Examine The Role Of Financial Institution In Agricultural Development In Nigeria With Particular Reference To Nigeria Agricultural And Co- operative Bank Enugu

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Examine The Role Of Financial Institution In Agricultural Development In Nigeria With Particular Reference To Nigeria Agricultural And Co- operative Bank Enugu


Abstract


The purpose of this study is to assess the role of financial institutions in the development of the agricultural sector in Nigeria. The study is based on a descriptive and inferential statistical approach. A sample of 200 farmers would be selected out of the population of farmers and questionnaires would be administered to each of them. The descriptive statistics would be used to analyze the data collected. In the course of the study we found that over the years there has been a steady decline in banks investment in agriculture especially by our indigenous banks, this is attributed to the risk involved in the trade of agriculture ranging from weather conditions to divergences of funds and hence low recovery rate of finances. The underfunding of agriculture with the imminent chain reaction of stagnation in agricultural growth and development, manifested in low productivity output levels, which translate in food and raw material scarcity, possible closure of industries and retrenchment of workers which could precipitate high levels of unemployment. It is advised that an agricultural data bank should be set up to closely monitor the trend of agriculture by local, state and federal government. Agricultural Development institutions as well as commercial banks should strengthen their agricultural development with technically trained agriculturist and agricultural economists. Possibility of banking habits should be encouraged reducing interest rates, reducing delays in banks and the use of bonuses from time to time to enhance farmers to save their money in a bank to serve as collateral if and when needed. With the merging of banks and parastatals to help pull resources together to come to the rescue of agriculture, Nigerian Agricultural And Co-Operative Bank is poised to play its role and rightful position in the agriculture sector development.


Chapter One


Introduction

Background to the Study

Agricultural is one of the most important sectors of our country’s economy. Enugu state is no exception. Enugu state, characterized by low farm incomes, primitive farming techniques which lower the level of production, and low level of capacity to satisfy the food and fiber need of the nation. Infant agricultural is in a part-type pf peascont agricultural which has been mentioned by many writers as caught in a vicious circle of property low income resulting to poor savings and little investment, because technology is poor, out put is always low and income yield is low. Generally agriculture in Nigeria is caught as a low level equilibrium trap.

The nature of technology is use always affects the rate of return; i.e. the rate of return cannot rise because of poor technology in use. This also as a result of poor financing, such agriculture has been described as efficient but poor. In order to alleviate the numerous problems being encountered by farmers and the economics loss suffered both individual farmers and government in the international and local trade transactions, then government decided to finance most of the agricultural projects limited by individual farmers, co-operatives and institution.

Prior to 1976, the attention paid to agriculture by successive government was not anything to write home about. Farmers were not earned for pushed to the background and they weren’t introduced into the use of modern scientific method of farming which would have help them a lot to boost agricultural production. It was during the obasanjo leadership that alteration was beginning to be given to agriculture with the introduction of operation feed the nation (OFN). Then the idea was that of the bulk of producing food for the nation was left with the farmers alone, we might not achieve best result but the idea behind (OFN) was that all Nigerian should join hands together and produce for our ourselves and the nation in general. Ever since then, successive government have followed with different programs all aiming developing products.

The evidence is that the establishment of Nigeria agricultural and co-operatives bank ( NACB) ltd which is an apex development financial institutions set up to external agricultural credit to the agricultural and agro-alhed sectors of the Nigeria economy, this government has shown a great concern in this wise. This is carried out through the provision of loans to liability companies, state and federal government agencies.


Statement of Problem

Many developing countries of the world have very few financial facilities, considering the evolution of financial market in Asia, latin America and Africa countries, it was assented that new financial facilities are very much needed to extend. Financial help especially in Nigeria. In supporting this assertion, it was contended that at a certain stage in agricultural development. Agricultural credit clearly does become a strong force for further improvement, when a man with energy and initiative who lacks only the resources for more and efficient production is enabled by the use of credit to eliminate the block on his path to improvement.

Within the two capital markets ( institutional and non-institutional) available to rural producers, the informal sources is the most extensive suppler of cedit Nigeria yet this sources has not supplied the amount of credit enough in terms of requirement by farmers to modernize their farming methods

The problem of agricultural development is lack of finance and lack of capital to be invested in the sector. Agricultural transformation plays a centre role on the process of economic development and since past two (yrs) decade productivity in the sector has been steadily declining.

