This study examined the effectiveness of the Fadama III, National Program for Food Security and International Fund for Agricultural Development programs in reducing poverty and income inequality in Yobe State, Nigeria. Agricultural funding in the state has increased by 670.7% between 2004 and 2013. Despite this trajectory, the state ranks among the worst in Nigeria in terms of poverty and income inequality according to UNDP report, reinforcing the need to investigate the impact of agricultural funding on the state's welfare. Previous studies in this area have been on a country-wide basis and have not disaggregated the funding sources. This study disaggregating the funding sources of Yobe State in order to establish the effectiveness of each funding source. Field survey data from the fund beneficiaries and secondary data from the Central Bank of Nigeria, National Bureau of Statistics, and the World Bank provided empirical evidence. The first-best resource allocation theoretical framework was applied to understand the impact of funding sources on the welfare effect of the beneficiaries. The Ordinary Least Square, analysis of variance, and t test revealed that agricultural funding significantly and positively impacts on recipients' standard of living, asset base, and agricultural output, without any significant impact on income. Results indicate that FADAMA III is the most effective in improving the overall welfare of beneficiaries. It is recommended that other funding programs should adopt the models of FADAMA III, and should also require counterpart funding in order to maximize the benefit for a larger segment of the population. These findings may bring positive social change by reducing poverty, expanding economic opportunities, and improving quality of life, leading ultimately to sustainable peace and economic prosperity in Yobe State.