ASSESSMENT OF THE IMPACT OF BANK CREDIT ON AGRICULTURAL DEVELOPMENT (A CASE STUDY OF FIRST BANK OF NIGERIA PLC)
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ASSESSMENT OF THE
IMPACT OF BANK CREDIT ON AGRICULTURAL DEVELOPMENT (A CASE STUDY OF FIRST BANK
OF NIGERIA PLC)
ABSTRACT
The study is an investigation into the impact of Bank Credit
on Agricultural Development with emphasis on First Bank of Nigeria Plc.
Specifically, I examined the effect of Central Bank of
Nigeria credit guidelines and other financial bodies on Agricultural Development, also examined
the relationship of bank lending policies in Nigeria, and to what extent there
credit facilities are effectively been utilized by the farmers.
Two major statistical tools were adopted, while a time-series
analysis was conducted to observe the movement of the loans and advances
against the years loans were utilized by small and large scale farmers.
Some of the major findings of these tests confirm that bank
credit has a significant impact in Agricultural Development for the small and
large scale farmers.
Further investigation shows that the highest agricultural
loan was granted in 2009 with over One Hundred and Seventy Five Million Naira
the loan granted in 2010 and 2011 decreased drastically by 20 percent which was
basically due to the global financial meltdown.
Based on these results, some of the major recommendations are
that Federal Government should increase the banks share and credit base in
order for the bank to cope with increasing loans demand.
Finally, for credit to be more effective, other sector of the
economy should asked to corporate with the bank in providing the relevant
service to support the scheme the bank in its bid to relive farmers other
predicaments.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background of
the Study
1.2 Statement of
the Problems
1.3 Objectives
of the Study
1.4 Research
Questions
1.5 Research
Hypotheses
1.6
Significance of the Study
1.7 Scope of
the Study
1.8 Limitation
of the Study
1.9 Definition of
Terms
CHAPTER TWO: LITERATURE REVIEW
2.0
Introduction
2.1 Conceptual
Framework
2.2 The Nigeria
Agricultural History
2.2.1 Agricultural
Sector in the Pre Independent Era
2.2.2 Agricultural
Sector in the Post Independent Era
2.3 Credit And
Its Role Agriculture
2.4 Sources of
Agricultural Credit
2.5
Agricultural Finance
2.6 The Role of
Financial Institution in Agricultural Financing
2.6.1 Central Bank of Nigeria Role 2.6.2 Commercial Bank’s
Role 2.6.3
Development Bank’s Role
2.6.4 Merchant
Bank’s Role
2.7 Terms of Agricultural Credit Repayment
2.8 Rural Banking
and Agricultural Extension
2.8.1 Problems of
Rural Banking
2.9 First Bank
Agricultural Scheme
2.9.1 The First bank Farm Settlement Scheme
2.9.2 Guaranteed Fund Credit (GFC)
2.9.3 Multi-Channels Agricultural Finance Scheme (Multi-Cafs)
2.9.4 First bank Agricultural Credit To Schools (Facts)
2.9.5 National Agro Dealer Scheme (NADS)
2.9.6 GSM 102
2.9.7 Commercial Agriculture Credit Scheme
2.10 First Bank
Nigeria Plc Finance Operation and Evaluation
2.11 Problems of
Agricultural Credit Repayment in Nigeria
2.11.1 Farmer Related
Problem
2.11.2 Bank Related
Problems
2.11.3 Government
Related Problems
2.12 Problems of
Agriculture
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction
3.1 Sources of
Data
3.2 Population of
the Study
3.3 Sample Size and
Sampling Techniques
3.4 Restatement of
Research Hypotheses
3.5 Method of
Analysis
3.6 Assumption to
Questionnaire
3.7 Validity of the
Research Instrument
3.8 Reliability of
the Research Instrument
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Personal Characteristics of the Respondent
4.3 Response of Respondents to the Problem Areas.
4.4 Testing and
Interpretation of the Hypotheses
4.4.1 Analysis of Hypothesis One
4.4.2 Analysis of
Hypothesis Two
4.5 Presentation of
Secondary Data
4.6 Discussion of
Result
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.0
Introduction
5.1 Summary of
Findings
5.2 Conclusion
5.3 Recommendations
5.3.1 Recommendation
for the Government
5.3.2 Policy
Recommendation for the Bank
5.3.3 Policy
Recommendation for Farmers
Bibliography
Appendix I
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 large-scale 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.
1.9 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 recommendationson Assessment of the Impact of Bank Credit on
Agricultural Development.
1.10 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?
1.11 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 1
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 2:
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.
1.12 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.
1.13 SCOPE OF THE
STUDY
The research would focuson 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
1.14 LIMITATION 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.
1.15 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.
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