The Analysis Of Loan Administration In Financial Institution In The Nigeria Economy
The study is an analysis of loan administration in financial institution in the nigeria economy. The methodology used is ordinary least squares (OLS), using P.C give 8.00 package. The findings from the study support the view that commercial bank loans are not getting to red farmers. The commercial banks loan to Agricultural sector is positive and significant at 5% level, contributing 67.65 percent variations in Real Agricultural output in Nigeria. Real interest rate and real exchange rate are both positive, but not significant at 5% percent level. The positive real interest rate shows that Investments in Agricultural sector in Nigeria has a very high rate of return. The findings suggest that real interest and exchange rates should be properly managed and periodically received so as to promote the growth of the Agricultural sector.
1.1 Background of the Study
Loan administration is one of the external mean of financing many sector of the economy especially the agricultural sector. This is due to the fact that the agricultural sector is the major source of the food production and supply in the country. This loan is been administered through the financial institution established by the federal government of Nigeria. It (loan administration) is been introduced so as to help rural farmers and small-scale business financially in their various businesses. This enhances and increases the agricultural productivity. Loan administration in the financial institution is also one of the elements that determine the extent of economic growth and development in the country.
Financial institution in 1990”s do not properly administer their fund to the major sector of the economy which is the agricultural sector and this led to the importation of food to the Nigeria making the country so much dependent on other country for food. Thus the agricultural sector could not boast of food production due to the fact that it was not adequately financed. In Nigeria, up to 75% of its production engage in agriculture which is the major source of food supply in the country and most of them are poor and rural farmers which have limited fund to produce the input and technological required in carrying out their agricultural business. This lack of fund lead to reduction in the food supply in the country and at the same time retard economic growth and development. Therefore, agricultural sector need to be adequately funded through the use of loan administration so that the economy can boast of being independent of other countries and also can develop.
Do to the problem of lack of capital experience in the agriculture sector; especially in the rural farmers and small-scale traders, the federal government of Nigeria took a major concern on the issue of loan administration to enhance development in the country’s economy through financial institution. This led to the establishment of the Nigeria agricultural co-operatives and rural development bank (NACRDB), family economic advancement programme (FEAP), the Nigeria agricultural cooperative and rural development bank (NACRDB). This establish in January 200 but was dually confirmed by the federal executive council of Nigeria in November 200. the bank is been supervised by the federal ministry of agriculture.
Nigerian agriculture is confronted with many problems which ranged from low yield to low productivity and inadequate facilities among others. Oyatooye (1981) was on the same path when he noted that the problem of agriculture in Nigeria can be discussed under four headings.
- Finance and Government
Such problems include problems of providing adequate extension services, agricultural inputs, storage facilities, agricultural credit, marketing information and efficient marketing arrangement, infrastructures such as feeder roads efficient power supply and institutional reforms where necessary. William (1981) pointed out that, the major problems facing Nigeria today are the needs to transform her agricultural industry from one traditional input with low productivity to one which enables her to meet the rising expectations of her people and to correct the social and economic
imbalance created by lopsided development between her rural and urban areas which have encouraged the youths and others to migrate from rural areas.
His statement is a valid one as when it was made from we have seen, the Nigerian economy is characterized by a high degree of rural to urban drift in search of greener pastures leaving the farm land to old aged men who are unable to provide all the food requirements of the growing population. This is responsible of the growing population. This is responsible for the high cost of food as there is pressure on the little produced.
Adekanye‟s assertion (1988) when he stated that: it is a common knowledge that present farmers and artisans who the back of the rural population do not get adequate and timely loans from financial institutions and they have no collateral and equally they do not get supplies of raw materials of standard quality even at the market place as they come under the ditches of rich farmers and sellers in the urban areas. The need for setting up of rural based commercial banks is very urgent.
1.2 Objective of the Study
The main objective of this study is to assess the analysis of loan administration in financial institution in the nigeria economy. Specifically the study tends to be achieving the following objectives.
- To access the scope and achievements as well as highlight new role of Nigerian Commercial Banks to Agriculture.
- Identify the inherent problems of agricultural financing which have hindered the smooth flow of credit from banks to agriculture.
- To offer solutions to identified problems.
1.3 Hypothesis of the Study
The hypothesis guiding this study are of two type
- H0 which is the null hypothesis and
H1 which is the alternative hypothesis
- H0 is that the Banking Industry has played an important role in agricultural development in Nigeria.
H1 is that the Banking Industry has not played an important role in agricultural development in Nigeria.
1.4 Significance of the Study
This study is useful in many ways.
- Firstly, Nigerian farmers can know the type of credit or assistance offered by Nigerian Banking Industry and the benefit from them.
- Secondly, it will help to update knowledge on how the banks especially commercial banks in Nigeria, thus making it useful for other researchers, schools and readers.
