The Role Of Money Deposit Banks In Financing Agricultural Development In Nigeria (A Case Study Of Two Selected Banks)

Project and Seminar Topics with material for Banking and Finance

Abstract

This study aimed at evaluating the impact of commercial banks’ credit to agricultural sector under the Agricultural Credit Guarantee Scheme Fund in Nigeria. Until the mid-seventies, agriculture was the primary foreign exchange earner for Nigeria. Now it has lost its prime position to the mineral sector. Of these factors, inadequate capital is considered as the single most important factor affecting the performance of the sector.

It therefore empirically examined the impact of Agricultural Credit Guarantee Scheme Fund, agricultural product prices, government fund allocation and commercial banks’ credit to agricultural sector on agricultural productivity. The result revealed that Agricultural Credit Guarantee Scheme Fund and Government fund allocation to agriculture produced a significant positive effect on agricultural productivity, while the other variables produced a significant negative effect. It is recommended that farmers should be encouraged to be applying for loans from the participating banks to enhance their agricultural activities and productivity.

Chapter One

1.0 Introduction

This is the introductory chapter of the chapters. is briefly explains the background of the study, statement of the problem, objectives of the study, research questions, statement of hypothesis, significance of the study, scope of the study, limitations of the study and definition of terms.

1.1 Background Of The Study

The structure of the Nigerian economy is multi-sector in which the banks and the agricultural sectors have roles to play. Long before now, the relationship between the banking industry and the agricultural sector in Nigeria has been a contentious issue. If one were to take a census of all the pronouncements on the matter by various governments since independence and classify them into those praising the efforts of the banking industry and those castigating them as regards granting credit to agriculture may likely notice that the ratio of those in favour of the later will be in the ratio of four or more is to one.

This could further be reflected in the legislation of governments and the directives of quasi government institutions like the CBN on the issue. The setting up of a wholly government owned bank in the name of the Nigerian Agriculture, Cooperative and Rural Development Bank (NACRDB) with an aim of solely lending to agricultural endeavours on short, medium and long-term basis is predicated on the philosophy that the mainstream banking industry does not adequately cater for the urgent need of credit required for rapid transformation of the agricultural sector of the economy.

This study dwells on the few areas:

1. Existing policies and institutional network for agricultural credit in Nigeria under ACGSF policy;
2. Assessment of the impact of credit on agricultural performance; and
3. Identification of some major constraints that dwarf the growth of this sector to achieve its desired goal and expectation in the economy of the country.

The Nigerian economy has passed through diverse structural changes in the past three decades. The country has moved from predominantly agricultural economy in the 1960s to an economy mainly reliant on petroleum from 1970s to date and the agricultural sector was least cared for, the phenomenal growth in oil revenue in the mid 1970s was not properly channeled for suitable economic growth. The result was that the economy became largely import – oriented (Amadi et al, 2003).

Any honest survey of current agricultural situation in the country will immediately reveal not only a progressive decline of the contribution of agriculture to the Gross Domestic Product (GDP) both in relative and absolute terms, but also a wide gap in the country’s ability to maintain its food independence.

An evaluation of the performance of the agricultural sector from the second decade of our independence shows a declining productivity in virtually all the sub-sectors in terms of activity. The situation is compounded by the residual effects of the civil war, severe droughts in some parts of the country, problem of pests, inappropriate fiscal and monetary policies and official neglect. For many years, the urge to foster agricultural growth and development, among other things, has often compelled government to intervene in the economy. Among the key areas of intervention include; credit and marketing services, extension in input supply etc.

It is a general belief that the provision of cheap credit is a precondition for technological change. As such, the government has often fostered the growth of institutional financial markets mainly to provide credit facilities to farmers on reasonable terms. The concerns of government have found expression in a number of policies which have been initiated. While some sought to create condition that will encourage and compel formal institutions to lend to the rural-based farmers, others have attempted to create new institutions specially designed to cater for the peculiar needs of this category of farm investors.

Despite these efforts, it is not yet certain whether these credit policies have achieved their objectives. However, this paper seeks to determine if these credit policies are effective tools in influencing the amount of credit facilities to the agricultural sector. What factors influences financial institutions in giving credit facilities to farmers etc.

1.2 Statement Of Problems

Presently in Nigeria with her vast expanse of rich soil, a sizable number of her citizens suffer from hunger and starvation as a result of neglect of agriculture. Few agro-industries around depend greatly on importation of necessary raw materials in their production and many of the Nigerian youths roam about unemployed. It is of note that various policies have been made to solve these problems in which the banks have been targeted to provide the pivotal roles in the area of funding through provision of credits.

However, the facts remains that the banks precisely the commercial banks have not come to grapple with the problem as much has not been felt in the area of credits to agriculture. The accusation was that commercial banks prefer granting credit to commerce or trading to agriculture and where the credit was allowed, the interest payable seems outrageous with some tight securities, which place restrictions and scare many prospective farmers. On the contrary, where the credits are ready to be granted, some of the fanners or clients are unable to furnish the necessary collateral and honesty required by the banks as guarantee to cushion the effects of leakages or unforeseen exposures should there be default.

Also there are fears of diversion of the loans to non-agricultural projects as it is attitude of some people to embrace luxurious household family spending thereby suffocating the purpose for which the credit was given. Clearly, some good clients that can be insulated from this accusation are unavoidably weighed down by uncontrollable factors such as changes in policies, rules, regulations and certain difficulties in obtaining official permit.

