The Role Of Commercial Bank In Financing Agricultural Project
This study was carried out on the role of commercial bank in financing agricultural project in Gboko Local Government Area Of Benue State. The survey design was adopted and the simple random sampling techniques were employed in this study. The population size comprised of farmers in Gboko local government area of Benue state. In determining the sample size, the researcher purposefully selected 147 respondents and 141 were validated. Self-constructed and validated questionnaire was used for data collection. The collected and validated questionnaires were analyzed using frequency tables, and mean scores. The hypotheses was tested using Chi-square Statistical tool. The result of the findings reveals that agriculture has not played significant role in the Nigerian economy. The study also revealed that banks credit have an impact on agricultural development in Nigeria. Furthermore, the challenges associated with agricultural financing by banks in Nigeria includes: corruption, lack of insurance cover, policy inconsistency, farmers illiteracy. Therefore, it is recommended that 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. Agricultural Credit Guarantee Scheme Fund (ACGSF) should continue to be enforce by the central banks to enable small – scale peasant farmers to benefit from the scheme. Commercial banks should have 100% guarantee and also allow charging at least minimum lending rates.
Table of Content
- 1.1 Background of the Study
- 1.2 Statement of the Problem
- 1.3 Objective of the Study
- 1.4 Research Questions
- 1.5 Research Hypothesis
- 1.6 Significance of the Study
- 1.7 Scope of the Study
- 1.8 Limitation of the Study
- 1.9 Definition of Terms
- 1.10 Organization of the Study
Review of Literature
- 2.1 Conceptual Framework
- 2.2 Theoretical Framework
- 2.3 Empirical Review
- 3.1 Research Design
- 3.2 Population of the Study
- 3.3 Sample Size Determination
- 3.4 Sample Size Selection Technique and Procedure
- 3.5 Research Instrument and Administration
- 3.6 Method of Data Collection
- 3.7 Method of Data Analysis
- 3.8 Validity of the Study
- 3.9 Reliability of the Study
- 3.10 Ethical Consideration
Data Presentation and Analysis
- 4.1 Data Presentation
- 4.2 Analysis of Data
- 4.3 Answering Research Questions
- 4.4 Test of Hypotheses
Summary, Conclusion and Recommendation
- 5.1 Summary
- 5.2 Conclusion
- 5.3 Recommendation
- 5.4 Suggestion for Further Studies
1.1 Background of the Study
According to Oji-Okoro (2011), agriculture has been an important sector in the Nigerian economy in the past decades, and is still a major sector despite the oil boom; it provides employment opportunities for the teeming population, eradicates poverty and contributes to the growth of the economy. The oil boom of the 1970s led Nigeria to neglect its strong agricultural sector in favour of an unhealthy dependence on crude oil (Asoegwu and Asoegwu, 2007).
According to Solomon (2012) the root of the crisis in Nigeria’s economy lie in the neglect of agricultural policy and its implementation and with increased dependence on monocultural economy based on oil. Indeed, before the discovery of oil in commercial quantity in 1956 at Oloibri, Bayelsa State, agriculture was the mainstay of Nigeria’s source of wealth. At that time, the colonial masters had realized that even with discovery of oil, agricultural sector had the potentials to be the spring board for industrial land wealth creation from which the country’s development could take off. What more, the boom era of 1970s tended to have brought down the nation’s agricultural sector. Since then, the wealth of the nation has become heavily dependent on oil.
Agriculture contributes significantly to national food self–sufficiency by accounting for over 90% of total food consumption requirements; it helps to maintain a healthy and peaceful population and also a source of food and nutrition for households. Furthermore, the ultimate objective of interest of economists in productivity should be to find ways of increasing output per unit of input and attaining desirable inter-firm, intra-firm and inter-sector transfers of population resources thereby providing the means of raising the standard of living.
