The Role Of Agriculture Credit Guarantee Scheme Fund In The Development Of Agriculture

Project and Seminar Material for Agricultural Engineering AE

The Role Of Agriculture Credit Guarantee Scheme Fund In The Development Of Agriculture


Abstract


Agricultural credit guarantee scheme fund was established to help farmers who have little or no collateral to get loans from commercial banks by CBN. It was the aim of this research work to find out if CBN has helped in developing cooperative activities in agricultural aspect through their giving of loan, grant, and other farm inputs. Chapter one contained great discussion of the origin and existence of this scheme (ACGSF), it also went further to state the problems to be studied, research question scope and definition of terms.

A number of past and present literature review was examined by the researcher and all these highlighted in chapter two, chapter three dealt with the methodology for the study population and so on. In chapter four data gotten from the research surveyed was analyzed and interpreted. Also similar questions on both questionnaire were compared. Finally the summary of these findings was that farmers need to be encouraged to get loan though the measurement of CBN in the reduction of collateral and surety for guaranteeing loans, if banks and farmers/artisans would put the recommendation made in the study into use there would be increase and improvement in activities of agriculture and also continues growth and development in the agricultural sector.


Table of Content


  • Title page
  • Certification page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of content

Chapter One

Introduction

  • 1.1 Background of the study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the study
  • 1.4 Research Hypothesis
  • 1.5 Significance of the study
  • 1.6 scope and Limitation of the study
  • 1.7 Definition of Terms
  • References

Chapter Two

Literature Review

  • 2.1 Agricultural/credit, purpose and establishment of ACGSF.
  • 2.2 Purpose of the scheme (ACGSF)
  • 2.3 Objectives of the study
  • 2.4 Importance of the Credit to Nigerian Agriculture
  • 2.4.1 Agricultural Financing in Nigeria
  • 2.4.2 Overview of agricultural credit purveyance
  • 2.5. Features of the Agricultural Credit Guarantee Scheme Fund
  • 2.5.0 Procedure for operating ACGSF
  • 2.5.1Agriculture/enterprise for which guarantee can be issued under the fund
  • 2.5.2Loan duration and Loan Limits Under the scheme
  • 2.6 New initiatives/models for improved lending under the ACGSF
  • 2.7 Loan Conditions
  • 2.7.1 Participation of Community Banks under the ACGSF

Chapter Three

Research Design and Methodology

  • 3.1 Area of study
  • 3.2 Population of the Study
  • 3.3 Sample Size
  • 3.4 Instrument for Data Collection
  • 3.5 Description of Data
  • 3.6 Data Analysis

Chapter Four

Data Analysis

  • 4.1 Presentation of Data Analysis and Interpretation
  • 4.2 Demographic Characteristics of Respondents in Tabular Presentation and descriptive analysis
  • 4.3 Remarks of Findings

Chapter Five

Summary, Recommendation and Conclusion

  • 5.1 Summary
  • 5.2 Recommendation
  • 5.3 Conclusions
  • Bibliography
  • Appendix

Chapter One


1.0 Introduction

In Enugu state most inhabitants survive through agriculture and their main occupation is subsistence farming which attract the interest of may cooperative societies both old and new ones. Agriculture plays a very central role in the economic development of Nigeria like offering of employment to more than 65% of the working population account for more than 70% of non oil exports and provides raw materials for the industrial sector. Following the oil boom in the seventies agricultural production started to decline, the country started expressing increasing food shortage with the attendant increase in the quantity of food imports.

One can observe that Enugu state is still semi substantial and their output from agriculture production can neither feed the fearing population nor provide essential raw materials for the agro based industries. The export of the state major cash crops which has in the past supported the economy has verbally stopped.

While a lot of observers dwelt on the urgent need to reinitialize this sector, Omuma (1998) implied that the adverse effect of non-initialization of the agriculture sector will only bring such condition like famine and Kwashiorkor to the village but emphasizing on the importance of improving agricultural production through loans from government Igbo (1986) said it is now on the government for the independence on the external sources of food because it has tried their state independence to the uncertainties of ridicule.’

Then in the early seventies, the central bank of Nigeria and the federal government carried out a study to find out reasons for the declining agricultural production. The study revealed that credit was one of the major factors then the commercial and merchant banks (now deposit money bank) were reluctant to lend to agriculture because of the high default risk and the inability of the borrower offer tangible collateral.

The agricultural credit guarantee scheme was established in 1977 to share in the risk of the banks in agricultural lending and hence encourage them to continue to extend credit to it. As at 31st December 2004 the total investment under the scheme were N4.4billion.