Farm output an d productivity and such program have at one time been implemented.

In recognition of the aforementioned that attempt is made in this study to provide answers or solution to the research problems below.

  1. What are the reasons for continuous fall or decline in the production level of the agricultural sectors of the Nigerian economy?
  2. What actions can be taken to upgrade the current production level of the agricultural sector?
  3. What effect does the decline in agricultural sector have on the human resources of the economy?
  4. What measures have been taken in the past to redress the perceived slow growth rate of the agricultural sector?
  5. How and to what extent does the performance and commitment exhibited by financial institution in general, Nigeria agricultural cooperation and rural development bank in particular in terms of providing financial support influenced the activities of agricultural sector?

Objectives of Study

The objectives of the study are to determine the role of financial institution in agricultural development in Nigeria.

This will specifically include

  1. To examine and evaluate the agricultural create it granted the farmers in recent years.
  2. To ascertain the effectiveness of credit granted by Nigeria agricultural cooperation and rural deve3lopment bank in the achievements of the pre-planned objectives of the agricultural sector.
  3. The study seeks to analyze the measures and program set by the government in a bid to enhancing the agricultural sector.
  4. To determine the influence of these measures at accelerating the growth rate of the agricultural sector.
  5. To establish and verify ways by which the agricultural sector can be improved in the future.
  6. The study seeks to achieve the above system aims or objectives.

Scope of the Study

With the aim of examining how the financial institutions influence the activities of agricultural sector, through their credit policies and farm credit system, programs that have been established to review the agricultural sector would be analyzed. A lot of sources for farm credit have been and a number of them have failed to perform their pre-planned functions. An example of such scheme is the Nigeria local development board (NLDB).

Our point of focus in examining institution program and scheme setup to upgrade the agricultural sector would be on Nigeria agricultural And Co-Operative (NACRCD).


Significance of the Study

The agricultural sector of the Nigeria economy like any other sector of the economy cannot function without fund. Unlike the other sectors of the economy, agricultural sector can guarantee repayment of loan borrowed or collected only after a long period of time. This is because of the slow nature of the production process.

However, this has acted as a hindering factor to giving out loan to the agricultural sector by financial institutions. If this continues in its current path, the continuous lack of fund would lead to the eventual collapse of agricultural activities.

The problem of lack of fund and credit facilities in the agricultural sector has been chosen because the persistent shortage of fund would lead to a fall in the production level of the agricultural sector, the agricultural sector whose importance cannot be over stated.

Nevertheless, there would be some beneficiaries in this study which will include the government, financial institutions, large and small scale farmers as well as the general public.


Statement of the Research Hypothesis

This study would be guided by the following hypothesis;

  1. Ho: the agricultural down drain cannot be curbed through effective bank credit.
    Hi: the agricultural down drain can be curbed through effective bank credit.
  2. Ho: bank credit and financial facilities are not made available by development bank to farmer.
    Hi: bank credit and finance facilities are made available by development bank to farmers.
  3. Ho: bank credit facilities have been ineffective due to their policies formulated and not their implementations and utilization.
    Hi: bank credit facilities have been ineffective due to their improper implementations and utilization and not due to the policies formulated.

Sources of Data.

For this study, data and information from different sources would be required to test the research hypotheses and solve the research problem. Content that would be analyzed in the process of data generation include books, newspapers, magazines, journals, minutes of meetings, publication of any involved body as well as other media for recording historical data. The sources listed above would provide primary and secondary data.


Limitation of the Study.

Some factors may limit the level of accuracy and reliability of this study. Such factors include.
Difficulty in obtaining data.

Low response rate from involved parties.

In the absence of the above mentioned limitations, all other errors and omissions are entirely those of the researcher.


Definition of Terms.

Agriculture:

This can be defined as the growing of crops and rearing of animals for human consumption. Agriculture involves live stock, forestry, wide life and fisheries as well as the production of crops like cocoa, palm product, groundnut, cotton and rubber. Historically, the Nigerian agriculture can be categorized into three. They are

  1. The subsistence type.
  2. The diversified type.
  3. The plantation type.

The subsistence type is the production type done mainly for human consumption with little or no surface.

The diversified type is the production type that is done beyond individual consumption or domestic level.

