ABSTRACT
The
study is an investigation into the impact of Bank Credit on Agricultural
Development with emphasis on First Bank of Nigeria Plc.
Specifically,
I examined the effect of Central Bank of Nigeria credit guidelines and other
financial bodies on Agricultural
Development, also examined the relationship of bank lending policies in
Nigeria, and to what extent there credit facilities are effectively been
utilized by the farmers.
Two
major statistical tools were adopted, while a time-series analysis was
conducted to observe the movement of the loans and advances against the years
loans were utilized by small and large scale farmers.
Some
of the major findings of these tests confirm that bank credit has a significant
impact in Agricultural Development for the small and large scale farmers.
Further
investigation shows that the highest agricultural loan was granted in 2009 with
over One Hundred and Seventy Five Million Naira the loan granted in 2010 and
2011 decreased drastically by 20 percent which was basically due to the global
financial meltdown.
Based
on these results, some of the major recommendations are that Federal Government
should increase the banks share and credit base in order for the bank to cope
with increasing loans demand.
Finally,
for credit to be more effective, other sector of the economy should asked to
corporate with the bank in providing the relevant service to support the scheme
the bank in its bid to relive farmers other predicaments.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background
of the Study
1.2 Statement
of the Problems
1.3
Objectives of the
Study
1.4
Research Questions
1.5
Research
Hypotheses
1.6
Significance of
the Study
1.7
Scope of the Study
1.8
Limitation of the
Study
1.9 Definition
of Terms
CHAPTER TWO: LITERATURE
REVIEW
2.0 Introduction
2.1 Conceptual Framework
2.2 The Nigeria Agricultural History
2.2.1 Agricultural Sector in the Pre Independent Era
2.2.2 Agricultural Sector in the Post Independent
Era
2.3
Credit And Its
Role Agriculture
2.4
Sources of
Agricultural Credit
2.5
Agricultural
Finance
2.6 The
Role of Financial Institution in Agricultural Financing
2.6.1 Central Bank of Nigeria
Role
2.6.2 Commercial Bank’s Role
2.6.3 Development Bank’s Role
2.6.4 Merchant Bank’s Role
2.7 Terms
of Agricultural Credit Repayment
2.8 Rural
Banking and Agricultural Extension
2.8.1 Problems of Rural Banking
2.9 First Bank Agricultural Scheme
2.9.1
The First bank Farm Settlement Scheme
2.9.2
Guaranteed Fund Credit (GFC)
2.9.3
Multi-Channels Agricultural Finance Scheme (Multi-Cafs)
2.9.4
First bank Agricultural Credit To Schools (Facts)
2.9.5
National Agro Dealer Scheme (NADS)
2.9.6
GSM 102
2.9.7
Commercial Agriculture Credit Scheme
2.10 First
Bank Nigeria Plc Finance Operation and Evaluation
2.11 Problems of Agricultural
Credit Repayment in Nigeria
2.11.1 Farmer Related Problem
2.11.2 Bank
Related Problems
2.11.3 Government Related
Problems
2.12 Problems of Agriculture
CHAPTER
THREE: RESEARCH METHODOLOGY
3.0 Introduction
3.1 Sources of Data
3.2 Population
of the Study
3.3
Sample Size and Sampling Techniques
3.4 Restatement of Research Hypotheses
3.5 Method
of Analysis
3.6 Assumption
to Questionnaire
3.7 Validity of the Research Instrument
3.8 Reliability of the Research Instrument
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Personal Characteristics of the
Respondent
4.3 Response of Respondents to the Problem Areas.
4.4 Testing and Interpretation of the Hypotheses
4.4.1
Analysis of Hypothesis One
4.4.2 Analysis
of Hypothesis Two
4.5 Presentation of Secondary Data
4.6 Discussion of Result
CHAPTER FIVE: SUMMARY,
CONCLUSION AND RECOMMENDATION
5.0 Introduction
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendations
5.3.1 Recommendation for the Government
5.3.2 Policy Recommendation for the Bank
5.3.3 Policy Recommendation for Farmers
Bibliography
Appendix I
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Like many other African
countries, Nigeria is primarily agrarian with its abundant land and water
resources. Despite the rapid growth of the oil industry over the years,
agriculture still accounts for 40% of GDP and provides employment (both formal
and informal) for about 60% of Nigerian’s 150 million people. Nigeria’s
agriculture remains largely subsistence-based with about 80% of agricultural
output coming from rural farmers living on less than a dollar per day, earned
from farming less than one hectare (2.47 acres). Nigeria has diverse
agro-ecological conditions that can support a variety of farming models to
create its own green revolution.
