Role Of Commercial Banks In Financing Agricultural Co-Operative Societies
The researchers, researched on the project titled the Role of Banks in Financing Agricultural Cooperative societies in Enugu State (A Case Study of Union Bank Plc Enugu Zonal Office). In pursuance of this research, the researchers divided the work into five chapters, chapter one, dealt with the introduction of the study, background of the study etc. Among the objectives includes. To determine what can be done to enhance agricultural cooperatives. To appraise the contribution of Union Bank Plc to the profitability of agricultural development. Chapter two, the researchers reviewed past related literatures on the topic. Chapter three, deals with the design of the study, source of data, sample size, sample procedure returned or completed question and method of data analysis. In chapter four, the data from the research survey were analysed and interpreted using tabular method and chi-square methods. Finally chapter five deals with the summary of findings, conclusion and recommendations, (1) Government should create a more favourable condition to support all efforts of agricultural cooperative. (2) Banks should develop their farmers by allowing agricultural loans to cover all stages of agricultural production. (3) On the part of members of agricultural cooperative there should be adequate project planning and implementation of laid down proposal.
1.1 Background of the Study
Union Bank of Nigeria Plc was established in 1917 as a colonial Bank with first branch in Lagos. In 1925, Barclays Bank acquired the Colonial Bank, which resulted in the change of the Bank’s name to Barclays Bank (Dominion, Colonial and Overseas) following the enactment of the Companies Act in 1968 and the legal requirement for all foreign subsidiaries to be incorporated locally, Barclays Bank (DCO), in 1969 was incorporated as Barclays Bank of Nigeria Limited. The ownership structure of Barclays Bank remained un-changed till 1971 when 8.33% of the Bank’s shares were offered to Nigerians for public subscription. In the same year, the Bank was listed on the Nigerian stock exchange as one of the players. As a result of the Nigeria Enterprises Promotion Act of 1972, the Federal Government of Nigeria acquired 51.67% of the Bank’s shares, which left Barclays Bank Plc London with only 40%.
By the enactment of the 1972 and 1977 Nigeria Enterprises Promotion Acts, Barclays Bank International disposed it’s shareholding to Nigerians in 1979. To reflect the new ownership structure and in compliance with the companies and Allied Matters Act of 1990, it assumed the name Union Bank of Nigeria Plc.
In consonance with the government’s programme of privatization and commercialization of public enterprises the Federal Government in 1993, sold it’s shares in Union Bank to private individuals. Thus, Union Bank became fully owned by Nigerian citizens and organizations.
In line with the Central Bank of Nigeria’s banking sector consolidation policy, Union Bank of Nigeria Plc acquired the former Universal Trust Bank Plc and Broad Bank Ltd and absorbed it’s erstwhile subsidiary Union Merchant Bank Ltd. The Bank also increased it’s shareholders funds through a public Offer/Rights Issue in the last quarter of 2005. With these development, Union Bank remains one of the most capitalized banks in Nigeria. It has a shareholders funds of N119.160 billion and operates through 405 network of branches that are well spread across the country, all of which are on-line, real time, etc.
The subsidiaries of the Union Bank Plc are thus:
- Union Homes Savings and Loans Plc
- Union Trustees Limited
- Union Assurance Company Limited
- Union Bank UK Plc
- Banque Internationale du Benin, Cotonou.
- UTL Communications Services Limited
- UBN Property Company Limited
- Union Capital Markets Limited
- Union Registrars Limited.
- Consolidation Discounts Ltd.
- HFC Bank of Ghana Limited
- Unique Venture Capital Management Co. Ltd.
Union Bank Group Operates an interlocking organizational structure whereby some Board Members of the Union Bank of Nigeria Plc act as External Directors in the subsidiaries and associated companies. This arrangement ensures effective oversight and participation in the decision –making process of these companies, thereby safeguarding the Bank’s investments.
Today, the Bank is a leading regional bank in Sub-Sahara Africa in terms of it’s diverse investments across the globe. A glance at the Bank’s Financial Summary as at 31st March 2008 reveals its solidity. For instance the Bank’s gross earnings was N112.988 billion; profit before tax was N33.012 billion; total assets showed N1.128.890 billion; and shareholders’ fund stood at N199.160 billion.
The Union Bank of Nigeria Plc created the “Union Homes” and “savings section” to grant holders. It’s objectives includes efficient and effective credit administration with target beneficiaries on rural poor farmers when loan is granted is 25%, maximum loan amounts are revised upward depending on timely repayment of previous loans and the cooperative investments.
Agricultural cooperative, also known as Farmers’ Cooperative Society is a cooperative society when farmers pool their resources in certain area of activity, Amahalu (2007) defines agricultural cooperative as those society which embrace all the cooperative activities which aim at helping farmers in professional capacities as producers. The inherent weakness of farming call for this type of cooperative society. The standard of planting tag techniques to seed procuring and farm financial subsidization to produce display in proper places are all what agricultural cooperative are seeking to uplift collectively.
Obodechi (2006), in his own contribution, stated that financial is the life-line of any organization. Cooperative as a business organization needs to raise fund for it to effectively and efficiently deliver it’s goals.
