from 220 farming households. Credit market participation was modelled using a Heckman selection model to separate the effects of credit rationing from voluntary non-participation. Household-level agricultural productivity was measured as total factor productivity calculated using the Malmquist index. Results showed that approximately 44 percent of surveyed households were credit constrained, and constrained households exhibited total factor productivity levels 31 percent lower than unconstrained counterparts. Collateral requirements and excessive interest rates were the most frequently cited rationing mechanisms. Informal lender dependence was associated with high cost capital that crowds out productive investment timing. The study contributes to the empirical analysis of financial market failures and agricultural productivity in North East Nigeria, recommending credit guarantee schemes, mobile banking expansion, and warehouse receipt financing as priority interventions. Keywords: credit market, imperfections, smallholder productivity, Adamawa State, total factor productivity.