BACKGROUND OF THE STUDY
In
two decades, it has been a set back for farmers to increase their crop
production due to lack of funds. At that time, farming was regarded as job for
illiterate people and as such very few people were engaged in farming
activities. This issue attracted attention of both state and the federal
government to formulate policies and programmes to address the problems of
farmers. The agricultural credit guarantee scheme fund (AC GSF) was established
by Decree 20 of 1999 with ownership and shareholding of 60% and 40% in the
favour of the federal ministry of finance incorporated and the central bank of
Nigeria respectively. Also in the year 1984, Nigeria agricultural and co-
operative bank was launched to finance rural farmers. The mandate of Nigeria Agricultural and co-
operative bank (N A C B) was to grant spot loans to farmers to increase their
crop production for the teaming population and for export.
There are other policy programmes of
the federal government on agriculture which were linked up with commercial
banks for the purpose of encouraging the farmers to produce more food such as
National food security programme, special programme on food security programme
and fadama iii project which are introduced to diversity agricultural products
into other uses. All the above efforts by both federal and state government
were geared towards impacting positively on the lives of rural farmers.
The farmers through the assistance
of commercial bank were able to feed their families building better houses and
training their children in schools. Infact, farming activities now are regarded
as lucrative business venture because of finance assistance from government
through commercial bank in Abakaliki in particular and Ebonyi state in general.
Unfortunately, farmers especially the illiterate ones fid it very difficult in
obtaining loan from these commercial banks. This is because of vigorous nature
involved such as having collaterals, surety, and bottle neck services. At time
the loans may not be given on time when they are needed. The banks on other
hands entertain fear that the money may diverted to another area other than the
farming activities. This is so, because some farmers increase the number of
their wives instead of investing the money on farming business. Also the issue
of pest attack, theft and natural disaster like drought and flooding made it
very hand before the bank grant loans to farmers. Although, the farmers were
encouraged to insure their farms in the insurance company. This will enable
them to recover the loses during this natural disaster through Nigeria
Agricultural insurance company (N A I C).
STATEMENT OF PROBLEM
Historical and cotemporary experience has shown that no
country can attain any meaningful development with out development in the
agricultural sector (Myradal, economy, 20)the place agricultural in Abakaliki
of Ebonyi state economy has remained critical over the decades since her
creation. Prion to the political crisis, agricultures positive contribution to
the sustaining economic growth and stability. These indications were clearly
evident from- increasing food supply short falls, rising prices and deceiving
foreign exchange earnings from agricultural exports.
Against this back ground the following problem are
identified as the causat factors of the slow progress unit nessed in
agricultural finance by bank and the development of the agricultural sector in
Abakaliki local government Area of Ebonyi state.
* inadequate
credit facilities to have appreciable impact on the growth of the sector
* Lack
of management skills and trained man- power in agricultural sector in Abakaliki
Local Government Area.
* Dominance
of the sector by the poor peasant and subsistent farmers in the sector.
* Inconsistency
of government agricultural policies.
OBJECTIVES OF THE STUDY
1. To
assess the extent to which commercial banks loans contribute to agricultural
out put in Abakaliki local Government Area of Ebonyi state and over all
economic growth.
2. To
assess the rate of growth of commercial banks loan to agriculture in Abakaliki local
government area.
3. to
identify the problems of the commercial bank not granting loans to the farmers.
4. expose
the roles of commercial bank in the agricultural sector.
5. suggest
ways of improving credit delivery to farmer by commercial bank.
THE HYPOTHESIS OF THE STUDY
Ø Ho;
a1 = 0 commercial bank loan has no significant impact on agricultural out put
in Abakaliki local government area in Ebonyi state.
Ø H1 : A0
= 0, commercial banks loan to agricultural has a significant impact on
agricultural out put in Abakaliki local government area in Ebonyi state.
JUSTIFICATION OF THE STUDY
The
findings or out come of this study would
be of great importance, serving as an eye opener policy market that under
capitalization of the sector will breed under utilization of resources and
hence low productivity.
Those
that stand to gain from this project include farmers, researchers, bankers,
government and investors. The farmers will benefit from this work because it
will verify the problems hindering the commercial banks from granting loans to
them and also recommends to it. The researchers, government and investors are
not left out. They will also benefit because it will find the cause of
inadequate bank loans to farmers and solution to their problems
LIMITATIONS OF THE STUDY
The study will restricted to Abakaliki local
government area in Ebonyi state particular reference would be given or devoted
to commercial banks lending policy as it concerns on the period between 2010-
2012 as it covers the period of room and depression in the economic history of
Ebonyi state.
In
the course of this study the researcher was confronted with problems such as
1. the
escalating cost of transport and financial impediments which made the cost of
carrying out the research work expensive.
2. the
obvious attempt by banks to classify most of their information that are
necessary for the completion of this work due to creation management problems.
3. The
inability to collect the annual report of the banks on the amount of loans that
has issued out to farmers for the past years.
4. this
project also encountered the problems of time constraint.
2.0 LITERATURE REVIEW
The major focus of this chapter is extent the various literatures
as regards commercial bank lending policies and it assessment on the
agricultural sector. Also, it evaluate various institutional frame works put in
place by the government i.e central bank of Nigeria to promote economic
development.