In Nigeria, agriculture export has played an important role in economic development by providing the needed foreign exchange earnings for other capital development project. Ekpo and Egwaikhide (1994) observed that Nigeria agricultural export has enlarged to include cocoa, beans and palm kernel. Statistics indicate that in 1960 agricultural export commodities contributed well over 75% of total annual merchandise exports and by 2010 it accounted for less than 30% of total annual export. Although in 1940’s and 50’s Nigeria was ranked very high in the production and exportation of major crops in the world; by 2010 Nigeria was ranked as the largest cassava producer (Solomon, 2012). Nigeria is still the largest exporter of palm oil and palm kernel, second to Ghana in cocoa and third position in the exportation of groundnut.
In terms of employment, the sector is still leading in economic activities, while accounting for one-third of the Gross Domestic Product (GDP). It remains the leading employment sector of the vast majority of the Nigerian population as it employs two- third of the labor force (Bola, 2007). In Nigeria today, farming still remains the sources of employment of majority of the adult population, its productivity is the most important single factor influencing the standard of living of both the rural and urban centers. Agriculture indeed has remained the major sources of income to the economy. About 90% of the rural population is involved in activities related to the crop sub-sector, which provides the bulk of agricultural income. Similarly, the crop sub-sector supports the processing industry by providing raw materials (Oji-Okoro, 2011).
The role of agricultural credit as a factor of production to facilitate economic growth and development as well as the need to appropriately channel credit to rural areas for economic development of the poor rural farmers cannot be over emphasized. Agriculture contributes immensely to the Nigerian economy in many ways, namely; in the provision of food for the increasing population; supply of adequate raw materials to a growing industrial sector; a major source of employment generation, foreign exchange earnings; and, provision of a market for the products of the industrial sector (Food Agricultural Organization, 2006).
The agrarian sector has a strong rural base; hence, generating concern for agriculture and rural development. Support for agriculture is widely driven by both Government and the public sector, which has established institutional support in form of agricultural research, extension, commodity marketing, input supply, and land use legislation, to fast-track development of agriculture and rural economic empowerment (CBN, 2011).
Over the years, the inability of this sector to expand and as well contribute meaningfully to the growth of Nigerian economy was due to inadequate financing to improve on the situation that is, facilitating agricultural credit. Also, the problem of rapid agricultural development in Nigeria indicates that efforts directed at achieving expanded economic base of the rural farmers were frustrated by the scarcity of and restrictive access to loanable fund. One of the reasons for the decline in the contribution of agriculture to the economy is lack of formal National credit policy and paucity of credit institutions which can assist farmers (CBN, 2010).
The role of financial capital as a factor of production to facilitate economic growth and development as well as the need to appropriately channel credit to rural areas for economic development of the poor rural farmers cannot be over emphasized. Credit (capital) is viewed as more than just another resource such as labour, land, equipment and raw materials (Raji, 2008). Shepherd (2002) opined that credit determines access to all of the resources on which farmers depend. Consequently, provision of appropriate macroeconomic policies and enabling institutional finance for agricultural development is capable of facilitating agricultural development with a view to enhancing the contribution of the sector in the generation of employment, income and foreign exchange.
They have the major responsibility of the domestic mobilization of financial resources due to their large network of branches which is essential for capital formation and accelerated growth. Their major functions includes keeping customers deposits and making them available on demand to customers; channeling surplus funds to deficit units on short-term basis, provision of domestic and international banking services to clients, among others (Onoh, 2002). Therefore, the efficiency and effectiveness through which they carry out the mobilization of such savings to the deficit unit such as the productive sector determines the rate of growth of any economy (Solomon, 2012).
In the early banking before deregulation, banks in Nigeria were made to give certain percentage of their total credit to the agricultural sector, which continued until 1999 when the universal banking was introduced and such regulation was also removed. They have the major responsibility of the domestic mobilization of financial resources due to their large network of branches which is essential for capital formation and accelerated growth. Their major functions includes keeping customers deposits and making them available on demand to customers; channeling surplus funds to deficit units on short-term basis, provision of domestic and international banking services to clients, among others (Onoh, 2002).
