Microfinance Banking As A Strategy For Small Scale Agricultural Development In Nigeria

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Microfinance Banking As A Strategy For Small Scale Agricultural Development In Nigeria


Abstract


The aim of this research work is to bring to light the activities of microfinance banks and small scale agricultural development in Nigeria. The study is based on the analysis of the past agricultural policies and their effect on the development of the economy. It also identified some specific constraints faced by small scale farms in producing major staple food crops in Nigeria which would be used to bring out precise and concise conclusions and recommendations. The outcome of the analysis revealed that increased productivity depended largely on microcredit to agricultural sector. It was also discovered that there exist a strong positive relationship between microcredit and agricultural sector and also agricultural production. There is a need to device a strategy whereby credit will get to the farmers living in the rural areas as at when due, as to increase the contribution of the sector to our national development. The main objective of this study is to critically examine and analyze the issues of sustainability of the agricultural sector in the Nigerian economy and how it can help to improve the contributions of small scale agriculture towards the country at large. The results are meant to improve agricultural financing with particular reference to BMFB Loans disbursements and recovery respectively to and from the small scale farmers in the area and the country.


Chapter One


Introduction

1.1 Background to the Study

The revitalization of the agricultural sector has been the cornerstone of the government development policy. This is aimed at moving the country quickly to self-sufficiency in food production of agricultural raw materials for domestic agro-based industries. The need to increase agricultural productivity is implicit in the fact that It remains the leading non-oil sector of Nigerians population. The main objective of the agricultural policy as laid down by “Agricultural Policy for Nigerian”- 1988, are Attainment of self Sufficient in basic foods commodities, increase production and processing of export crops, modernization of agricultural production, processing, storage and distribution through improved technology, increase rural population and lastly improved protection of agricultural lands.

In most developing countries, agriculture is both the main traditional pursuit and the key to sustained growth of the modern economy. Stagnation in agriculture is the Principal explanation for poor economic performance while rising agricultural productivity has been the most important concomitant of successful industrialization.

After independence, the agricultural sector accounted for 53% of GDP by 1980. This has however gone down to 36%. The aggregate index of agricultural production with 1984 as the as the base year rose by 5% in 1993 compared to 66% and 59% in 1992 and 1991 respectively (Abdullahi,1991). Agriculture constitutes the dominant sector of populations who are small farm producers and reside in the rural areas. It is observed that over 80% of the rural population in Nigeria are small holders farmers. (Mellor, J. W., 1996).

As a matter of history, up to early 1970s, agriculture dominated Nigeria’s economy, but since then oil has held the principal position and Nigeria started to experience growth without development. As a result, agriculture has suffered, and increasingly, has occupied a back seat in our drive towards economic take-off. Stagnation on agriculture became more apparent during the 1970s and agricultural services to the economy started to decline at an increasing rate and thus, the Nigerian agriculture is now characterized by low income, low levels of capacity to satisfy the food and fibre needs of the country, primitive techniques of production. According to Ogunfiditimi (1996) it is in fact now a proto-type of peasant Agriculture, which is caught in a vicious circle of poverty, that is, low income, leading to poor savings and little investment in yield-increasing technology. Because technology is poor, both output and income are low.

As part of government strategy to attain increased productivity in the agricultural sector, several policies, activities and projects were being formulated. These include developing rural infrastructure, supply of fertilizers, seeds and other inputs, improving agricultural extension services, and provision of credits aimed at encouraging small scale agriculture.

The predominant of small scale agriculture is a resource based agriculture and is basically subsistence. The farm size ranges from 0.10 hectares to 5.99 hectares and often is scattered holdings per household, production inputs consist mainly of land and family labour. Capital investment is negligible, inputs like fertilizers and chemicals are seldom used and levels of production technology are low. Soil fertility is maintained by bush fallowing, the production is much less market oriented. Several policies to enhance small scale agriculture are been taken by various governments, however, the corresponding impact on production has not been realized, as policies are seldom fully implemented and fraught with frequent changes. This is due to a variety of reasons changes. This is due to a variety of reasons such as shortage and improper disbursement of funds, lack of executive capacity and manpower management problems and inadequate plan preparations.

