CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Like many other African countries, Nigeria is primarily agrarian with its abundant land and water resources. Despite the rapid growth of the oil industry over the years, agriculture still accounts for 40% of GDP and provides employment (both formal and informal) for about 60% of Nigerian’s 150 million people. Nigeria’s agriculture remains largely subsistence-based with about 80% of agricultural output coming from rural farmers living on less than a dollar per day, earned from farming less than one hectare (2.47 acres). Nigeria has diverse agro-ecological conditions that can support a variety of farming models to create its own green revolution. However, successive administrations neglected agriculture over the years and failed to diversify the economy away from overdependence on the capital-intensive oil sector. Nigeria was once a large net exporter of agricultural products and the sector was the major foreign exchange earner before the advent of oil in 1970s. Nigeria is currently a huge net importer of agricultural products, with such imports exceeding $3 billion in 2010. The country has the potential to return to its previous position if adequate attention is given to agricultural growth policies, finance and provision of rural infrastructure. The fact of the matter is most of the smallholder farmers lack access to capital to acquire the needed inputs to increase their productivity and incomes and reduce their poverty. Farmers require credit to purchase seeds, fertilizers, herbicides, and buy or rent mechanized equipment and related services. Nigerian agricultural policy recognizes the vital role of agriculture finance in attaining the much desired green revolution. A major focus of the policy is to establish a system of sustainable agricultural financing schemes, programs and institutions that could provide micro and macro credit facilities for the small, medium and largescale producers, processors and marketers. However, public expenditure on agriculture which serves as the bedrock of financing for the sector has consistently fallen short of recommendations. It is therefore not surprising that these policies have failed to achieve the set goals of food self-sufficiency, self reliance, poverty reduction and rural development. Importantly, Nigeria agriculture is abysmally under-financed. At a public forum in early 2011, the Governor of the Central Bank of Nigeria (CBN) was quoted to have said “currently agriculture accounts for 40 percent of the GDP, yet it receives only one percent of total commercial bank loans.” This is significantly below the level of other developing countries, e.g. Kenya and Brazil which reportedly registers 6 percent and 18 percent, respectively. Nigeria’s agricultural development is constrained by the lack of access to credit for the predominantly smallholder farmers. Efforts by successive governments to address the problem have been largely unsuccessful. Commercial banks in the country perceive agricultural finance to be high-risk. The Central Bank of Nigeria is making efforts to de-risk the sector and encourage banks to lend to farmers. This research work tends to asses the impact of bank credit on agricultural development with special reference to First bank Nigeria Plc. The role of the Central bank of Nigeria (CBN) and some other commercial banks will also be examined.
1.2 STATEMENT OF THE PROBLEMS
It is important to note that in the early 70s when the oil price increased, the agricultural sector suffered a serious neglect as the focus and concern of the nation’s economic activities and government revenue shifted to the industry. Consequently, price fell in the world market. The Nigerian food import bill assumed an unprecedented level of about N1.5billion while the traditional agricultural exports were progressively declining. The need then arose for re-engineering the agricultural sector and a fundamental restructuring of the economy towards self-sustaining growth and development. After the post independent, the CBN established some agricultural agency like Credit Guarantee Loan Scheme (1972) to address the problem of agriculture by granting loan and advances to agricultural sector, but this scheme was not properly implemented. 1971, an agricultural reform was established called “Operation Feed the Nation”. Poor assessment and implementation of the programme could not allow the government to achieve its objectives. 1989, the
government came up with a reform called Structural Adjustment Programme, the programme was also with a wrong motive. The Bank reform 2005 by CBN resulted in the growth of the banks with new branches springing up everywhere across the major cities, and was celebrated by self-deluded bourgeois ideologues. The banks were given a clean bill of health, and they were said to be poised to finance the critical sector of the economy. Rather than invest in the real sector of the economy like agriculture, manufacturing, iron and steel, etc that will bring about improved productivity in the economy, the banks went into the oil whose price has now crashed at the international market. In addition, they also invested colossal sums of money in the casino market, where they speculated wrongly in anticipation for quick returns, but the stock market has now crashed, and the banks have lost over 900 billion naira invested in shares. First Bank Plc currently has a loan scheme called Farmers First, which started in 2008. Under this scheme purportedly meant for all categories of farmers, the individuals or group of farmers who want to access the loan (N1million minimum) are expected to meet the following requirements before they are eligible: own an existing farm for some time; open and run current account for a period of six months; deposit 25 per cent of the total sums intended to borrow; six months moratoria; agriculture insurance; and other sundry charges. These hurdles notwithstanding, many poor farmers who have scaled it are still denied the loans on flimsy excuses, grounds for the rich farmers. Nigeria’s agricultural development is constrained by the lack of access to credit for the predominantly smallholder farmers. Commercial banks in the country perceive agricultural finance to be high-risk making it difficult to grant predominant farmers loan. The researcher tends to examine the impact of commercial banks to these problems and proffer suggestions and recommendation that could limit these challenges.