Financing of agricultural business by commercial banks dominated earlier policies of the government and the CBN between 1960 and 1986. Commercial banks were made to provide certain allocation of the annual loans and advances for the development of these industries. This trend continued until 1986 when the banking industry was deregulated and such policies were removed. Loans and advances created by commercial banks remain the major source of capital for agriculture development in Nigeria.
1.2 Statement of Problem
It is sad to note that agriculture which as the most important industry in Nigeria economy is still in early development stage with farmers using the crude implements and exports of agricultural products to some extent is very poor. Therefore, unless the agriculture base is developed we shall labour in vain in trying to improve the standard of living of the people of this nation. Insufficient capital and credit facilities to the farmers are major constraints that have been identified to because of poor agricultural development.
The contribution of agriculture to the Nigerian economic growth is very low compared to what it used to be in the past. Nigerian agriculture to a large extent still possesses the characteristics of a peasant economy that was prominent in the pre-independence period. In spite of the presence of two major rivers – the Niger and the Benue, the agricultural sector is still predominantly rain fed. Agricultural productivity has seriously declined over the past two decades and as a result, rural poverty is rampant. World bank data shows that more than 70% of Nigerians live below the poverty line (which is less than a dollar/ day) implying that there has been an astronomical growth in the levels of poverty of Nigerians most of whom are engaged in agriculture from independence till today (Chigbu, 2005). It is therefore imperative to examine the contribution of agriculture in Nigeria’s economic development.
In addition the extent and direction of commercial banks lending in Nigeria is also another problem. The effect of government (Central Bank) regulation toward agricultural financing in Nigeria is also problems that militate against the improvement of agriculture in Nigeria. The low volume of business in the rural areas where poverty is most prevalent cannot guarantee sustainable business activities to encourage the establishment of commercial banks to provide the needed finance for agricultural production. Moreover, the cost implication of processing agricultural loans in the rural economy makes it unattractive for conventional banks to channel their resources to farming.
Although, the commercial banks finance agricultural activities but their credits are urban based and so small that their impact cannot be felt in the rural areas where farming actually takes place. Lack of priority attention to rural population in credit delivery by commercial and other banks in the economy contributed to the depressed economic conditions in the rural economy, and this situation also affects the overall economic growth and development of the nation (Bamsisele, 2006).
1.3 Objectives of Study
The aim of this research project is to the role of commercial bank in financing agricultural project. Other specific objectives are:
- To examine whether agriculture has played significant role in the Nigerian economy.
- To determine whether banks credit have an impact on agricultural development in Nigeria.
- To assess the challenges associated with agricultural financing by banks in Nigeria.
1.4 Research Questions
Every research must have some questions, which the study would attempt to find answers to and such questions are stated below;
- Has agriculture played significant role in the Nigerian economy?
- Does banks credit have an impact on agricultural development in Nigeria?
- What are the challenges associated with agricultural financing by banks in Nigeria?
1.5 Research Hypotheses
Bearing in mind the statement of problems the following null and alternative hypothesis which will be tested in course of the study are:
HO: Commercial banks credit to the agriculture sector have not contributed to the development of Agriculture in Nigeria
H1: Commercial banks credit to the agriculture sector have contributed to the development of Agriculture in Nigeria.
1.6 Significance of the Study
The development of agricultural and self sufficient in food production coupled with the provision of raw materials for growing industries is among the priorities of the Nigeria government in the successive development plan. Against this background the reviews of the financial problems facing agricultural production is essential as such review will enable the sector take the over increasing demand upon it. The framers will find this research work useful since they can know what to do in order to attract more credit for themselves.