However, successive
administrations neglected agriculture over the years and failed to diversify
the economy away from overdependence on the capital-intensive oil sector.
Nigeria was once a large net exporter of agricultural products and the sector
was the major foreign exchange earner before the advent of oil in 1970s.
Nigeria is currently a huge net importer of agricultural products, with such
imports exceeding $3 billion in 2010. The country has the potential to return
to its previous position if adequate attention is given to agricultural growth
policies, finance and provision of rural infrastructure.
The fact of the matter is
most of the smallholder farmers lack access to capital to acquire the needed
inputs to increase their productivity and incomes and reduce their poverty.
Farmers require credit to purchase seeds, fertilizers, herbicides, and buy or
rent mechanized equipment and related services.
Nigerian agricultural
policy recognizes the vital role of agriculture finance in attaining the much
desired green revolution. A major focus of the policy is to establish a system
of sustainable agricultural financing schemes, programs and institutions that
could provide micro and macro credit facilities for the small, medium and
large-scale producers, processors and marketers. However, public expenditure on
agriculture which serves as the bedrock of financing for the sector has
consistently fallen short of recommendations. It is therefore not surprising
that these policies have failed to achieve the set goals of food
self-sufficiency, self reliance, poverty reduction and rural development.
Importantly, Nigeria agriculture is abysmally under-financed. At a public forum
in early 2011, the Governor of the Central Bank of Nigeria (CBN) was quoted to
have said “currently agriculture accounts for 40 percent of the GDP, yet it
receives only one percent of total commercial bank loans.” This is
significantly below the level of other developing countries, e.g. Kenya and
Brazil which reportedly registers 6 percent and 18 percent, respectively.
Nigeria's agricultural
development is constrained by the lack of access to credit for the predominantly
smallholder farmers. Efforts by successive governments to address the problem
have been largely unsuccessful. Commercial banks in the country perceive
agricultural finance to be high-risk. The Central Bank of Nigeria is making
efforts to de-risk the sector and encourage banks to lend to farmers.
This research work tends
to asses the impact of bank credit on agricultural development with special
reference to First bank Nigeria Plc. The role of the Central bank of Nigeria
(CBN) and some other commercial banks will also be examined.
1.2 STATEMENT OF THE PROBLEMS
It is important to note
that in the early 70s when the oil price increased, the agricultural sector
suffered a serious neglect as the focus and concern of the nation’s economic
activities and government revenue shifted to the industry. Consequently, price
fell in the world market.
The Nigerian food import
bill assumed an unprecedented level of about N1.5billion while the traditional
agricultural exports were progressively declining. The need then arose for
re-engineering the agricultural sector and a fundamental restructuring of the
economy towards self-sustaining growth and development. After the post independent, the CBN
established some agricultural agency like Credit Guarantee Loan Scheme (1972)
to address the problem of agriculture by granting loan and advances to
agricultural sector, but this scheme was not properly implemented.
1971, an agricultural
reform was established called “Operation Feed the Nation”. Poor assessment and
implementation of the programme could not allow the government to achieve its
objectives. 1989, the government came up with a reform called Structural
Adjustment Programme, the programme was also with a wrong motive.
The Bank reform 2005 by
CBN resulted in the growth of the banks with new branches springing up
everywhere across the major cities, and was celebrated by self-deluded
bourgeois ideologues. The banks were given a clean bill of health, and they
were said to be poised to finance the critical sector of the economy. Rather
than invest in the real sector of the economy like agriculture, manufacturing, iron and steel, etc that will bring about
improved productivity in the economy, the banks went into the oil whose price
has now crashed at the international market. In addition, they also invested
colossal sums of money in the casino market, where they speculated wrongly in
anticipation for quick returns, but the stock market has now crashed, and the
banks have lost over 900 billion naira invested in shares.
First
Bank Plc currently has a loan scheme called Farmers First, which started in
2008. Under this scheme purportedly meant for all categories of farmers, the
individuals or group of farmers who want to access the loan (N1million minimum)
are expected to meet the following requirements before they are eligible: own
an existing farm for some time; open and run current account for a period of
six months; deposit 25 per cent of the total sums intended to borrow; six
months moratoria; agriculture insurance; and other sundry charges. These
hurdles notwithstanding, many poor farmers who have scaled it are still denied
the loans on flimsy excuses, grounds for the rich farmers.
Nigeria's agricultural
development is constrained by the lack of access to credit for the
predominantly smallholder farmers. Commercial banks in the country perceive
agricultural finance to be high-risk making it difficult to grant predominant
farmers loan.
