The Effect Of Microfinance Banks Services On Agricultural Production Of Members Of Cooperative Societies

Project and Seminar Material for Agricultural Economics and Extension

The Effect Of Microfinance Banks Services On Agricultural Production Of Members Of Cooperative Societies


Lack of access to credit has negatively affected poor farmers and rural dwellers for many years. Rural people need credit to allow investment in their farms and small businesses, to smooth consumption and to reduce their vulnerability to weather and economic shocks. Because they have little access to formal financing institutions, poor rural people follow sub optimal risk management and consumption strategies and rely on costly informal credit sources (FAO, 2010).

To this end, Eluhaiwe (2008) noted that microfinance banks were established in Nigeria in 2005 for the purpose of providing economically active poor and low income earners financial services, to help them engage in income generating activities or expand their businesses.

By definition, microfinance refers to the provision of financial services to the poor or low income clients including consumers and the self employed ledgerwood (2010). According to Robert(2009), microfinance refers to movements that envisions a world in which as many poor or near poor households as possible have permanent. Access to an appropriate range of high quality financial services including not just credit but also savings, insurance and fund transfers. In addition, Eluhaiwe (2008) stated that microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institution.

Chapter One


1.1 Background to the Study

Nigeria is endowed with natural resources, large fertile farmland, wide range crops, and river amongst others. Despite its abundant natural resources it is faced with poor food situation. The poor food situation is traceable to the decline in the agricultural sector. The problem of feeding and provision of natural resources is increasing by the day.

However several efforts are being made to improved the standard.
Prior to the discovery of petroleum in Nigeria agriculture used to be the highest foreign exchange resources earner and contribution to gross domestic product GDP has been estimated to about 62.63% in 1960, 48.08% in 1970s, and 20.63% in 1980. Recently due to the growing awareness of the effect of agriculture, the various governments have intensified efforts aimed at transforming from its present subsistence level to a market oriented production. One of those efforts was the ban made on importation of agricultural products like palm oil, maize and rice. This was done to encourage improvements on our production standard.

Due to the fall in the level of production from decade to decade, the country could no longer feed the large population, provide raw material for domestic-industries, engage in export of agricultural produce and employ the labor force of the country despite the abundance of human and material resources.

In spite of growing urbanization, Nigeria is known to be predominantly rural in natural and majority of population is dependent directly or indirectly on agriculture for their live hood. Credit delivery is perhaps one of the most important roles of microfinance banks, as the loans extended are used to expand existing businesses and in some cases to start new ones. According to CBN (2008) microfinance loans granted to clients is increasing from 2007 to date and most of it goes to financing micro-enterprises in rural areas.

Ketu (2008) observed that Microfinance banks have disbursed more than eight hundred million micro-credits to over 13,000 farmers across the country to empower their productive capacities. As such it is expected that agricultural output will increase with the increase in finding. The entrepreneurial capacity of the farmers we thus improve.

1.2 Statement of Research Problem

According to Anyanwu etal (1997:14) “the agricultural sector has been recognized for a long time as an important sector to Nigeria economy and development is one of the crucial requirements for the overall economic growth.

He noted further that the declined in agricultural activities might appear natural in any development process, it is obvious that in Nigeria agricultural activities would remain the most important single sector for some time to come. He emphasized that in the past, development planners have introduce programs such as national accelerated food production project (NATPP), green revolution programs (GRP), In search for all appropriate technique in order to increase farm output and productivity and such program have at one time been implemented.

Based on these, a number of problems one facing the agricultural sector and they are as following. Inadequate finance or credit facilities, inadequate farms input, lack of storage facilities, lack of basic amenities, Lack of technical know-how, lack of research and illiteracy of the farmers.

The questions to which this research will provide answers to one, is the credit advanced to cooperative members through microfinance adequate to have a significant impact on agriculture? All these problems can be solved or rather reduce when there is adequate financing.

1.3 Research Questions

This study revolved around the answering of the following research question.

  1. What extent does microfinance loans influences the agricultural output in Nigeria economy?
  2. What policy actions can be implemented to boost the agricultural productivity in Nigeria through microfinance?

1.4 Objectives of the Study

In this study therefore, the researcher hope to accomplish the following objectives:

  1. To determine how microfinance loans/credit granted to the farmers can influences the agricultural output in Nigeria economy.
  2. To determine policy actions in which agricultural output can be improved through microfinance bank credit.

1.5 Hypothesis of the Study

  1. Microfinance banks loans have no significant impact on agricultural production in Nigeria.

1.6 Significance of Study

Microfinance services, particularly those sponsored by the government have adopted a traditional supply led subsidized credit approach mainly directed to the agricultural sector and other non-farming activities, but the effect has short lived.

The Nigerian economy stands to derive lot of benefits if concrete steps are taken to salvage the agricultural sector opinions are divided as the actual benefit of microfinance policy, regulatory and supervisory framework and how it can develop economy, most especially the agricultural sector because it has grasps of the challenges facing agriculture.

To the researcher, this work will serve as an avenue to broaden my knowledge, as it places a challenge that will expand my intellectual horizon by and applying various economic tools analysis draw conclusion for future analysis. It is also expected to serve as an impetus for further researchers in this area of study. It should not be considered as an end to research and policy making but as a guide taking into consideration of its limitation.

To the government and its agencies, it looks at earlier policies designed and why they failed. Therefore it is hoped that it will provide a useful guide to policy makers in agriculture for steady and consistent policies and programmes in terms of funding.

To the society, this researcher’s work will create awareness of the microfinance services that enables them engage in economic activities to be self-reliant, increase employment opportunities, wealth creation, growth and development.

Finally, the salient findings of the study will also make the farmers to be more oriented in agriculture.

1.7 Scope of the Study

The scope of this research covers the period from 1980 to 2013. The period is significant because a lot of measures were adopted following the advert of crude oil and its collapse. That is pre-sap and implementation and role in financing the agricultural sector.

Chapter Five

Summary, Conclusions and Policy Recommendation

5.1 Summary

From the analysis and interpretation of results in chapter four, some findings were made during the process and they are summarized as follows

  1. There is a positive relationship between microfinance bank loans and gross domestic products which means that an increase in microfinance bank loans will bring about an increase in GDP.
  2. There is a positive relationship also between the financial sector output (FSO) and gross domestic product(GDP), which implies that an increase in financial sector output will result to an increase in GDP
  3. A positive relationship also exist between government expenditure and gross domestic product which means an increase in government expenditure will bring about an increase in GDP

Since microfinance bank loans, financial sector output, and government expenditure has a positive impact on gross domestic product, therefore microfinance bank loans will promote agricultural productivity and development.

5.2 Conclusions

In conclusion, microfinance bank loans have a vital role to play in the agricultural sector in Nigeria. Because of this, microfinance bank loan serve as a catalyst for agricultural production in Nigerian economy.

5.3 Policy Recommendations

From the findings that were made the following recommendations include

  1. Microfinance banks in Nigeria should increase the rate at which they lend loans to farmers which would enable farmer to purchase sufficient equipment, machineries, storage facilities and farming tools for agricultural activities
  2. The federal government should reduce the interest rate so that agriculturalist would be able to borrow sufficient money from microfinance bank.
  3. The central bank of Nigeria (CBN) should make sure that the funds mobilized for loans are effectively disbursed to the farmers through microfinance banks.
  4. The federal government should give a directive through microfinance bank that will encourage the farmers by giving them incentives. This will automatically increase the efficiency of farmers and thereby attract more youths to the agricultural sector

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