1.3 OBJECTIVES OF THE STUDY
The broad objectives of this research work is to examine the impact of bank credit on agricultural development. Other specific objectives include; To examine the effect of CBN Credit guidelines and other financial bodies on Agricultural development. To examine the relationship of bank lending policies in Nigeria as the relate to Agricultural development. To examine how effective or defective are these credit policies on the preferred Sector of an economy. To examine factors that are responsible for only few individuals and small-scale agriculture industries benefiting from such polices. To proffer recommendations on Assessment of the Impact of Bank Credit on Agricultural Development.
1.4 RESEARCH QUESTIONS
For the purpose achieving the objectives of this research study, the following research questions were asked.
Does any relationship exist between the CBN credit guidelines on agriculture and agricultural development in Nigeria?
Is there any significant difference between the loan repayment of small and large-scale farmers?
Is there any Relationship between the type of borrower and loan repayment?
Is there any significant relationship between gender and loan repayment patters of farmers?
Is there any significant relationship between the types of security pledges and repayment patterns?
Is there any significant relationship between the educations of farmers’ and loan repayment? What are the banks lending policies in Nigeria as they relate to agricultural development? What factors are responsible for only few individuals and small scale agriculture industries benefiting from such policies?
1.5 RESEARCH HYPOTHESES
Hypothesis is a tentative answer to a research question. It is a conjectural statement about the relationships that exist between two or more variables which needs to be tested empirically before they can be accepted or rejected. In a research work, hypotheses are never proved or disproved, they are either supported (i.e. accepted) or rejected. To provide answer to the research questions arising from this study, the following hypotheses are postulated.
HYPOTHESIS ONE
Ho : There is no significant relationship between the CBN credit guidelines on agriculture and agricultural development in Nigeria.
Hi : There is significant relationship between the CBN credit guidelines on agriculture and agricultural development in Nigeria. HYPOTHESIS TWO
Ho : There is no significant relationship between the type of borrower and there repayment patterns.
Hi : There is significant relationship between the type of borrower and their repayment patterns.
1.6 SIGNIFICANCE OF THE STUDY
This research study focus on the assessment of bank credit on agriculture and how effectively this credits utilization enhances the agricultural development. In essence, the study will be useful to the managers of economy if there is a significant improvement in the area of agriculture with the justification of effective utilization of funds which lead to sustainable in the area of economy development. The work will contribute to already existing works in the field of economy and agricultural performance in Nigeria.
1.7 SCOPE OF THE STUDY
The research would focus on the activities of First Bank Nigeria Plc., towards the financing and development of agriculture in Nigeria. Emphasis would be on operational schemes of the bank, condition and pre-requisites for borrowing, financing procedures, sources and application of funds, evaluation financing. The study would cover a definite period to enable us have a clear vision of the role of First Bank Nigeria Plc. in relation to agricultural credit in Nigeria. The study uses data on agriculture loan and advancement extracted from First bank annual journal, 2012 that covers 2000 -2011
1.8 LIMITATIONS OF THE STUDY
In the course of conducting this research work it is expected that the following will constitute impediments to the effective conduct of the study
a) Time constraint within which the study must be completed.
b) Financial constraint
c) Inaccessible and inadequate data Nevertheless, I believe the above limitations will in no way affect the reliability and validity of the research study.
1.9 DEFINITION OF TERMS
CREDIT OR LOAN: Used interchangeably. It refers to the cash or goods or services granted by the financial institution (e.g. bank) to a beneficiary (borrower) to use in the present with a pledge to pay back at a future date.
LOAN REPAYMENT: This is the fulfillment of a loan obligation
COLLATERAL SECURITY: Is an asset pledge against the performance of a loan.
LOAN DISBURSEMENT LAG: Gives an indication to the timeliness of a loan delivery. This is measured by the number of days between application and disbursement.
LOAN DELINQUENCY: Loan default or non-performing loan means the same. It is a failure to fulfill loan obligation. A loan becomes defaulted if the interests is ninety days over due and not enhance or extended.
SOCIO ECONOMIC STATION: Is determined by the farmers’ asset structure which defines his/her standard of living. The assets include: Type of House, Radio, Wrist Watch, Motor Cycle, Bicycle, Car, Television, Farm Produce Processor.