On the above highlighted problems, this study will examine the efforts of some stakeholders such as the commercial banks, government policy with respect to the Agricultural Credit Guarantee Scheme Fund in Nigeria, her financial allocation to agriculture and the farmers in relationship to the agricultural production output.

1.3 Objectives Of The Study

The aim of this study can be subsumed under the following specific objectives:

1. To evaluate the impact of credit disbursed by the money deposit banks to the agricultural sector on agricultural productivity.
2. To examine the extent to which government fund allocation has gone in boosting agricultural productivity.
3. To evaluate the impact of agricultural product prices in encouraging agricultural production in Nigeria.
4. To empirically examine the impact of Agricultural Credit Guarantee Scheme Fund on the agricultural sector.
5. To suggest ways the money deposit banks can effectively contribute in boosting agricultural production in Nigeria.

1.4 Research Question

1. Has money deposit banks’ credit to agricultural sector has not significantly influenced agricultural productivity in Nigeria.
2. Has Agricultural credit guarantee scheme loan by purpose has led to any significant growth in agricultural productivity.
3. Has Government fund allocation to agricultural sector led to a significant growth in agricultural productivity.
4. Does Prices of agricultural products has a significant impact on agricultural productivity.

1.5 Statement Of Hypothesis

1. H0: Money deposit banks’ credit to agricultural sector has not significantly influenced agricultural productivity in Nigeria.
   H1: Money deposit banks’ credit to agricultural sector has significantly influenced agricultural productivity in Nigeria.
2. H0: Agricultural credit guarantee scheme loan by purpose has not led to any significant growth in agricultural productivity.
   H1: Agricultural credit guarantee scheme loan by purpose has led to any significant growth in agricultural productivity.

1.6 Significant Of The Study

In view of the problem encountered in agriculture, the Significant of this study are as follows;

1. To examine the contribution of banks towards agricultural financing in Nigeria.
2. To evaluate the constraints that inhibits the effective financing of agriculture by the bank.
3. To assess the performance of the bank in relation to their lending policies towards the small-scale formers who are the perceived drives of the agricultural sector.
4. To assess the performance of agricultural sector.
5. To examine farmer’s judicious use of the loan granted by the bank.
6. To determine if the availability fund to the hand of the real farmers and not fictitious ones.

1.7 Scope Of The Study

During the course of this research, I encountered some constrains in collecting the necessary data. Information from the Money deposit banks visited and the opinion gathered from few farmers’ involve high cost during the course of this study. It was discovered that banks were not readily forthcoming in obliging data. This study covers a period of 25 years (2008 — 2014).

1.8 Limitations Of The Study

In this study, they course of carrying out this research encounters a lot of difficulties and was constrained in many areas among which are:

Data from banks:

The problem of getting the managers, staff and customers of the two banks to answer questions in the proposed questionnaire, in many cases, information given by both banks and the ones from internet were not simplified. That is, they are very difficult to understand.

Time Constraints:

In the aspect of theoretical and practical of this work, the researcher being a student had to apportion her time so as to carry out concurrently with other academic assignment.

Financial Constraints:

The research was constrained by cavity of materials and other expenses. However, in spite of the limitations, effort were made by the researcher to utilize the limited resources at her disposal to ensure that the work is successfully completed .

Chapter Five

5.0 Summary, Conclusion And Recommendation

5.1 Introduction

This chapter focuses on summary, conclusion and recommendations. In this research, an attempt has been made to assess the role of money deposit banks in financing agricultural development in the economy(A case study of 2 selected banks).

5.2 Summary

From the statistical computation, analyses and findings of the test carried out, it shows that: The joint action of commercial banks credit to the agricultural sector, agricultural credit guarantee loan by purpose, government financial allocation to agricultural sector and agricultural products prices are significant factors that can influence agricultural production in Nigeria. Commercial banks’ credit to agricultural sector for the period 1984 to 2007 has no significant positive impact on agricultural productivity in Nigeria. Agricultural scheme loan by purpose has led to a significant positive growth in agricultural productivity in Nigeria. Government fund allocation to the agricultural sector has led to a significant positive growth in agricultural productivity. Prices of agricultural products have not made any significant positive impact on agricultural productivity.

5.3 Conclusion

The paper focuses on Deposit Money Banks Loans and Advances to the agricultural sector and agricultural output and productivity in Nigeria from 1970-2010. Analysis on the Nigerian economy indicates that agricultural growth is the most important contributor to the growth of the real sector of the economy. The declining production capacity of the agricultural sector explains to a large extent the performance of the Nigerian economy. We examined agricultural output and productivity in Nigeria, Deposit Money Banks Loans and Advances and Foreign Private investment to the agricultural sector. From our results, we discovered that Deposit Money Banks Loans and Advances and Foreign Private Investment appeared with the right signs and conforms to economic theory. The relationship between agricultural output and productivity, Deposit Money Banks Loans and Advances, Foreign Private Investment is statistically significant.

5.4 Recommendation

Based on the findings, the following recommendations were made for policy formation: The government should encourage deposit money banks to allocate and disburse loans to the agricultural sector, especially to the rural farmers; Agricultural sector should be commercially orientated and adequately funded both by government and various financial institutions; Promotion of foreign Private investment should be strengthened and encouraged by providing a conducive business environment for foreign investors; Technological advancement should be encouraged in the agricultural sector in order to move the sector from its subsistence level to a more mechanized level capable of sustaining the economy; Various agricultural policies in the country should be reviewed in other to diversify the production base of the economy.

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