The plantation type although have not made any impact in the Nigeria agriculture, it accounts for a small amount of total Nigeria agricultural output. It involves the use of improved modern techniques and it is run in the state by their development cooperation.

Agricultural Sector:

The agricultural sector is one of the sectors of Nigeria economy… it is the sector responsible for the provision of food supply and raw materials for domestic and foreign industries.

Financial Institution:

These are organization owned either by individual, group or persons, state or country as a whole. Financial institutions are established mainly for saving money (deposit) for their customers and providing for such deposit and when needed and also the granting of credit facilities to their customers based on the credit worthiness of such customers.

Nigeria Agricultural Co Operative and Rural Development Bank:

It is a body charged with the duty of granting credit facilities to individual farmers as well as the group farmers for the purpose of fueling their farming activities. It was previously known as Nigeria agricultural cooperative bank (NACB) and became Nigeria Nigeria Agricultural And Co- Operative Bank Enugu after merging
with the defunct people’s bank of Nigeria and family economic advancement program.


Chapter Five


Summary of Finding, Conclusion and Recommendation

Summary and Conclusion

This is the concluding chapter of the research. This study attempted to appraise of role of financial institutions in agricultural development. The study looked at the following issues.

  1. The development of agricultural banking.
  2. Ways in which bank credit issues have affected the developmental of agriculture.
  3. Ways to improve on the developmental process of bank credit as regards agriculture.
  4. Identified problems surrounding agricultural development.

This chapter is designed to reflect the summary of findings and to make recommendations on how the agricultural sector could be improved.


Summary of Findings

In the course of the study we discovered that over the years there has been a steady decline in banks investment in agriculture especially by our indigenous banks, this is attributed to the risk involved in the trade of agriculture ranging from weather conditions to divergences of funds and hence low recovery rate of finances which affects the banks willingness to assist.

There was also the discovery that there were no enough loan officers or staff willing to supervise and follow up the farmers to monitor the use of funds for the farm operations.

The inadequacy of financial institutions to cater for the needs of farmers is yet another problem of the agricultural sector; couple with this is the problem of collateral security demanded by banks.

High interest rates are also another factor which pushes the farmers from even considering a bank loan and so food production remains on the small-scale level. In cases where farmers take the loans they find it difficult to pay back over the years, interest rates have been between 15-30%, which the farmers say is high.

There is also the problem of transportation, which affects the marketability of produce in the markets. This happens when in the course of transportation were costs are high or the vehicle is bad and breaks down on the way during which the product might get bad before getting to the market, transport cost could make the product expensive and thus lead to major losses.

It was also discovered that loans are mostly granted to farmers on short-term basis and when the formal institutions were compared, it was found that the bank loans from the formal sources are higher than that of the informal sources. This is because the farmers indicated that those informal sources could not give loans up to N50, 000.

We also in the course of this study have found out that the government in its efforts to help in financing agriculture and improving produce through new technology do not consider the socio-economic status of farmers. The government without knowing imposes the new technology and financial practices on them not knowing that most of these farmers are not economically sound in terms of education to appreciate the new and improved technology.


Conclusion

The role of agriculture in development of the country is an enormous one. Agriculture is not only important for food production and for the production of raw materials of different sectors examples of which are clothing, pharmaceutical, furniture etc, but also serves as foreign exchange earners for the country.

In Nigeria Agriculture has not been able to attain its full objectives and improper funding has been identified as its major problem. It is known that the effective contribution of agricultural lies increasing the hectares under the farmers management, this will reduce the unit cost of product and the total cost of credit administration and also bring about improved farm management and facilitate adoption of improved technologies in agriculture. This can be facilitated if the banks could enhance the greater flow of funds to agriculture.

Commercial and merchant banks have been called to allocate and release funds prescribed for agriculture, penalties have also been enforced as regards the prescription against defaulting banks. The underfunding of agriculture with the imminent chain reaction of stagnation in agricultural growth and development, manifested in low productivity output levels, which translate in food and raw material scarcity, possible closure of industries and retrenchment of workers which could precipitate high levels of unemployment. This can be checked if the problems of lack of well trained agricultural experts, insufficient loan, high interest and default rate, stringent conditions for loan approval and untimely disbursement of funds are surmounted by banks.

From the research we can ascertain that banks are willing to lend to qualified potential beneficiaries meaning that farmers should be enlightened on the benefit loans.