1.1 Background of the Study

In our country today, sources of statements have been made in the newspapers and other news media, scholars advocating the use of agriculture for the development and improvement of living standard of the rural people. Agricultural activities have brought about solutions to our national problem of massive food shortage. Many agricultural cooperative societies plays vital role and function in massive food production they include the following:

  1. Agriculture has embrace all the cooperative activities with the aim of helping farmers in their professional capacities and producers. The inherent weakness of farming Calo of this type of cooperative society.
  2. Agriculture has contributed immensely to the improvement of the viability of the small holders by bringing their economies of scale.
  3. Agricultural activities are a type of producers cooperatives which aim at improving food production and well being of the citizens.

1.2 Statement of Problem

Much of the increase in Nigerians agricultural output in recent years has resulted from expansion of the area under cultivation rather from increased productivity. Some of the many problems militating against the agricultural sector have been listed and discussed.

Infrastructure Problem

Which include the following

  1. Poor feeder road and inadequate road network between the rural areas where agriculture production mainly takes place and the urban area
  2. Lack of appropriate on-farm and off-farm storage facilities.
  3. Irrigation facilities are still very poor despite the existence of River Basin and rural Development Authorities (RBRDA) for instance in Ogun state only 15 hectares of land were irrigated between 1997 and 1999 by Ogun-Osun RBRDA.
Manpower / Skill Underdeveloped Problems

The extension services delivery system still suffers from inadequate number of extension men/women. The few areas that are in place lack mobility to improve on extension farmers while women extensionist are few to handle gender issues.

  1. Inadequate capital is a major problem hindering agricultural production.
  2. Default in repayment of loan by peasant farmers who could not meet up with loan collateral requirement
  3. Low income and poor provision of collateral ,security to qualify for credit worthiness
Government / Regulatory Policy Problems

There are numerous policies that are not supportive enough to agriculture transformation E.G landAct ,importation tariff and unproductive policies.


1.3 Objectives of the Study

The general purpose of this project report is to undertake a study of the existing farmers of agricultural activities and the effort of the government in enhancing the development of agriculture through the agricultural credit guarantee scheme, also the study has the following objectives.

  1. To examine the organizational structure and the operation of agricultural activities in Enugu state with particular reference to Nkanu East local government area.
  2. To examine the impact of the farmer’s cooperative societies.
  3. Investigate the problems facing the farmers co-operative societies.
  4. To suggest ways and means for enhancing and proffering for loans from banks for the effectiveness of the societies and assist in further research into contemporary issue on this manner.
  5. To increase production of livestock and fish to meet the domestic needs and increase surplus for export.
  6. To know whether there are benefits members derive from the agricultural cooperative societies in the area.

1.4 Research Hypothesis

  1. What are the main objectives for establishing of agricultural cooperative societies in Nkanu East local government area?
  2. To what extent have these objectives been realized?
  3. What are the problem militating against agricultural activities?
  4. Do agricultural cooperative societies receive support from the government?
  5. What are their sources of finance?

1.5 Significance of the Study

Any study that has positive outcome must have negative aspect moreover the significance of the particular studies are central banks of Nigeria has taken up greater responsibilities particularly with respect to information of agricultural policy and various means which enhances agricultural productivity.

Areas of central banks of Nigeria involvement in improving agricultural activity includes:

  1. Agricultural research
  2. Training of middle level agricultural workers
  3. Creation of loans and large scale mechanization food agriculture farmers.

1.6 Scope and Limitations of the Study

This study will attempt to examine the policies of CBN in the development of agriculture and the importance of agriculture in improving production. The constant in achieving the desired development in agriculture and providing the possible solution to overcome them shall also be examined in the project report. However in preparing this report the researcher has been handicapped by inadequacy of time to take a more detailed research. Also conflict in the time available, it is not been easy to contact most of the members of the CBN and the state of cooperatives farmland whose farm labour requirement is largely supplied by his family.


1.7 Definition of Terms

Agricultural Cooperative:

Agricultural cooperative societies are those societies which embark all the cooperatives activities which is aimed at helping farmers in the professional capacities as producers. It is also an association of individual for the achievement of economic and social objectives.

Agriculture:

Is the science or practice of cultivating the land and keeping the breeding animals food farming. It is also the art of engaging on the activity that deals with production of food likewise rearing of animals.

Farm Management:

The application of farming science and technology and the solution of the day to day problems facing the farmer.
Agricultural Productivity: the index of the ratio of the value of the total farm output to the value of the input used in farm production.


Chapter Five


Summary, Recommendations and Conclusion

5.1 Summary

It can be seen that control bank of Nigeria (CBN) is the managing agent of the scheme it only guarantee loan and does not give loans to the clients rather than the commercial bank do. The banks are identified policy as regarded to collateral. Acceptable to them, these collateral are beyond the reach of the small scale farmers will include provision of acceptable and adequate security credit worthiness of the borrowers.

