DIGITAL FINANCIAL LITERACY AND ACCESS TO CREDIT AMONG AGRICULTURAL PROCESSORS AND MARKETERS IN OGUN STATE

CHAPTER ONE

INTRODUCTION

Background of the study

The agricultural sector is crucial for the economic progress of many nations, particularly in developing economies where it makes a substantial contribution to employment, food security, and rural development. In Nigeria, agriculture contributes over 23% to the Gross Domestic Product (GDP) and directly employs more than 70% of the workforce, especially in rural regions (National Bureau of Statistics, 2022). Notwithstanding its significance, several agricultural processors and marketers, who play a vital role in the supply chain, have substantial financial limitations that restrict their productivity and capacity for expansion. A persistent challenge faced by these stakeholders is the limited availability of finance, which often hinders their capacity to embrace contemporary technology, grow their activities, or adapt to market volatility (Ojo & Edeh, 2023). 

Historically, agricultural processors and marketers depended on informal loan and savings systems, which, while easily available, are frequently inadequate to fulfil their increasing financial requirements. By contrast, formal financial institutions provide credit facilities that may effectively meet these requirements. However, many processors and marketers have difficulties in accessing these services. Extensive collateral requirements, exorbitant interest rates, and a dearth of financial awareness among rural communities are the factors contributing to this phenomenon (Mansor et al., 2022). Moreover, the rapid digitisation of financial services in recent years has worsened this issue. 

Digital financial literacy encompasses the necessary knowledge and abilities to proficiently use digital platforms for conducting financial transactions, saving, and managing credit and payments. With the growing use of digital platforms by financial institutions, proficiency in navigating these technologies has become crucial for obtaining loans. Proficiency in digital financial literacy include knowledge of mobile banking, internet payment systems, digital wallets, and other financial technology (Klapper et al., 2019). The emergence of digital finance has brought about many benefits, including enhanced convenience, reduced transaction costs, and wider availability of financial services. These advancements have the capacity to completely transform the manner in which agricultural processors and marketers engage with financial institutions and enhance their ability to get loans. Nevertheless, the main obstacle is in the extensive absence of digital financial literacy among these important parties, particularly those residing in rural regions. A study conducted by the Consultative Group to Assist the Poor (CGAP) revealed that rural communities, especially those engaged in agriculture, had lower levels of digital literacy in comparison to their urban counterparts. This undercuts their capacity to efficiently use digital financial services (CGAP, 2020). Financial inclusion, especially achieved by the use of digital financial services, is well acknowledged as a strategy to stimulate economic development and reduce global poverty. The provision of formal financial services allows marginalised groups, such as agricultural processors and marketers, to get the necessary resources for investing in equipment, infrastructure, and other critical inputs required to expand their activities (Iwu & Pooe, 2020). Several nations, Nigeria included, have implemented measures with the objective of enhancing financial inclusion via digital platforms. In 2012, the Central Bank of Nigeria (CBN) initiated its Financial Inclusion Strategy with the objective of decreasing the proportion of people who faced financial exclusion from 46.3% in 2010 to 20% by 2020 (Central Bank of Nigeria, 2012). Notwithstanding the advancements achieved, the digital gap continues to be a substantial obstacle, especially in rural regions where there is restricted availability of internet and other digital infrastructure (Adebayo & Olaniyan, 2021). Notwithstanding the possible advantages of digital financial services, there are various obstacles that hinder agricultural processors and marketers from obtaining the essential digital financial knowledge. The obstacles include inadequate levels of formal education, restricted availability of digital devices like smartphones, and unstable internet penetration in remote regions (Nkhata & Nkhata, 2023). Moreover, a significant number of agricultural stakeholders have a lack of confidence in digital platforms because of apprehensions about their security and the perceived intricacy of digital transactions (Mansor et al., 2022). The research conducted by Iwu and Pooe (2020) revealed that a majority of smallholder farmers and traders in South Africa exhibit a preference for conventional banking techniques, despite the existence of digital alternatives. The research emphasised the need of implementing focused financial literacy initiatives that especially cater to the issues and requirements of agricultural stakeholders in rural regions. Likewise, in Nigeria, efforts to promote digital literacy have been hindered by socio-economic challenges such as poverty and gender inequalities, which tend to disproportionately impact women who play a crucial role in agricultural processing and marketing (Ojo & Edeh, 2023).Both government and financial organisations have vital roles to fulfil in order to tackle the digital financial literacy gap. Public administrations may enhance digital literacy by allocating resources to rural education and digital infrastructure, while financial institutions can provide customised digital literacy programs to their existing customers. In Kenya, the M-Pesa mobile money facility has effectively enhanced financial inclusion by offering a user-friendly digital platform, complemented by extensive financial literacy initiatives (Jack & Suri, 2011). Comparable frameworks may be modified to suit the Nigerian environment in order to enhance the level of digital financial literacy among agricultural processors and marketers. Digital initiatives aimed at enhancing financial inclusion in Nigeria have had varied outcomes. The implementation of the Nigeria Interbank Settlement System (NIBSS) and the growth of mobile banking platforms provide agricultural sector participants with enhanced accessibility to financial services. Nevertheless, the lack of essential digital literacy skills hinders the full use of these services by many individuals. Adebayo and Olaniyan (2021). Therefore, the researcher sought to analyze digital financial literacy and access to credit among agricultural processors and marketers in Ogun state

