THE ROLE OF FINANCIAL INSTITUTIONS IN AGRICULTURAL DEVELOPMENT (1990-2015)

(A CASE STUDY OF NIGERIA)

By

EGUONYE TONNA OBIDIKE

Presented To

Department of Entrepreneur

Abstract

This study examined the role of financial institutions in agricultural development.( A case study of Nigeria Agricultural Cooperative and Rural Development Bank) with a view to make useful suggestions and recommendations as way of enhancing the development of agricultural sector. The population of the study includes large and small scale farmers and the sampling method adopted for the study is the stratified random sampling in order to ensure adequate representation of the population. In order to achieve the objective of making useful suggestions that would improve the agricultural sector, a number of hypotheses were made and tested. Samples of one hundred and eighty responses were collected and analyzed using the chi-square (ײ).It was discovered that bank credit loan scheme is making some impacts in lending loans to farmers. The result also showed that farmers prefer informal to the formal sources of finance mostly because of the demand of formal institutions that farmers most present collateral security. Finally, the study also indicated that the problems facing agricultural financing

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TABLE OF CONTENTS

APPROVAL i

CERTIFICATION ii

Dedication iii

Acknowledgement iv

Outline page v

Abstract 1

CHAPTER ONE

INTRODUCTION

11Background to the study 2

12 Statement of Research Problem 2

13 Research Questions 3

14 Objectives of A Study 3

15 Statement of the Research Hypothesis 3

16 Scope of A Study 4

17 Significance of A Study 4

18 Limitation of the Study 5

19 Definition of Terms 5

CHAPTER TWO

LITERATURE REVIEW

21 Theoretical Background 7

23 Agricultural credit policies 9

24 Bank Credit for Agricultural Development 11

25 The Role of Parastatals in the Development of Agriculture in Nigeria 11

26 Commercial Agriculture Credit Scheme (CACS) 13

27 Bank of Agriculture Limited (BOA) 16

28 Assessment of Banking Industries Development of Agriculture ,Future Expectation 17

29 Extension Research and Rural Development Strategies In Aid Of Agricultural 20

210 Importance of Credit Facilities In Agriculture 21

211 Constraints of the Nigerian Agricultural Sector 21

CHAPTER THREE

RESEARCH METHODOLOGY

31 Introduction 23

32 Research Design 23

33 Population of the Study 23

34 Sampling Design 23

35 Methods of Data Collection 23

36 Method of Data Analysis 24

37 Sources of Data 24

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

41 Introduction 25

42 Educational level of respondents 25

43 Level of Operation 26

44 The Analysis of roles of financial institution in Agricultural Development 26

45 Test of Hypothes 31

CHAPTER FIVE

SUMMARY OF FINDING, CONCLUSION AND RECOMMENDATION 

51 Summary of Findings 37

52 Conclusion 38

53 Recommendations 39

REFERENCES 43

APPENDIX 45

CHAPTER ONE

INTRODUCTION

11 Background to the study

Nigeria is endowed with natural resources, large fertile arable land, wide range of crops, and abundant water resources amongst others Despite its abundant natural resources it is faced with a poor food situation The poor food situation is traceable to the decline in the agricultural sector The problem of feeding is increasing by the day However, several efforts are being made to improve the standard of living

Prior to the discovery of petroleum in Nigeria agriculture used to be the highest foreign exchange resource earner and its contribution to gross domestic product GDP has been estimated to about 6263% in 1960, 4808% in 1970, and 2063% in 1980 Recently due to the growing awareness of the role of agriculture, the various governments have intensified efforts aimed at transforming from its present subsistence level to a market oriented production One of those efforts was the ban made on importation of agricultural products like palm oil, maize and rice This was done to encourage improvements on our production standard Due to the fall in the level of production from decade to decade, the country could no longer feed the large population, provide raw material for domestic industries, engage in export of agricultural produce and employ the labor force of the country despite the abundance of human and material resources

the population is dependent directly or indirectly on agriculture for their livelihood Though, the Nigerian agriculture is characterized by low farm income, low level capacity to satisfy the food In spite of growing urbanization, Nigeria is known to be predominantly rural in nature and majority of needs of the country, due to the outdated and primitive techniques of production, it is still the mainstay of the nation's economy

Measures and program setup to upgrade the Agricultural sector involve the construction and reformation of the whole structure of the agricultural sector by the creation of appropriate institutions and public services This would help strengthen the economic position of the dependent farmers Examples of such measures are National Accelerated Food Production Project (NAFPP), Structural Adjustment Program (SAP), Nigeria Agricultural Cooperation and Rural Development Bank (NACRDB)

12 Statement of Research Problem

According to Anyanwu et al (1997) the agricultural sector has been recognized for a long time as an important sector to Nigerian economy and development is one of the crucial requirements for the overall economic growth He noted further that the decline in agricultural activities might appear natural in any development process; it is obvious that in Nigeria, agricultural activities would remain the most important single sector for some time to come He emphasized that in the past, development planners have introduced programs such as National Accelerated Food Production Project (NAFPP), Green Revolution Programs (GRP), in search for all appropriate technique in order to increase farm output and productivity and such program have at one time been implemented

13 Research Questions

In recognition of the aforementioned the attempt is made in this study to provide answers or

solution to the research questions below

1 What are the reasons for continuous fall or decline in the production level of the agricultural sectors of the Nigerian economy?2 What actions can be taken to upgrade the current production level of the agricultural sector?