The researcher tends to
examine the impact of commercial banks to these problems and proffer
suggestions and recommendation that could limit these challenges.
1.9
OBJECTIVES
OF THE STUDY
The broad objectives of
this research work is to examine the impact of bank credit on agricultural
development. Other specific objectives include;
·
To
examine the effect of CBN Credit guidelines and other financial bodies on
Agricultural development.
·
To
examine the relationship of bank lending policies in Nigeria as the relate to
Agricultural development.
·
To
examine how effective or defective are these credit policies on the preferred Sector
of an economy.
·
To examine factors that are responsible for
only few individuals and small-scale agriculture industries benefiting from
such polices.
·
To
proffer recommendations on Assessment of the Impact of Bank Credit on
Agricultural Development.
1.10
RESEARCH
QUESTIONS
For the purpose achieving
the objectives of this research study, the following research questions were
asked.
·
Does
any relationship exist between the CBN credit guidelines on agriculture and agricultural
development in Nigeria?
·
Is
there any significant difference between the loan repayment of small and
large-scale farmers?
·
Is
there any Relationship between the type of borrower and loan repayment?
·
Is
there any significant relationship between gender and loan repayment patters of
farmers?
·
Is
there any significant relationship between the types of security pledges and repayment
patterns?
·
Is
there any significant relationship between the educations of farmers’ and loan repayment?
·
What
are the banks lending policies in Nigeria as they relate to agricultural
development?
·
What
factors are responsible for only few individuals and small scale agriculture
industries benefiting from such policies?
1.11
RESEARCH
HYPOTHESES
Hypothesis is a tentative
answer to a research question. It is a conjectural statement about the
relationships that exist between two or more variables which needs to be tested
empirically before they can be accepted or rejected. In a research work,
hypotheses are never proved or disproved, they are either supported (i.e.
accepted) or rejected. To provide answer to the research questions arising from
this study, the following hypotheses are postulated.
HYPOTHESIS 1
Ho: There
is no significant relationship between the CBN credit guidelines on agriculture
and agricultural development in Nigeria.
Hi: There
is significant relationship between the CBN credit guidelines on agriculture
and agricultural development in Nigeria.
Hypothesis
2:
Ho:
There is no significant relationship
between the type of borrower and there repayment patterns.
Hi: There is significant relationship between
the type of borrower and their repayment patterns.
1.12
SIGNIFICANCE
OF THE STUDY
This
research study focus on the assessment of bank credit on agriculture and how
effectively this credits utilization enhances the agricultural development.
In
essence, the study will be useful to the managers of economy if there is a
significant improvement in the area of agriculture with the justification of
effective utilization of funds which lead to sustainable in the area of economy
development.
The
work will contribute to already existing works in the field of economy and
agricultural performance in Nigeria.
1.13
SCOPE
OF THE STUDY
The research would focus on
the activities of First Bank Nigeria Plc., towards the financing and
development of agriculture in Nigeria. Emphasis would be on operational schemes
of the bank, condition and pre-requisites for borrowing, financing procedures,
sources and application of funds, evaluation financing. The study would cover a
definite period to enable us have a clear vision of the role of First Bank
Nigeria Plc. in relation to agricultural credit in Nigeria. The study uses data
on agriculture loan and advancement extracted from First bank annual journal,
2012 that covers 2000 -2011
1.14
LIMITATION
OF THE STUDY
In the course of
conducting this research work it is expected that the following will constitute
impediments to the effective conduct of the study
a) Time constraint within which the study must be completed.
b) Financial constraint
c) Inaccessible and inadequate data
Nevertheless, I believe
the above limitations will in no way affect the reliability and validity of the
research study.
1.15
DEFINITION
OF TERMS
CREDIT OR LOAN: Used interchangeably. It refers to
the cash or goods or services granted by the financial institution (e.g. bank)
to a beneficiary (borrower) to use in the present with a pledge to pay back at
a future date.
LOAN REPAYMENT: This is the fulfillment of a loan
obligation
COLLATERAL SECURITY: Is an asset pledge against the
performance of a loan.
LOAN DISBURSEMENT LAG:
Gives an indication
to the timeliness of a loan delivery. This is measured by the number of days
between application and disbursement.
LOAN DELINQUENCY: Loan default or non-performing loan
means the same. It is a failure to fulfill loan obligation. A loan becomes
defaulted if the interests is ninety days over due and not enhance or extended.
SOCIO ECONOMIC
STATION: Is
determined by the farmers’ asset structure which defines his/her standard of
living. The assets include: Type of House, Radio, Wrist Watch, Motor Cycle, Bicycle,
Car, Television, Farm Produce Processor.
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