2.1 THEORETICAL
LITERATURE
Different scholars have shared and
examined different ideas and issue on the contributions of finance to
agricultural growth, banking and farmer attributes to credit and checking
whether credit has any significant impact on out put. Based on this we would
examine various literatures on issues that borders on commercial banks with
particular emphasis on agricultural.
Schultz (1964) made an attempt to revealing
the root problems undermine the development of agricultural sector stating that
the way to transform traditional agricultural into relatively cheap source of
growth is by investment to produce a supply new agricultural inputs that will
be profitable for farmers to adopt”. He also pointed out clearly that what has
been lacking in the past is not an un willingness on the part of the
agricultural sector to accept new ideas but on public expenditure and
organization of particular activities to serve the agricultural sector stating
that “the way to transform traditional agriculture into a relatively cheap
source of growth is by investment to produce a supply of new agricultural in
puts that will be profitable for farmers to adopt. He also pointed out clearly
that what has been hacking in the past is not an unwillingness on the part of
the agricultural sector to accept new ideas but on public expenditure and
organization of particular activities to serve the agricultural sector.
Classical economists hewis (1955)
and Teriba (1972) are of the perspective that farmers need more bank credits. They
argued that agriculture in less developed countries is characterized by low productivity
and under cultivation. They opined that increased loan-able fonts will permit
the financing of new more productive technology.
Tomori (1979), shared the view that bank
loans and advances were insignificance to agricultural production both in
absolute and relative terms. This was because farmers who were organized on a
small basis and small units were paced with difficultly of obtaining loans since
most of the farmers were illiterates and unaware of credit facilities.
It is also Lander stood that the
figure on loan and advances gave on impressive picture of financial assistance
to the sector. But the pity of it all was that the small population probably
went to the small scale farmers who accounted for the bulk of agricultural production
the central bank of Nigeria (2002) revealed that fear of banks and their
reluctance to finance agricultural production was due to inability to repay
facilities. Most loans granted to farmers in the past have been directed to
other wises different from the purpose for which loans were granted. As a
result, farmers have found it difficult to pay back and financial institutions have
to loose huge founds belonging to depositors. Though loans which advanced to
the sector increased from N21 billion in 1994 to 46 billion in the year 2000,
relatively, loans to the agricultural sector in comparison to total distarsed
loans banking industry within the same period revealed a decline from 8.3
percent to 2.1 percent.
It was suggested that since loans
given out by government was regarded as part of the prove-bial “National cake”
all agricultural loans by the government should be routed through financial
institutions so as to ensure supervision and follow-up, otherwise it will
paresent a situation of every agricultural financing scheme failing as a result
of depletion of fund.
Udabah (1999) pinpointed vigorously
that one of problems facing the agricultural sector in any state is the death
of capital investment. He opined that farmers large or small scale farmers need
credit facilities to expand but what seems to be an impediment is access to
such credits. He observed that despite all the programmes initiated by the
government to facilitate the availability of credit, the farmers still find it
difficult to obtain them.
Out of this research, he observed
that the agricultural sector is increasingly be coming less responsive to the
need of the nation. To revive the agricultural sector he suggested there is
need for a realistic agricultural credit policies in Nigeria such that will
focus on:
·
Increased
agricultural production improved techniques of production
·
Adequate
provision of agricultural credit to all categories of producers.
·
Adequate
infrastructural facilities and input supports and
·
Poor storage
inadequate marketing and distribution arrangement.
·
He also suggested
at eliminating such problems inherent in the system as
·
Inadequate number
of beneficiaries
·
High interest
rates
·
Uneven
distribution of agricultural credits.
·
Inadequate
monitoring and evaluation.
·
Weak and
uncoordinated agricultural credit policies and
·
High default
rate.
Geffon
(1974) and Johnson (1982) are of the view that more formal credit should be
aimed at small scale farmers. This agreement falls under the growth paradigm.
The middlemen farmers are pregvently rational and efficient producers, who
would adopt new technologies, expand production, and possibly payback loans if
the yields are sufficiently high. They explained that the existing informal
loan market for agriculture are exploitative and as a result, there is a contraction
of agriculture credit due to high interest rates. They suggested that an
organized frame work of the loan market should be put in place.
Agricultural
and rural development executive summary (2001) pointed out that in three years
of democratic dispensation; the Obasanjo administration has laid a solid
foundation in the transformation of agricultural and rural development
sub-section toward the attainment of massive food production and ensuring food
security in the country.
The federal government approved a
new agricultural policy thrust for Nigeria. The new strategies in the policy
include laying a solid foundation for sustained and increased growth in
agricultural production and for enhancing output necessary for growth. The main
thrust of the new policy and in the area of the new policy and in the area of
·
Creating a
conductive macro-environment to stimulate greater private sector investment in
agriculture so that the private sector can assume its appropriate role in the
agricultural sector
·
Re-organizing the
institutional frame for government intervention in the agricultural potential.