According to Soludo (2006), sustained small scale agriculture cannot be achieved without putting in place well focused programmes to reduce the problem militating small scale agriculture (farmers) by increasing their access to factors of production especially credit. The latent capacity of the rural small scale farmers would be significantly enhanced though the provision of micro financial services. Microfinance is about proving financial services to the poor who are traditionally not served by the conventional institutions. He believes that microfinance can be distinguished from other formal financial product though the smallness of loans advanced, the absence of assets based collateral and the simplicity of operations which is at the level of the common man.

The practice of microfinance in Nigeria is culturally rooted and dates back several centuries. The traditional microfinance institutions provide access to credit for the rural and urban low income earners. They are mainly of the informal Self-Help Groups (SHGs) or Rotating Saving and Credit Association (ROSCA). Others include saving collectors and co-operative societies which have limited outreach due to inadequate loan-able funds.

In order to enhance the flow of financial services to Nigerian rural areas, government has in the past initiated a series of publicly financed micro/rural credit programmes and policies targeted at the poor. Notable among such programmes were the Rural Banking Programme, sectorial allocation of Credit on concessionary interest rate and the Agricultural Credit Guarantee Scheme (ACGS). Other Institutional arrangements were the establishment of the Nigerian Agricultural and Cooperative Bank (NARCB), the National Directorate of Employment (NDE), the Nigerian Agricultural Insurance Corporation (NAIC), the Peoples Bank of Nigeria (PBN) the Community Bank (CB), the Family Economic Advancement Programme (FEP) and later merged the NACB with PBN and FEAP in 2000 to form the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) to enhance the provision of Credit to the agricultural sector.

Alfa (2002) observed that most of the micro-credit scheme suffer set backs because they were founded on erroneous assumptions believing that the poor constitute the same group and tends to employ the same solution towards eradicating the problem of poverty. Researches shown or revealed that the poor should be involved in solving the problem of poverty since they are aware of their own conditions.

Against this background and the problems of inadequate credit and finance, there is a need to device a strategy whereby credit will get to the farmers living in the rural areas as at when due, as to increase the contribution of the sector to our national development. Agriculture is seen and thus believed to be major sector towards growth and development in most countries like Nigeria, and as long as it remain so, the future of this sector in performing its roles becomes imperatively important.


1.2 Statement of the Problem

The practice of microfinance in Nigeria, is culturally rooted and dates back many years to the poor performances of the agricultural sector in the country’s economic developments which can be attributed to the traditional way of farming on the part of the small scale farmers.

There are many factors which hindered sustained development of small scale agriculture. One of such factor is low technological level, which comprises of small land holding and the use of traditional tools like hoes, and cutlasses. Other factors include non-wide spread use of fertilizers, and improper use of storage facilities. To raise agricultural the agricultural sector must have its production raised via the adoption of new technology and improvement in its capital investment.

Based on the above, the Federal Government have realized that raising Small Scale farmers output and income is very essential, if continued, economic development and political stability is to be attained. The present system by which small scale farmers depends on non-institutional finance sources (friends, relatives and money lenders) as a source of loans is been divided with paucity of data. However, it is often assumed that capital from the source is generally low and inadequate relative to the need of agriculture in general.

Government sponsored agricultural credit scheme and the establishment of microfinance Banks have been some of the major programme among others designed to facilitate easy flow of credits would enable the farmers to procure the major input for a result oriented agricultural production.


1.3 Research Questions

However, this work was conceived based on the desire of researcher to bring light to the micro financing activities of the microfinance banks particularly the creditaspect in order to study and also ascertain its participatory role in the provision of credit facilities to small scale agriculture through their microfinancing policies.

The research questions to be addressed include:

  1. What are the roles of microfinance banks in small scale agricultural development in Nigeria?
  2. What are the possible measures or ways of enhancing small scale agriculture in Nigeria?
  3. What are the problems initiating against small scale agricultural development in Nigeria?
  4. Should microfinance policy be moderated or changed?

The answers to these questions will help to bring out the basis of this research work.


