Entrepreneurship

The Role of Financial Institutions in Agricultural Development (1990-2015)

The Role of Financial Institutions in Agricultural Development 1990-2015 (A Case Study of Nigeria)

Abstract

This study examined the role of financial institutions in agricultural development. ( A case study of Nigeria Agricultural Cooperative and Rural Development Bank) to make useful suggestions and recommendations as a way of enhancing the development of the agricultural sector. The population of the study includes large and small scale farmers and the sampling method adopted for the study is stratified random sampling to ensure adequate representation of the population. To achieve the objective of making useful suggestions that would improve the agricultural sector, several 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 the bank credit loan scheme is making some impacts in lending loans to farmers. The result also showed that farmers prefer informal to formal sources of finance mostly because of the demand of formal institutions that farmers most present collateral security. Finally, the study also indicated the problems facing agricultural financing.

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Nigeria is endowed with natural resources, large fertile arable land, a 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.

Before 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 be about 62.63% in 1960, 48.08% in 1970, and 20.63% 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 market-oriented production. One of those efforts was the ban made on the importation of agricultural products like palm oil, maize, and rice. This was done to encourage improvements in 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 the raw material for domestic industries, engage in the 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 Nigerian agriculture is characterized by low farm income, low-level capacity to satisfy the food Despite 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).

1.2 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 the Nigerian economy and development is one of the crucial requirements for 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 the National Accelerated Food Production Project (NAFPP), Green Revolution Programs (GRP), in search of all appropriate techniques to increase farm output and productivity and such programs have at one time been implemented.

1.3 Research Questions

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

the solution to the research questions below

  1. What are the reasons for the 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 the 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 a financial institution in general, Nigeria agricultural cooperation and rural development bank (NACRDB) in particular in terms of providing financial support influence the activities of the agricultural sector?

1.4 Objectives of A Study

The general objective of the study is to determine the role of a 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’s agricultural cooperation and rural development 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 enhance 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.

1.5 Statement of the Research Hypothesis

This study would be guided by the following hypothesis;

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

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

  1. Ho: bank credit and financial facilities are not made available by development banks to farmers.

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

1.6 Scope of A Study

To examine how the financial institutions influence the activities of the 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 a scheme is the Nigeria local development board (NLDB).

Our point of focus in examining institution programs and schemes set up to upgrade the agricultural sector would be on Nigeria’s agricultural co-operative and rural development bank (NACRCD).

1.7 Significance of A Study

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

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

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.

1.8 Limitation of the Study

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

  1. Difficulty in obtaining data.
  2. The 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.

1.9 Definition of Terms

Agriculture: This can be defined as the growing of crops and rearing of animals for human consumption. Agriculture involves livestock, forestry, wide life, and fisheries as well as the production of crops like cocoa, palm product, groundnut, cotton, and rubber. Historically, 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 product type that is done beyond individual consumption or domestic level.

The plantation type although has not made any impact on Nigeria’s 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.

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

Financial Institution: These are organizations owned either by individuals, groups of persons, states, or countries as a whole. Financial institutions are established mainly for saving money (deposit) for their customers and providing for such deposits and when needed and also the granting of credit facilities to their customers based on the creditworthiness of such customers.

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 to fuel 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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