The bank grant both short –term loan and long term long which are of the period of 1 -2 years and 5 years and above respectively since the inception of the scheme in 1978 to 1999 a total sum of N1987,043.3 million loan have been granted to farmers cooperative societies on a total number of 331698 considered application in 1989, the scheme granted the highest sum of loans and in 1999, it guaranteed the highest sum of loans and in 1999, it guaranteed the highest sum of loans some constraints on the side of collateral against loan were beyond the capacity the small scale farmers.

On the other hand the farmers limitation include; low annual income low savings forty percent (40%) of the farmers had no money to save while sixty percent (60%) were able to save between N200 to N700 annually (1995 Bullon 176) consequently they had a negative attitude towards saving with the bank and poor educational background most of the farmers had problem.

Other problems include: high default risk, division of credit to non profitable ventures and dishonest of the commercial banks lending among the commercial banks. Actually it has improved the agro sector towards its development in Nigeria economy.


5.2 Recommendation

Based on the findings of the study and the problems enumerated the researcher made the following recommendations.

a. Formation of Farmers Cooperatives

Since the commercial banks prefer lending to more organized groups the cooperative those farmers will therefore be better off. If they can pool the operation of the farming together and organize themselves and form cooperative societies.

b. Modification of the Commercial Bank Policy

The absolute need for collateral should be reviewed, securities with little problem should be accepted against loans.

c. Provision of Necessary Infrastructure by the Government

The infrastructure include good roads water communication system of this will foster lending and reasonable coverage by the commercial banks and similar entrance the productivity of farmers.

d. Modification of the Provision of Agricultural Credit Guarantee Scheme Fund by the Government

This implies that default risk of commercial banks should not only be covered up to 75% but to increase in order to encourage agricultural credit lending by commercial banks may be 85%.

e. Accessibility through Promotion

This aspects indicates making the scheme available to all the individual farmers cooperatives within the nation. This should be accessible to them through promotion of the scheme it should be made easy for them border to accomplish the aims of the scheme. This will go a long way to help in achieving the relevance of the scheme through CBN.

  1. Encouraging the development of traditional savings and credit institutions.
  2. Encouraging the development and relevant busting banking and credit institutions and enforcing such guidelines to ensure that adequate banking and credit services and facilities are extended to rural areas.
  3. Issuing guidelines to all relevant banking and credit institutions and enforcing such guidelines to ensure that adequate banking and credit services and facilities to rural areas.
  4. Promoting the establishment of banking and credit institutions which were particularly responsible to the need of rural prodders, especially small scale farming small scale enterprises including rural artisans.
  5. Encouraging the direct participation of rural dwellers in the establishment and development of banking and credit institutions that were responsible to their needs.
  6. Promoting and encouraging the effective organization of rural producers into cooperative economic groups etc, so that they were in a better position to access available credit facilities.
  7. Providing rural dwellers with information regarding available sources of credit and technical advice on how to access such sources and how to utilize and manage effectively whatever credit facilities were obtained from such sources.
  8. Interest free loans and grants
  9. Encouraging the people the success of the peoples bank and community banks programmes.

5.3 Conclusion

Based on the research and findings of the study, the writer makes the following conclusion. Farmers in the rural had poor educational background hence need to be informally educated through extension workers. Commercial bank have not pursued vigorously the fulfillment of the rural banking scheme hence they are obliged to reconsider the purpose of the scheme necessary. Also the number of farmers researched with was very small. Therefore both banks did not perform creditably well during the period under view. The number of credit applied within the nation cannot be compared with the farming population hence through the findings farmers need to be informed about the availability of the credit facilities in order to improve the economic standard of livings.

The findings also revealed that some farmers had the misconception of the loan as their own share of national cake. There is also fear of high interest rate and the illiteracy of farmers that lead to the handicap of the lending scheme.
The agricultural credit guarantee scheme fund (ACGSF) of Central bank of Nigeria had played a significant relevance and thus performed creditably well by guaranteeing all the loans given by commercial banks in the nations provision of agricultural credit guarantee scheme fund has also been a motivating factor its relevance and performance have actually led to increase in food production thus increase the Gross National Product (GNP).

Agricultural development have been enhanced through this scheme based on the findings by guaranteeing all the credit lent to agriculturalist the economic standard will continually grow.

Above all cooperatives should organize themselves to a self relevant level. They are also encouraged to make good use of this scheme. This will accomplish the objectives of the cooperative societies within the nation.


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