1.2 Statement of the Study
Cooperative in Nigeria has always been focused with numerous problems caused by the stakeholders such as, the Federal Government, State Government, Local Government Authorities as well as the members of cooperative society. However, agricultural cooperatives inspite of all the efforts being made, still experience some problems that hinder their growth and development, especially in the area of collateral and high lending rates.
1.3 Purpose of the Study
The main purpose of this study is to discover the role Banks play in financing agricultural cooperative in Enugu State though with the Union Bank of Nigeria Plc as a case study and also to highlight the following:
- To suggest means of improving Bank involvement in financing agricultural cooperative in Enugu State.
- To determine what can be done to enhance agricultural production
- To suggest ways in which the problems identified could be rectified.
- To appraise the contribution of the Union Bank of Nigeria Plc towards agricultural development.
1.4 Significance of the Study
It is very useful to students in tertiary Institutions in Nigeria, studying cooperative economics. The various tiers of Government are also going to benefit from this work, because it would enable them adopt the right agro-business credit policies to enhance credit effectiveness and efficiency.
In Furtherance, members of the Agricultural cooperative are considered the major beneficiaries of this research work since it will enable them know the immense benefits of approaching Banks in the financing of agriculture.
Also, all intending members of Agricultural Cooperative will know through this work that Bank credit is a major accelerator of development.
Finally, on the part of the masses, the modified outcome of this work shall contribute immensely towards the improvement of standard of living.
In this research the following hypothesis shall be tested:
- Lack of adequate fund causes problems for agricultural cooperative in Enugu State.
- Lack of adequate fund do not cause problems for agricultural cooperative in Enugu State.
- Inadequate loan contributes to low productivity in agricultural cooperative.
- Inadequate loan do not contribute to low productivity in agricultural cooperative.
1.6 Research Question
The under listed are relevant research questions, which will help the researcher to actually evaluate the Role Commercial Banks in financing agricultural co-operative societies in Enugu State
- What are the criteria for granting loan?
- To what level do you consider banking loan facility toward agricultural financing?.
- What level or capacity have your Bank been able to finance agricultural co-operative within the past five (5) years?
- What impact has your Bank created towards the financing of agricultural co-operative society within this period?
1.6 Scope / Limitation of the Study
This research study is limited to the geographical and political boundaries of Nigeria in general and Enugu Metropolis in particular. This research study is to ascertain the role of banks in financing agricultural cooperative. How they have been able to facilitate the development of agricultural cooperative societies and to boast small stockholders and large scale inventors.
It would have been ideal to involve other financial institution but for constraint of time, finance and other resources, which makes it difficult as regards these projects only Union Bank Enugu Zonal Office were studied.
It’s certain that time waits for no man the period at hand is not enough to gather data from paper analysis and other academic responsibility and curriculum activities which has been an obstacle to this study.
In terms of finance, places could have visited to collect data materials were cut short due to lack of finance. A good project needs current and relevant information and they are just available in a place so, one need to search from one place to another which require a lot of money due to financial handicap as a student, one can afford to channel all resource to one base.
(iii) Limitation of Resource Material:
Limited resource of material such as government and Bank’s Publications papers, journal are limited in supply as some Bank officials give little or partial cooperation. This result to limitation of acquisition of information.
Summary of Findings, Conclusion and Recommendations
5.1 Summary of Findings
From the data analysis carried out in chapter four, the major findings, from the research are summarized as follows:
- Commercial banks recognize the need of granting loans to the agricultural co-operative societies as means of generating employment and enhancing growth of the economy.
- Commercial banks comply with CBN credit guideline on setting aside 10% of their profit before tax for agricultural co-operative societies.
- Commercial banks require a feasibility report and collateral before granting loan to agricultural co-operative societies.
- Since agricultural co-operative societies do not provide proper feasibility studies of every viable project due to poor level of education, banks find financing of agricultural co-operative societies unattractive because of inability of such borrowers to meet their financial obligations.
- Most of small scale entrepreneurs are scared of applying for loans from commercial banks due to poor level of education that is, illiteracy, high interest rate, collateral requirement etc.
- Diversion of funds provided to other ventures
- Changes in economic trends and activities
- Finally, although banks revealed that loan given to are not properly utilized, the banks used in the study were relevant to reveal the percentage being set aside for small scale enterprises.
There is no doubt that agricultural co-operative societies can be a miracle source of development and an engine of growth that they have been in Asian Countries and in America. In fact, going by their characteristics, they should be the major focus of the government, together with agriculture, if Nigeria is to realistically address the development problems of unemployment, poverty, urbanization etc. They should therefore, immediately becomes the economic policy priority of government because of their potentials if they have to address our economic ills. The oil boom of the early seventies brought with it the enormous notion that a project had to be big, to be viable and profitable.
Consequently, many large and complex projects were started without due regards to our management limitations. Our track record in Nigeria in the management of large and complex organizations has proved unsatisfactory. Even now, many of such organization cannot pass the test of efficient and effective management. Many have collapsed while many are still grappling with problems that could have been avoided had they started on farmers.