1.4 Objectives of the Study

The principal objectives of this research work is to critically examine and analyze the impacts of microfinance in the Nigerian economy and how it can help to improve the contributions of small scale agriculture towards the development of the economy.

More especially, the study seeks to:

  1. Analyze an examine the concept of microfinance as viewed by the different schools of thoughts.
  2. To assess the impacts of microfinance on small scale agricultural development in the economy.
  3. Review the past agricultural policies and their effect on the development of the Nigerian economy.
  4. To examine the contributions of small scale agriculture to national development.
  5. Offer meaningful suggestions and policy recommendations about how to improve the small scale agriculture towards our national development.

1.5 Hypothesis of the Study

The study will be based on the following hypothesis:

H1: Direct small holder loan scheme has not significantly contributed to the activities of small scale agricultural development in Nigeria.

H2: Direct small holder loan scheme has significantly positively contributed to the activities of the small scale agricultural development in Nigerian economy.


1.6 Significance of the Study

The study is concerned with a thorough examination of institutional practices of agricultural financing in Nigeria with particular reference to Barnawa Microfinance Bankdirect small holder loan scheme for small scale agriculture. At the present time when Nigeria is striving for agricultural development to reduce her food deficit situation, it is important for financial institutions to look for ways and means of improving her loans schemes to farmers, especially the small scale farmers who provide over 80 percent of Nigeria’s food requirements.

Food production on a sustainable and self reliant basis for countries of our contemporary world is one of the most important goal and objective of the governments. Food security is an indisposal component of the total security of a modern nation. Throughout history, food has been used as an instrument of domination and enslavement.

Nigeria is directly or indirectly a major contributor to that food import bill. With minerals and vitamins deficiency in our food intakes, and energy and protein deficiency, we cannot but under perform and subsequently be economic and social liability. Current realities dictates and demand that both agric-business and small peasant farming must co-exist in Nigeria.

Agriculture, in Nigeria is caught in a low level equilibrium trap. The rate of return cannot rise because of the nature of the technology in use such agriculture has been described as efficient but poor. In order to break this vicious circle of constraints, there is then the need to inject not only technology and agriculture services but also capital into rural agriculture which is of great concern to this study.

Finally, as Nigerian economy remains dangerously dependent on one sector (i.e. petroleum sector) the need for diversification and attaining self-sufficiency in food production is necessary. Thus, the tendency to justify the need for the much prudential agricultural financing in Nigeria cannot be over emphasized.


1.7 Limitations of the Study

There are certain limitations which are placed in this study. The research work is faced with a lot of problems amongst others are the poor cooperation from institutional sources, constitute a serious delay in the release of data necessary for the work to be complete. There is also the problem of inadequate and accurate data for in-depth assessment of the subject matter.

The sources of data whether primary or secondary was used in this study were assumed to be valid and reliable. The size of the small scale farmers in the area of study were of the range of 0.10 to 5.99 hectares of farm land.

There are certain considerations which delimit the scope of this study. First, although there are many financial institutions which finance agriculture in Nigeria, this study is only concerned with the area of Barnawa Microfinance bank financing.

Secondly, the findings will be based on Barnawa Microfinance Bank Limited. It is meant to improve agricultural financing with particular reference to Barnawa Microfinance Bank Ltd. Loans disbursement and recovery respectively to and from the small scale farmers in the area and the country at large. Thirdly, this study concentrates on the Barnawa Microfinance bank Limited “Direct Small Holder Loan Scheme” (DSHLS).

Beneficiaries of the microfinance programme had only scanty records to present which made it difficult for the researcher to properly assess the success of the programme.


1.8 Scope of the study

The main focus of this research work is to bring to light the activities of microfinance banks and small scale agricultural development in Nigeria. The study is more concern with the thorough examinations of institutional practices of microfinance banks with particular reference to direct loan scheme for small agricultural development in Nigeria from 1996-2005 which would be used to bring out precise and concise conclusions and recommendations. The outcomes are meant to improve agricultural financing with particular reference to BMFB Loans disbursements and recovery respectively to and from the small scale farmers in the area and the country at large.