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Like many other African countries, Nigeria is primarily agrarian with its abundant land and water resources. Despite the rapid growth of the oil industry over the years, agriculture still accounts for 40% of GDP and provides employment (both formal and informal) for about 60% of Nigerian’s 150 million people. Nigeria’s agriculture remains largely subsistence-based with about 80% of agricultural output coming from rural farmers living on less than a dollar per day, earned from farming less than one hectare (2.47 acres). Nigeria has diverse agro-ecological conditions that can support a variety of farming models to create its own green revolution. However, successive administrations neglected agriculture over the years and failed to diversify the economy away from overdependence on the capital-intensive oil sector. Nigeria was once a large net exporter of agricultural products and the sector was the major foreign exchange earner before the advent of oil in 1970s. Nigeria is currently a huge net importer of agricultural products, with such imports exceeding $3 billion in 2010. The country has the potential to return to its previous position if adequate attention is given to agricultural growth policies, finance and provision of rural infrastructure. The fact of the matter is most of the smallholder farmers lack access to capital to acquire the needed inputs to increase their productivity and incomes and reduce their poverty. Farmers require credit to purchase seeds, fertilizers, herbicides, and buy or rent mechanized equipment and related services. Nigerian agricultural policy recognizes the vital role of agriculture finance in attaining the much desired green revolution. A major focus of the policy is to establish a system of sustainable agricultural financing schemes, programs and institutions that could provide micro and macro credit facilities for the small, medium and largescale producers, processors and marketers. However, public expenditure on agriculture which serves as the bedrock of financing for the sector has consistently fallen short of recommendations. It is therefore not surprising that these policies have failed to achieve the set goals of food self-sufficiency, self reliance, poverty reduction and rural development. Importantly, Nigeria agriculture is abysmally under-financed. At a public forum in early 2011, the Governor of the Central Bank of Nigeria (CBN) was quoted to have said “currently agriculture accounts for 40 percent of the GDP, yet it receives only one percent of total commercial bank loans.” This is significantly below the level of other developing countries, e.g. Kenya and Brazil which reportedly registers 6 percent and 18 percent, respectively. Nigeria’s agricultural development is constrained by the lack of access to credit for the predominantly smallholder farmers. Efforts by successive governments to address the problem have been largely unsuccessful. Commercial banks in the country perceive agricultural finance to be high-risk. The Central Bank of Nigeria is making efforts to de-risk the sector and encourage banks to lend to farmers. This research work tends to asses the impact of bank credit on agricultural development with special reference to First bank Nigeria Plc. The role of the Central bank of Nigeria (CBN) and some other commercial banks will also be examined.
1.2 STATEMENT OF THE PROBLEMS
It is important to note that in the early 70s when the oil price increased, the agricultural sector suffered a serious neglect as the focus and concern of the nation’s economic activities and government revenue shifted to the industry. Consequently, price fell in the world market. The Nigerian food import bill assumed an unprecedented level of about N1.5billion while the traditional agricultural exports were progressively declining. The need then arose for re-engineering the agricultural sector and a fundamental restructuring of the economy towards self-sustaining growth and development. After the post independent, the CBN established some agricultural agency like Credit Guarantee Loan Scheme (1972) to address the problem of agriculture by granting loan and advances to agricultural sector, but this scheme was not properly implemented. 1971, an agricultural reform was established called “Operation Feed the Nation”. Poor assessment and implementation of the programme could not allow the government to achieve its objectives. 1989, the
government came up with a reform called Structural Adjustment Programme, the programme was also with a wrong motive. The Bank reform 2005 by CBN resulted in the growth of the banks with new branches springing up everywhere across the major cities, and was celebrated by self-deluded bourgeois ideologues. The banks were given a clean bill of health, and they were said to be poised to finance the critical sector of the economy. Rather than invest in the real sector of the economy like agriculture, manufacturing, iron and steel, etc that will bring about improved productivity in the economy, the banks went into the oil whose price has now crashed at the international market. In addition, they also invested colossal sums of money in the casino market, where they speculated wrongly in anticipation for quick returns, but the stock market has now crashed, and the banks have lost over 900 billion naira invested in shares. First Bank Plc currently has a loan scheme called Farmers First, which started in 2008. Under this scheme purportedly meant for all categories of farmers, the individuals or group of farmers who want to access the loan (N1million minimum) are expected to meet the following requirements before they are eligible: own an existing farm for some time; open and run current account for a period of six months; deposit 25 per cent of the total sums intended to borrow; six months moratoria; agriculture insurance; and other sundry charges. These hurdles notwithstanding, many poor farmers who have scaled it are still denied the loans on flimsy excuses, grounds for the rich farmers. Nigeria’s agricultural development is constrained by the lack of access to credit for the predominantly smallholder farmers. Commercial banks in the country perceive agricultural finance to be high-risk making it difficult to grant predominant farmers loan. The researcher tends to examine the impact of commercial banks to these problems and proffer suggestions and recommendation that could limit these challenges.