The major factor, which militate against the
involvement of commercial banks in founding agriculture, was that most peasant
farmers did not have acceptable collateral. Lend by commercial banks were also
constrained by high cost of administering such loans, an additional factor was
the storage of existing commercial banks which became reluctant in major
agricultural lending, in that, agriculture involved greater risk and
uncertainties when compared with other factors of the economy.
These uncertainties could be draught, famine, flooding,
disease etc. if these uncertainties do occur, farmers are likely to default. The
risk of default and uncertainties makes it difficult and uncertainties makes it
difficult for banks to grant loan to farmers thereby clouding the prospect of
making loans credit available to agriculture.
2.3 COMMERCIAL
BANK LENDING POLICY IN NIGERIA
The Banking Act 1969 defines banking business as the
business of receiving money from outside source as a deposit irrespective of
payment of interest or the granting of money loans and acceptance of credit or
the purchase of bills and cheques or the purchase and sale of securities for
account of others.
To distinguish commercial banks from other bank, the
Act went further to state that any person who transacts banking business in
Nigeria and whose business includes the acceptance of deposit withdraw-able by
cheque is a commercial bank. The oxford Dictionary of economics defined bank as
financial institution whose main activities are borrowing and lending money.
Generally, commercial bank specialize in short term lending to customers. By
its intermediation function, commercial banks contribute to the mobilization of
savings and the optional collection of investible resource (Iyoha 2004).
They help the large agricultural sector in a number of
ways, provides loans to traders in agricultural commodities, open network or
branches in rural areas to provide agricultural credit, to provide finance directly
to agriculturists for the marketing of their product etc.
Thus, commercial banks meet the credit requirements of
all types of people. Commercial banks follow the following principles of
lending.
·
Liquidity
management
Profitability issues and earning capacity bank
portfolio management service delivery and level of efficiency deposit mix and
structure credit management.
·
Softy
·
Capital adequacy
etc.
According to Robert Bench (1991), the scope of lending
policies should include who receives the credit, who grants it and how, the
pricing of credit, the amount and the organizational structure of its
distribution. The absence of a properly articulated formally written policy
document are the critical factors leading to unsuccessful bank lending. Good
lending policy ensures effective leading.
Their commitments over the years have improved
considerably owing to the various lending guideline. Ekpebu (2006) reviews that
the performance of the agricultural funding has been unsatisfying over the years due to insufficient funding or credit facilities,
inadequate infrastructural facilities, low technology base, high cost of farm
input and inadequate extension services.
Experience was drawn prom organization for Economic
operation and Development (OECD) countries. He demonstrated that in a
competitive financial environment, profitable agriculture can obtain the credit
it needs, also suggested that government have vital vole to play in channeling
fund to agricultural sector through its policy making.
Radolphe (2005), bringing together loan commitment
theories and credit rationing theories, within a framework of asymmetric
information between lenders and borrowers and under costly termination of
lending arrangements, commitment may explain the accumulation of nonperforming
loan by banks.
In this theory, two additional result follow
That banks faviour borrowers with well known
production functions and long term credit history and that interest rate may be
large if significant market imperfection prevail. In agricultural household
models, farm credit is not only necessitated by the lionization of self finance
and government expenditure, but also by uncertainty pertaining to the level of
farm inputs and outputs and the time lay between inputs and outputs (Sigh et’
at 1980)
C
B N (2003) Identified access to agricultural credit or loans as factor
responsible for the sustainable growth in the agricultural sector. Also
government has a vital vole in the growth of agricultural in Nigeria (Obiechina
2007) Ekechi (1977) Supported the view that raising the volume of financial
savings will increase the volume of total deposit of the banking in the supply
of credit to other sectors of the economy (agricultural sector inclusive).
RELEVANCE OF COMMERCIAL BANK LOAN TO
AGRICULTURAL SECTOR
The relevance of credit in agricultural sector cannot
be over emphasized. This is because it is only with adequate credit made
agricultural sector (farmers) that can ensure massive food production and it
will also enhance the possibility of farmers to have the loan to venture into
move diversities agricultural output.
Jekayinfa
(1981) States that the farmers require creation of credit to expand the scope
of operation, monetize parading and engaged orderly marketing through storage
of product. These combined effects tend to raise the total income of the
producer, increase marketable surplus, and raise the level of ingestible fund.
Credit can serve as a catalyst for accelerating the rate of agricultural
development.
IJere
(1986), in his contribution to the relevance of credit maintains that the out-
of the way peasant farmers needs to clear additional land, pay for labour, buy
additional crops and market the surplus. And this can only be enhanced through
adequate credit to peasant farmers. He also maintained that the effects on
farmers as greatest with labour and suggested that credit enable labour to the
better utilized. The need to in targeted credit structure is important, this
rose for the role which agricultural sector play for as foundation for
successful development programme.
On the other hand, inadequate
capital or the inability to meet up with the financial needs of agricultural
appears to the central factor around which other factors militating against
agricultural development especially Abakaliki Local Government Area. Inadequate
credit would present rural producers form adopting innovation especially where
actual cash is pay for hold produce in store constituted major bottleneck in
rural development. It is necessary that bulk of loan should be
institutionalized and backed adequate funding, prospers permission and
timeliness of operation.