3 What effect does the decline in agricultural sector have on the human resources of the economy?

4 What measures have been taken in the past to redress the perceived slow growth rate of the agricultural sector?

5 How and to what extent does the performance and commitment exhibited by financial institution in general, Nigeria agricultural cooperation and rural development bank (NACRDB) in particular in terms of providing financial support influenced the activities of agricultural sector?

14 Objectives of A Study 

The general objective of the study is to determine the role of financial institution in agricultural development in Nigeria The specific objectives include

1 To examine and evaluate the agricultural credit it granted the farmers in recent years

2 To ascertain the effectiveness of credit granted by Nigeria agricultural cooperation and rural deve3lopment bank (NACRDB) in the achievements of the pre-planned objectives of the agricultural sector

3 To analyze the measures and programs set by the government in a bid to enhancing the agricultural sector

4 To determine the influence of these measures in accelerating the growth rate of the agricultural sector

5 To establish and verify ways by which the agricultural sector can be improved in the future

15 Statement of the Research Hypothesis

This study would be guided by the following hypothesis;

i Ho: the agricultural down drain cannot be curbed through effective bank credit

Hi : the agricultural down drain can be curbed through effective bank credit

ii Ho: bank credit and financial facilities are not made available by development bank to farmer

Hi: bank credit and finance facilities are made available by development bank to farmers

iii Ho: bank credit facilities have been ineffective due to their policies formulated and not their implementations and utilization

Hi: bank credit facilities have been ineffective due to their improper implementations and utilization and not due to the policies formulated

16 Scope of A Study

With the aim of examining how the financial institutions influence the activities of agricultural sector, through their credit policies and farm credit system, programs that have been established to review the agricultural sector would be analyzed A lot of sources for farm credit have been and a number of them have failed to perform their pre-planned functions An example of such scheme is the Nigeria local development board (NLDB)

Our point of focus in examining institution program and scheme setup to upgrade the agricultural sector would be on Nigeria agricultural co-operative and rural development bank (NACRCD)

17 Significance of A Study 

The agricultural sector of the Nigeria economy like any other sector of the economy cannot function without fund Unlike the other sectors of the economy, agricultural sector can guarantee repayment of loan borrowed or collected only after a long period of time This is because of the slow nature of the production process However, this has acted as a hindering factor to giving out loan to the agricultural sector by financial institutions If this continues in its current path, the continuous lack of fund would lead to the eventual collapse of agricultural activities

The problem of lack of fund and credit facilities in the agricultural sector has been chosen because the persistent shortage of fund would lead to a fall in the production level of the agricultural sector, whose importance cannot be over-stated

Nevertheless, there would be some beneficiaries in this study which will include the government, financial institutions, large and small scale farmers as well as the general public

18 Limitation of the Study

Some factors may limit the level of accuracy and reliability of this study Such factors include

i Difficulty in obtaining data

ii Low response rate from involved parties

In the absence of the above mentioned limitations, all other errors and omissions are entirely those of the researcher

19 Definition of Terms

i Agriculture: This can be defined as the growing of crops and rearing of animals for human consumption Agriculture involves live stock, forestry, wide life and fisheries as well as the production of crops like cocoa, palm product, groundnut, cotton and rubber Historically, the Nigerian agriculture can be categorized into three They are: Subsistence type, diversified type, plantation type

The subsistence type is the production done mainly for human consumption with little or no surface

The diversified type is the production type that is done beyond individual consumption or domestic level

The plantation type although have not made any impact in the Nigeria agriculture, it accounts for a small amount of total Nigeria agricultural output It involves the use of improved modern techniques and it is run in the state by their development cooperation

ii Agricultural Sector: The agricultural sector is one of the sectors of Nigeria economy it is the sector responsible for the provision of food supply and raw materials for domestic and foreign industries

iii Financial Institution: These are organization owned either by individual, group or persons, state or country as a whole Financial institutions are established mainly for saving money (deposit) for their customers and providing for such deposit and when needed and also the granting of credit facilities to their customers based on the credit worthiness of such customers

iv Nigeria Agricultural Cooperative and Rural Development Bank (NACRDB): It is a body charged with the duty of granting credit facilities to individual farmers as well as the group farmers for the purpose of fueling their farming activities It was previously known as Nigeria agricultural cooperative bank (NACB) and became Nigeria agricultural cooperative and rural development bank (NACRDB) after merging

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