Basically, the result of this study will also be useful to the following:
i. Government / Policymakers:
It opens a thorough fare for government or policymakers in their efforts at evolving policies and programmes for the betterment of the Nigeria agricultural sector.
ii. The Public:
This research will enlighten the citizens on what to expect from the government and things to put in place to boost their agricultural output.
iii. Commercial Banks:
Commercial banks will see what their roles are in the whole business of making funds available to agriculture.
iv. Academia / Researchers:
This study will be useful to students and other researchers as it will form part of existing literature on issues of agricultural sector in Nigeria.
1.7 Scope of the Study
This study focuses on investigating the role of commercial banks financing and developing agriculture in Nigeria. The study will specifically focus on examining whether agriculture has played significant role in the Nigerian economy, determining whether banks credit have an impact on agricultural development in Nigeria and assessing the challenges associated with agricultural financing by banks in Nigeria.
1.8 Limitations of the Study
In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. However, the researcher were able to manage these just to ensure the success of this study.
Moreover, the case study method utilized in the study posed some challenges to the investigator including the possibility of biases and poor judgment of issues. However, the investigator relied on respect for the general principles of procedures, justice, fairness, objectivity in observation and recording, and weighing of evidence to overcome the challenges.
1.9 Definition of Terms
The following terms used in the context of the study are hereby defined in order to foster understanding on the part of the study.
It is a financing institution, which deal I money and credit and which receive deposits from, public institution, which deals in money and credit and which received deposits from, public institution and organization.
It is a way of cultivating farm products like yam, rice and groundnut etc.
It is the study of the feature and functions of the means of payment also to arrange credit.
Things being bring out or harvested from the farm.
Involves the application of scientific and technical principles facing solution of the day to day problems facing in farmers.
Availability of Credit and Input:
Efficient credit and input supply market are essential for crop diversification to enable farmers to purchaser put for potentially risky crops.
1.10 Organization of the Studies
The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study, sample size determination, sample size, and selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter(chapter five) contains the summary, conclusion and recommendation.
Summary, Conclusions and Recommendations:
This chapter summarizes the findings on the role of commercial bank in financing agricultural project in Gboko Local Government Area Of Benue State. The chapter consists of summary of the study, conclusions, and recommendations.
5.2 Summary of the Study
In this study, our focus was on the role of commercial bank in financing agricultural project in Gboko Local Government Area Of Benue State. The study is was specifically set to examine whether agriculture has played significant role in the Nigerian economy, determine whether banks credit have an impact on agricultural development in Nigeria, and assess the challenges associated with agricultural financing by banks in Nigeria.
The study adopted the survey research design and randomly enrolled participants in the study. A total of 141 responses were validated from the enrolled participants where all respondent arefarmers in Gboko local government area of Benue state.
In the light of the analysis carried out, the following conclusions were drawn.
- Agriculture has not played significant role in the Nigerian economy.
- Banks credit have an impact on agricultural development in Nigeria.
- The challenges associated with agricultural financing by banks in Nigeria includes: corruption, lack of insurance cover, policy inconsistency, farmers illiteracy.
The following recommendations were proffered with respect to the findings of the study;
- 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.
- Agricultural Credit Guarantee Scheme Fund (ACGSF) should continue to be enforce by the central banks to enable small – scale peasant farmers to benefit from the scheme. Commercial banks should have 100% guarantee and also allow charging at least minimum lending rates.
- Mandatory policy directives during the 1980s should continue but the target must be carefully set and attainable. The difference between commitment and penalty is imposed on the bank for failure to attain the target set by guidelines. The central bank should also delegate people to monitor the loans been given out farmers.
- Commercial bank should reduce interest rate charges given out to farmers. Commercial banks should also strengthen their agricultural department with technically trained agriculturist and agricultural economists. They should also simplify their cumbersome procedure for obtaining credit to reduce the difficulties that are faced by the farmers. To ensure loan repayment and avoid diversion of credit that is given out to farmers. Loan should be given in form of fertilizers and equipment.
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