1.2 Statement of the problem

Credit availability is a crucial determinant that impacts the development and long-term viability of agricultural processors and marketers. Nevertheless, several participants in the agriculture industry have substantial obstacles in obtaining financial resources as a result of insufficient financial literacy. The significance of digital financial literacy, which refers to the proficiency in using digital platforms for financial transactions and administration, has grown tremendously in the contemporary technology-driven economy. The lack of comprehension of digital financial instruments among agricultural processors and marketers sometimes results in suboptimal financial decision-making and restricted loan accessibility (Adebayo & Olaniyan, 2021). Evidence suggests that a deficiency in digital financial literacy might impede the capacity of agricultural stakeholders to efficiently use the loan facilities at their disposal, leading to lost chances for expansion and progress (Mansor et al., 2022). Moreover, in recent years, financial institutions have shown a growing preference for clientele who possess digital literacy, therefore further excluding individuals who lack the essential abilities to effectively use digital financial systems (Nkhata & Nkhata, 2023). This scenario gives rise to a substantial disparity between those who have the potential to get credit and those who lack such access, therefore impacting the efficiency and financial success of agricultural processors and marketers (Iwu & Pooe, 2020). Hence, the study analyze digital financial literacy and access to credit among agricultural processors and marketers in Ogun state

1.3 Objective of the study

The broad objective of the study is to analyze digital financial literacy and access to credit among agricultural processors and marketers in Ogun state. The specific objectives is as follows

To assess the level of digital financial literacy among agricultural processors and marketers in Ogun State

To examine the extent to which agricultural processors and marketers utilize digital financial platforms for credit access in Ogun State.

To evaluate the role of digital financial literacy in improving the financial decision-making processes of agricultural processors and marketers in Ogun State.

To identify the barriers to digital financial literacy among agricultural processors and marketers in Ogun State.

1.4 Research Questions

The following questions have been prepared to guide the study

What is the level of digital financial literacy among agricultural processors and marketers in Ogun State?

What is the extent to which agricultural processors and marketers utilize digital financial platforms for credit access in Ogun State?

What is the role of digital financial literacy in improving the financial decision-making processes of agricultural processors and marketers in Ogun State?

What are the barriers to digital financial literacy among agricultural processors and marketers in Ogun State?

1.5 Significance of the study

Findings of the study will be significant to agricultural marketers as it will reveal the importance of digital financial literacy in accessing credit, offering these stakeholders a clearer understanding of how digital tools can enhance their financial management and improve their ability to secure loans. By identifying the barriers to digital financial literacy, the research will provide actionable recommendations that can help agricultural processors and marketers make better financial decisions and expand their businesses. 

Academia: the study will be beneficial to the academic community as it will contribute to the existing literature.

1.6 Scope of the study

The study focus on analyze digital financial literacy and access to credit among agricultural processors and marketers in Ogun state. Empirically, the study will assess the level of digital financial literacy among agricultural processors and marketers in Ogun State,  examine the extent to which agricultural processors and marketers utilize digital financial platforms for credit access in Ogun State,  evaluate the role of digital financial literacy in improving the financial decision-making processes of agricultural processors and marketers in Ogun State and identify the barriers to digital financial literacy among agricultural processors and marketers in Ogun State.

1.7 Limitation of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint are: 

Time: The researcher encountered time constraint as the researcher had to carry out this research along side other academic activities such as attending lectures and other educational activities required of her.

Finance: The researcher incurred more financial expenses in carrying out this study such as typesetting, printing, sourcing for relevant materials, literature, or information and in the data collection process.

Availability of Materials: The researcher encountered challenges in sourcing for literature in this study. The scarcity of literature on the subject due to the nature of the discourse was a limitation to this study.

1.8 Definition of terms

Digital Financial Literacy: The knowledge and skills required to effectively use digital platforms for financial transactions, savings, investments, and credit management. It includes understanding how to use mobile banking, online payments, digital wallets, and other digital financial services.

Agricultural Processors: Individuals or businesses involved in transforming raw agricultural products, such as crops or livestock, into finished or semi-finished products through processes such as milling, packaging, or refining.

Agricultural Marketers: Stakeholders responsible for promoting, selling, and distributing agricultural products to consumers or businesses. They play a critical role in ensuring that agricultural goods reach the market efficiently.

Access to Credit: The ability of individuals or businesses to obtain financial resources, such as loans, to meet their needs, invest in operations, or expand their businesses. Access to credit is often influenced by factors like financial literacy, creditworthiness, and collateral.

Financial Inclusion: The availability and accessibility of financial services, such as savings, credit, insurance, and payment systems, to underserved populations. It ensures that individuals and businesses, regardless of location or income level, can access formal financial systems.

Barriers to Digital Financial Literacy: Factors that prevent individuals or groups from acquiring the knowledge and skills needed to effectively use digital financial platforms. These barriers can include low levels of education, poor access to technology, and lack of trust in digital systems.

Formal Financial Institutions: Legally recognized organizations, such as banks, microfinance institutions, and credit unions, that offer financial services, including savings, loans, and investment opportunities, in a regulated environment.

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