An assessment of the impact of agricultural insurance on rural banking performance: a case study of Guaranty Trust Bank
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Background of the Study
Agricultural insurance is a critical risk management tool that protects farmers against losses due to adverse weather, pest infestations, and market fluctuations. Guaranty Trust Bank (GTBank) has incorporated agricultural insurance products into its rural lending portfolio to mitigate risk and enhance the performance of its agricultural loans. By coupling credit with insurance coverage, the bank reduces the likelihood of defaults and encourages farmers to invest in improved agricultural practices. Insurance-backed loans provide a safety net that reassures both lenders and borrowers, fostering greater confidence in formal credit systems (Adekunle, 2023).
GTBank’s approach involves partnering with insurance companies and government agencies to offer subsidized insurance products that are affordable and tailored to the specific needs of rural farmers. These products are designed to cover a range of risks—from crop failure to livestock losses—and are integrated with digital platforms that enable efficient claim processing and real-time monitoring of agricultural performance. The synergy between insurance and credit is expected to improve repayment rates and reduce non-performing loans, thereby enhancing overall rural banking performance (Akinola, 2024).
However, challenges remain in ensuring widespread uptake and effective implementation of agricultural insurance. Low awareness, limited trust in insurance providers, and cumbersome claim processes can hinder participation among rural farmers. Additionally, infrastructural deficits and regional economic disparities may reduce the efficacy of insurance-backed loans. This study examines the impact of agricultural insurance on rural banking performance at GTBank, exploring its benefits, challenges, and potential improvements to better serve the agricultural sector (Ibrahim, 2025).
Statement of the Problem
Despite the potential of agricultural insurance to reduce credit risk, Guaranty Trust Bank faces challenges in its implementation within rural agricultural finance. Many farmers remain unaware of the benefits of insurance-backed loans, and those who do participate often encounter complex claim procedures and delays in compensation (Adekunle, 2023). This lack of user-friendliness and limited coverage undermines the protective function of insurance, leading to persistent high default rates and financial instability within the bank’s agricultural loan portfolio. Furthermore, inadequate integration between insurance products and credit processes results in fragmented risk management, which does not fully mitigate the effects of adverse events on loan performance. Regional disparities in the availability of insurance services further exacerbate these issues, leaving some rural areas more vulnerable than others (Akinola, 2024).
These challenges create a significant gap between the intended benefits of agricultural insurance and its practical impact on rural banking performance. Without addressing these gaps, the bank’s efforts to stabilize and expand its agricultural credit portfolio are compromised. This study seeks to identify the factors that limit the effectiveness of agricultural insurance in rural banking and propose measures to enhance integration, streamline claim processes, and improve farmer awareness (Ibrahim, 2025).
Objectives of the Study
• To evaluate the impact of agricultural insurance on loan repayment performance.
• To identify challenges in the implementation of insurance-backed lending.
• To recommend strategies for improving the integration of agricultural insurance with rural credit services.
Research Questions
• How does agricultural insurance affect the performance of rural agricultural loans?
• What are the main barriers to effective insurance integration in credit processes?
• What measures can enhance the uptake and efficiency of agricultural insurance?
Research Hypotheses
• H1: Agricultural insurance significantly reduces the risk of loan defaults.
• H2: Complex claim processes negatively impact the effectiveness of insurance-backed loans.
• H3: Improved integration and farmer education enhance the benefits of agricultural insurance.
Scope and Limitations of the Study
This study focuses on GTBank’s agricultural insurance initiatives in selected rural regions. Data are obtained from loan performance records, insurance claims data, and farmer surveys. Limitations include regional variability and potential reporting biases.
Definitions of Terms
• Agricultural Insurance: Financial products that protect farmers against losses due to adverse events.
• Rural Banking Performance: The effectiveness and stability of loan repayment in agricultural finance.
• Risk Mitigation: Strategies employed to reduce the likelihood and impact of financial losses.
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