Chapter Five


5.0 Summary, Conclusions and Recommendations

5.1 Summary

The research work is set to assess and investigate the issue of sustainability of the agricultural sector. It looked at the history of Microfinance and also investigates microfinance back and small scale agricultural development in Nigeria. Attempts have been made to find out how Microfinance has impact on the agricultural sector of the economy. The agricultural intestines pursued in the past were received. The also indentifies some microfinance institutions that advanced loans to agriculture.

The study also identified some specific constraints faced by small scale farms in producing major staple food crops in Nigeria. This includes among others, in accessibility to agricultural loans. Despite challenge, the study conclusions that the prospect in the sector are that enormous. Data analysis was also carried out using the descriptive analysis method to test the effect or impact of microfinance bank loans on the output of some agricultural goods (Rice), Yam and (cassava) of small scale farms. The outcome of the analysis revealed that increased productivity depend largely on Microfinance Banks loans. It was discovered that, there exist a strong positive relationship between micro credit to agricultural sector and also agricultural production. In regards to this, government has played a number of roles in the promotion of agricultural in a way of protecting the small-scale farmers by a way of initiating different strategies on agriculture which has helped in stream lining the activities of these farmers in order to enhance production.


5.2 Conclusions

On thing that is evident from this paper is that microfinance is critical to rapid economic development. It is in fact said to hold a major key to the emancipation of developing countries from technological servitude. To this end given the backwardness of most developing countries especially Nigeria, at as recommended that more effort should be made to improve the rate of development and granting of financial support to small scale farmers.

The potential for increase agricultural production exist in Nigeria, but the agricultural sector is yet to achieve it full potential in the production of basic agricultural goods for industrial and human consumption, especially those in which the country has comparative advantage and this can be attributed to the fact that small scale farmers who are involved in crop do not have the needed capital most small scale farmers do not have access to the loans provided by the financial institution either because of the collateral required or due to the fact that most of the agricultural loans given are always on short terms basic which is not sufficient enough to carry out a major project that requires a long period of time.

The central bank of Nigeria policy initiative of microfinance is a welcome development. Adequate effort should also be made specifically by Nigeria to diversify its economy in order to reduce its high dependency on primary goods. This will create way for broad based economic growth which will bring about tremendous reduction in absolute poverty or even eradication of the phenomenon, thereby enhancing the pace of job creation and economic development suffice it to say that the obliteration of absolute poverty can be seen to be synonymous with desirable economic development. Effort should be directed towards boosting the agricultural sector where many farmers are carrying out small scale production on the study carried out so few, it was observed that agricultural loans have a positive function or relationship to agricultural productively. That is, as agricultural loans increases, the productively also increases, which its real terms is not so. This shows the ineffectiveness of the strategies been adopted so far, hence recommendation of new policy options.


5.3 Recommendations

The researcher wish to conclude this research study by institutions some loading issues in strategizing the small scale agricultural development in Nigeria and proffer some suggestions and opinion for dealing with the country pressing economic problems.

First, the Nigerian industries should be independent in the provision of raw materials for industrial use with respect to agro-based industries which could also have important linkage effort with domestic manufacturing activities.
Secondly, the role of government in the promotion of agricultural in Nigeria could grow at a sufficient rate to provide adequate food for an increasing population, raw material for the industrial sector increase public revenue and foreign exchange for government and employment opportunities for an expending labour force.

Thirdly, the support of the government for the promotion of agricultural in Nigeria should not concentrate on export crops alone like cocoa, groundnut, rubber and cotton that is cash crop but on food crops like Yam, Rice, Cassava, the sure way to achieve sustainable development on the small scale agricultural activities is to promote the production of these staple food crops consumed in the country Nigeria and this can be done by providing financial assistance to small scale farmers who are engaged in the production of the staple crops in Nigeria. This will lead to shrinking rate of expansion in local production and also cash cropping for export.

Lastly, effective reduction strategy of poverty will also improve access and efficient provision of saving credit and insurance facilities in particular will enable the small scale farmers to smoothen their production, manager their risk better, build their assets gradually, develop their micro enterprises, and enhance their income earning capacity and enjoy quality of life.


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