The central bank of Nigeria has also contributed immensely through their guidelines in relation to increasing lending to the agricultural sectors b banks.


Recommendations

In regard to the discoveries made above, the following recommendations are put forward:

Loan Increase

It is advisable to increase the amount of loans given to farmers to assist them adequately considering the fact that increased input generally yields an increase in output.

Banks and other formal credit institutions should de- emphasized the possession of securities and collateral before loans are given. The social rating of individual credit worthiness measured by guarantors should be used to guarantee loans repayment.

Qualified Staff

This suggestion stresses the need for qualified and skilled staff to assess, follow up and monitor the farmer and the investment loan given so as to help him pay back and make some profit.

Bank and other formal credit institution should make it easier for the farmers to get loans without undergoing long processes which are usually involved in securing loans from their institution. Loans supervision should also be carried out to make sure loans are not used for other purpose.

Interest Rate Regulation

Interest rate should be regulated and pegged at considerably low rate so to encourage farmers to take advantage of bank credit financing.

Extension of payback period

Considering the nature of agriculture as an occupation and trade, it would be in the farmer for banks to extend payback periods; this would reduce the default rate as well as increase productivity. Productivity will be increased as due to the short payback period, most farmers are forced to harvest before its due season causing losses, and the farmers also end up borrowing from others and incurring debts which have the tendency of gradually putting him out of business.

Enlightenment Programme

The and banks should organize educational and enlightenment programmes at all levels to educate farmers on matters concerning obtaining loans. Issues that could be discussed are loan defaults, divergence of loans and loan mismanagement and the effect it has on government, banks and they the farmers.

Infrastructure

The government still has the duty of providing good and agriculture is practiced. Infrastructure such as roads, water, and electricity assists the farmers in terms of transporting their agricultural produce, taking care of the crops and their storage.


General Policy Recommendations

Agricultural Data

Presently, there is no reliable means of aggregating the financial needs of Nigerian farmers. Data would reveal problems as well as solutions to such problems. It is advised that an agricultural data bank should be set up to closely monitor the trend of agriculture by local, state and federal government.

Gross-Root Financing Agencies

Grass-root financing agencies should be involved by the cooperatives, State Ministries of Agriculture etc to aid channeling finances to the peasant farmers. Agricultural Development institutions as well as commercial banks should strengthen their agricultural developments with technically trained agriculturist and agricultural economists.

Hire Purchase

The fear of diversion of funds to which creditors are susceptible to would be reduced if credit institutions could arrange for the farmers credit to be made directly to manufacturers and suppliers of
farm machinery and equipment under a suitable repayment plan that would fit into the entire needs of the farmer.

Banking Habit

Positive banking habits should be encouraged reducing interest rates, reducing delays in banks and the use of bonuses from time to time to enhance farmers to save their money in a bank to serve as collateral if and when needed.

Fund Channeling

The procedure of channeling funds to farmers through cooperatives should be examined to remove possible bottlenecks.

Prospects of Agricultural Financing in Nigeria

Having discussed the background of agricultural financing in Nigeria, its problem government efforts at reviving it, it is hoped that with the provision of credit facilities in place, financial bottlenecks will be removed and agricultural production will expand and improved. Of the bright future of agriculture, its financing and the banking
industry. Over the past years, banks have been accused of neglecting the agricultural sector, but this trend is slowly fading.

With the merging of banks and parastatals to help pull resources together to come to the rescue of agriculture, Nigerian Agricultural And Co- Operativeal Bank is poised to play its role and rightful position in the agricultural sector development.

The prospects are seen through;

  1. High Private Foreign Investment.
  2. Nigerian Nigeria Agricultural And Co- Operative Bank Enugu.
  3. Rural and Community Banking programmes.

Also in developing the agricultural sector, Nigeria is getting the support of international Agencies, which include World Bank, Food and Agricultural Organizations in collaboration with the Nigerian Government include;
IFAD- Assisted Root and Tuber Expansion programme to which a loan of US$23.048m has been signed. The federal and state governments are expected to contribute the naira equivalent of US$13m as counterpart funds to the project, which will promote the production, processing and marketing of cassava, yam, and potatoes in 25 states of the federation. Support of the Agricultural Development Project (ADP) by the World Bank. Special Programme on Food Security (SPFS) being supported by the FAO.


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