Indeed, the industry for the future in this country should emphasize the development of the well-managed small size firms. The government providing the necessary incentives, education and infrastructure and a general conducive environment for the environment for the development of agricultural co-operative societies.
Our universities, colleges of education and research institutions should devote more time and resources into the problems of agricultural co-operative societies so that the ultimate objective of entrepreneurial and commercial development of the nation can be achieved.
Our banks should adopt a more developmental approach to the financing of small scale enterprises.
When these are achieved, other benefits of agricultural co-operative societies as a source of raw material, provision of food, employment generation and self-reliance will be accomplished.
Banks adopting more developmental approach to the financing of agricultural co-operative societies can be achieved through the nature of advice and guidance they give their small scale customers.
They should also encourage them to use the facilities at the stock exchange particularly under the second-tier securities market, as a basis of acquiring needed capital and spreading ownership and consequently reducing the risks of concentrated control. They should also de-emphasize collaterals as the overriding condition for granting credit facilities to agricultural co-operative societies.
Finally, the Banker’s committee initiative and commercial banks are to keep the ball rolling in financing agricultural co-operative societies as well as enhancing and uplifting the growth of the economy.
Having highlighted the problems and shortcomings of agricultural co-operative societies in Nigeria, the following recommendations aimed at correcting and eliminating those constraints are put forward for consideration.
In order to reduce the risk in agricultural co-operative societies lending, the Central bank of Nigeria and the government must ensure that they keep on regulating properly their current initiative of requiring all commercial banks to set aside 10 percent of their profit before tax for equity investment in small and medium scale enterprises.
Rediscounting by the Central bank of Nigeria (CBN) can sample possibilities for encouraging commercial banks to gain experience in medium and long term building operation. A number of procedures can be adopted such as preferential discount rates, multiple discount rates or quotas favouring certain purposes.
The banks, themselves can ensure minimum risk of the loan losses by providing technical and managerial resources to various kinds of agricultural co-operative societies customers. This would assist them in project preparation, implementation, financing and management.
At the same time, agricultural co-operative societies can avail themselves of such services provided by the government at the entrepreneurial development center.
In order to make credit available to agricultural co-operative societies sector, the banks and the government should make use of the rural banking program. The branches of each bank in the rural community should be given free hand to take certain decisions concerning advancement of these loans and advances to rural small scale enterprises.
They should be able to act as “management consultants” identifying problems and suggesting solutions.
Banks would also need to be encouraged to fund the working capital requirements of agricultural co-operative societies. In the face of the limitations and inadequacies already enumerated in this project, agricultural co-operative societies are high risk for banks to lend. Consequently, part of the government programs for agricultural co-operative societies would be to devise a means of providing incentives and encouragement to banks to be able to freely lend to agricultural co-operative societies.
There is need to have an institutional coordination of the funding efforts of government and its agencies if agricultural co-operative societies are to access and benefit from these institutions set up to cater for their financing needs. We can borrow a leaf from the USA where the small business administration (SBA) creates awareness about funds available, the categories of business that can get them money and various ways to obtain them. It is also involved in loan guarantee, certificate of competence, prime contracting, break out procurement, research and development, business information services etc. much more, the small business administration (SBA) channels all its assistance through appropriate institutions like commercial banks.
Probably, this is the direction that the newly established bank for industry and small and medium enterprises development agency (SMEDA) would have to focus. Government efforts should be geared towards the creation of management environment conducive to the development of their efficiency, productivity and the adoption of a result-oriented management approach.
Central bank of Nigeria (CBN) should license more Micro Finance banks to be able to extend more loans to agricultural co-operative societies.
We also recommend that agricultural co-operative societies should not base only in urban areas. This is because the numbers of agricultural co-operative societies in urban areas are alarming and commercial banks cannot give loans to all. This is why they should be encouraged to reside more in rural areas i.e. rural agricultural co-operative societies should be encouraged. If this is achieved, the government should ensure that it provides more infrastructural facilities in rural areas so as not to discourage these agricultural co-operative societies in achieving their objectives.
Banks should not discriminate from lending to agricultural co-operative societies as there are no more restrictions restricting them from doing so. They should extend loans freely to agricultural co-operative societies and ensure that these loans are monitored effectively so that they are used for their specific purposes.
Also, government should initiate industrial development bonds, which are used in countries for the purpose of building industrial plans in certain areas with a view to attracting industries or firms to such an area. Business firms apply and are allowed under certain conditions to occupy such plans for which they pay rent. The rents paid are used to offset the principal and interest.
Finally, a major impediment to growth generally in Nigeria has been the state of economic and social infrastructure. This has been an over-flogged issue in the discussion of Nigeria’s economic development. Provision of necessary infrastructural facilities and the enabling environment for business operations generally is an imperative uninterrupted power supply, good roads and transportation networks, rural development, efficient, effective and cheap communications etc. are the basis to competitive performance of enterprises. Their provision will definitely reduce the funding needs of agricultural co-operative societies as they would no longer require funds to provide electricity, water, telephone and other infrastructures on their own.
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