- Thirdly, it will enable the Nigerian government to take advantage of the suggestions and more result oriented policy towards boosting agricultural production in Nigeria.
- Finally, the salient findings of this study will also make the farmers to be more result oriented in agriculture.
1.5 Scope and Limitation of the Study
This study covers the period between 1986-2009; it will be an oversight to think that study such as this will be accomplished without impediments and constraints. Much as it seems incontrovertible that odds will be imminent there are some glaring inexorable cases.
Some respondents to interviews are always simplified and simplify in relating information to researchers.
Again, to think of development only in terms of increasing agricultural output is an under statement.
There is also the clamored non-existence of relevant and indispensable literature as versatile as possible.
The limitation put together explains why the research is scaled down from 1986-2009
The study only centers on the role of commercial Banking in agricultural development and factors surrounding their credit decisions to agricultural sector.
Thus, it only assessed the performance of the banks in executing the role of financing agriculture.
Since it was not possible to get the whole information needed in this study, the study is limited to the Nigerian Economy. The study is equally limited by time and limited sources of data. There are time constraints in the process of carrying out research due to in accuracy of data. It is sometime possible to underestimate or over estimate.
5.0 Summary of Findings, Recommendations and Conclusion
5.1 Summary of Findings
This research work was carried out to known the impact of the banking industry loan administration in financing agriculture in Nigeria using a time series data within 1986 to 2010.
The past shows that some efforts have been made to finance agriculture in Nigeria but the effect has not been felt as the sector is dominated by the oil sector. The agricultural output in Nigeria is being affected by the regulation of the real exchange rate by the credit institution, since farmers find it difficult to exchange foreign currency into domestic currency.
The study identified some problems that have constrained reduction in agricultural productivity outside real exchange rate. This include using cost of farm input caused by prolong inflation in the economy. The implication is that there is inadequate supply and delivery of farm input, shortage of capital low rate of technology, environmental hazards, processing and storage facilities, land and labour constraints etc.
However, the result of the regression shows that there is a positive change in banks credit to farmers and Real interest rate to change the agricultural output. On other hand, banks credit to farmers and the Real interest rate have a positive relationship with agricultural output in Nigeria economy by
- Increasing the technological input of farmers
- Removing the redtapism in the acquisition of credit land parcelization
- It has helped banks to manage risk murder to speed specialization.
- Flexibility yield and proper policies.
- It has helped in providing adequate extension services, agricultural inputs, storage facilities, marketing information and efficient marketing arrangement, infrastructures such as feeder roads efficient, efficient power supply and institutional reforms.
- The bank credit given to farmers has helped farmers to transform her agricultural output into industrial input which enable her to meet the rising expectation of her people and to correct the social and economic imbalance created by the top sided developments between the rural and urban areas which have encourage the youths and others to migrate from rural areas.
Based on the above findings and existing literature on the loans and agricultural productivity, and from the present research, it is obvious that the real Interest Rate and Banks Loan have a significant impact on agricultural output in Nigeria. In the high of these, the following recommendations are proffered:
- Real Interest Rate as it influence needs policy should be properly managed and periodically reviewed so as to promote the growth of the agricultural sector.
- Real Interest Rate determination is a function of monetary authority like Central Bank of Nigeria; therefore, monetary policy should be promoted towards enhancing agricultural output in Nigeria.
- International bodies sometimes give out loans to finance agriculture; for such loans to be properly utilized, they have to be channeled in such a way that the impact of such loans has to be felt by the peasant farmers. When such loans are taken, they should be used towards the achievement of specific objectives. And such loans should be seriously monitored. Since agriculture is an important sector of the economy, more loans should be allocated to its development and implementation.
- The Central Bank should give adequate directives to the commercial banks mandating them to give out loans to farmers at affordable interest rate and collateral securities.
- The government on its own part should pass a bill to Agricultural Banks, which will mandate them to give out loans to farmers without unnecessary prerequisite.
- Various governments should encourage formation of farmer‟s cooperative societies at local level, so as to ensure adequate funding for agriculture which will enhance growth of the economy.
The potential increase on the effect of agricultural financing based on production does not exist, but the agriculture is yet to attain its full position and fulfill its role, especially in the production of basic agricultural commodities.
Furthermore, it is important to emphasize here that the role of credit in Nigerian agricultural development cannot be over emphasizes.
Again, the loan given out by the international and local bodies does not reach the real farmers, rather it goes to the business men who resell them and use the loan to improve on their business.
Therefore, a policy stability and long-term planning should be given adequate attention in the policy design processes. The nature of agricultural practices and changing of domestic market into word market should be addressed. The economic situation of Nigeria requires that a regular policy review process should be instituted. By so doing, Nigeria will achieve its „7 Points Agenda‟ aimed at guaranteeing a better life for all Nigerians and solve the present frightening –food crisis.
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