1.3 OBJECTIVES OF THE STUDY
The broad objectives of this research work is to examine the impact of bank credit on agricultural development. Other specific objectives include; To examine the effect of CBN Credit guidelines and other financial bodies on Agricultural development. To examine the relationship of bank lending policies in Nigeria as the relate to Agricultural development. To examine how effective or defective are these credit policies on the preferred Sector of an economy. To examine factors that are responsible for only few individuals and small-scale agriculture industries benefiting from such polices. To proffer recommendations on Assessment of the Impact of Bank Credit on Agricultural Development.
1.4 RESEARCH QUESTIONS
For the purpose achieving the objectives of this research study, the following research questions were asked.
Does any relationship exist between the CBN credit guidelines on agriculture and agricultural development in Nigeria?
Is there any significant difference between the loan repayment of small and large-scale farmers?
Is there any Relationship between the type of borrower and loan repayment?
Is there any significant relationship between gender and loan repayment patters of farmers?
Is there any significant relationship between the types of security pledges and repayment patterns?
Is there any significant relationship between the educations of farmers’ and loan repayment? What are the banks lending policies in Nigeria as they relate to agricultural development? What factors are responsible for only few individuals and small scale agriculture industries benefiting from such policies?
1.5 RESEARCH HYPOTHESES
Hypothesis is a tentative answer to a research question. It is a conjectural statement about the relationships that exist between two or more variables which needs to be tested empirically before they can be accepted or rejected. In a research work, hypotheses are never proved or disproved, they are either supported (i.e. accepted) or rejected. To provide answer to the research questions arising from this study, the following hypotheses are postulated.
HYPOTHESIS ONE
Ho : There is no significant relationship between the CBN credit guidelines on agriculture and agricultural development in Nigeria.
Hi : There is significant relationship between the CBN credit guidelines on agriculture and agricultural development in Nigeria. HYPOTHESIS TWO
Ho : There is no significant relationship between the type of borrower and there repayment patterns.
Hi : There is significant relationship between the type of borrower and their repayment patterns.
1.6 SIGNIFICANCE OF THE STUDY
This research study focus on the assessment of bank credit on agriculture and how effectively this credits utilization enhances the agricultural development. In essence, the study will be useful to the managers of economy if there is a significant improvement in the area of agriculture with the justification of effective utilization of funds which lead to sustainable in the area of economy development. The work will contribute to already existing works in the field of economy and agricultural performance in Nigeria.
1.7 SCOPE OF THE STUDY
The research would focus on the activities of First Bank Nigeria Plc., towards the financing and development of agriculture in Nigeria. Emphasis would be on operational schemes of the bank, condition and pre-requisites for borrowing, financing procedures, sources and application of funds, evaluation financing. The study would cover a definite period to enable us have a clear vision of the role of First Bank Nigeria Plc. in relation to agricultural credit in Nigeria. The study uses data on agriculture loan and advancement extracted from First bank annual journal, 2012 that covers 2000 -2011
1.8 LIMITATIONS OF THE STUDY
In the course of conducting this research work it is expected that the following will constitute impediments to the effective conduct of the study
a) Time constraint within which the study must be completed.
b) Financial constraint
c) Inaccessible and inadequate data Nevertheless, I believe the above limitations will in no way affect the reliability and validity of the research study.
1.9 DEFINITION OF TERMS
CREDIT OR LOAN: Used interchangeably. It refers to the cash or goods or services granted by the financial institution (e.g. bank) to a beneficiary (borrower) to use in the present with a pledge to pay back at a future date.
LOAN REPAYMENT: This is the fulfillment of a loan obligation
COLLATERAL SECURITY: Is an asset pledge against the performance of a loan.
LOAN DISBURSEMENT LAG: Gives an indication to the timeliness of a loan delivery. This is measured by the number of days between application and disbursement.
LOAN DELINQUENCY: Loan default or non-performing loan means the same. It is a failure to fulfill loan obligation. A loan becomes defaulted if the interests is ninety days over due and not enhance or extended.
SOCIO ECONOMIC STATION: Is determined by the farmers’ asset structure which defines his/her standard of living. The assets include: Type of House, Radio, Wrist Watch, Motor Cycle, Bicycle, Car, Television, Farm Produce Processor.
