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THE IMPACT OF BANK CREDIT ON THE DEVELOPMENT OF THE AGRICULTURAL SECTOR IN THE NIGERIAN ECONOMY

  • Type:Project
  • Chapters:5
  • Pages:52
  • Methodology:Ordinary Least Squares
  • Reference:YES
  • Format:Microsoft Word
(Banking and Finance Project Topics & Materials)
THE IMPACT OF BANK CREDIT ON THE DEVELOPMENT OF THE AGRICULTURAL SECTOR IN THE NIGERIAN ECONOMY
ABSTRACT
The project work evaluates empirically the impact of bank credit on the development of the agricultural sector of the Nigerian economy, for a coverage period of 25 years, that is, 1981 to 2005. In carrying out the in-depth study, the output of agricultural sector constituted the dependent variable, while bank credit to the agricultural sector, broad money supply, deposit rate, lending rate and inflation rate constituted the independent or explanatory variable.
The empirical evidence provided by the research work showed that banks are reluctant or unwilling to give loans to the agricultural sector because of the lack of collateral securities by farmers to secure the loans. To close the gap created by banks in granting loans to the agricultural sector, the federal government of Nigerian introduced several schemes and financing agreement for the agricultural sector. Unfortunately, as a result of the high level of illiteracy among farmers, the sector has not grown as expected.      
Important recommendations were made in the study and the most outstanding one is that the policy makers show further enhance the power of Agricultural Credit Guarantee Scheme Fund (ACGSF) so that it can have wider capacity for reducing banks exposure in agricultural loans.
CHAPTER ONE
INTRODUCTION
1.1     GENERAL BACKGROUND OF THE STUDY
    Agriculture is a vital pursuit in Nigeria. It provides food for the country’s over 140 million people, occupies 70% of its working population, contributes about 30% of the value of country’s exports and accounts for 53% of the total wealth of the country (Helleiner,1966). Agricultural development also leads to an increase in the production of food crops as well as exports crops. This results in an increase of the contribution of the agricultural sector to the foreign exchange earnings of the country.
If one takes an overall view of the Nigerian economy, the immediate conclusion that can be drawn is that agriculture is still predominantly practiced in spite of rapid industrial development, which has taken place in recent years. Hence, the position of agriculture is not only important, but also strategic in Nigeria’s overall economic activities. Perhaps, this might have made Helliner (1966) to assert that no matter how much development or structural transformation is achieved in Nigeria, agriculture will retain its relative dominance in the economy for many decades to come. More importantly, it is from agriculture and particularly from agricultural exports, that the Nigerian economy has received its principal stimulus to economic growth.
         The agricultural sector constitutes the dominant sector of the Nigerian economy, contributing on the average, about 55 per cent of the gross domestic product (GDP) in 1960-1970.This performance level declined drastically to about 26 per cent in 1971-1980; it rose again to about 40 per cent in 1981-1990; and peaked at about 43.6 per cent in 1991-2000. The performance was above the target of 6.0% for the agricultural sector in the National Economic Empowerment and Development strategy (NEEDS) programme. The output of staples grew by 6.8% in 2005 compared with 6.3% in 2004. All major staple crops recorded increases in output over the levels in the preceding year (CBN Annual Report 2005).
    The Agricultural sector is the leading non-oil sector in the Nigerian economy. It provides about 23% of the nearly 5% of the total exports and about 2% of the non-oil exports. The agricultural sector has a wide range of ecological zones, from the Sahel Zone in the extreme North, through a Sudan and Guinea Savannah Zones to the Southern rainforest. Production of most cereal crops takes place in the off country areas, where cattle are kept, while cropping is concentrated on the production of roots and plantation crop. Small holders using traditional manual technology characterize production.
    The principal tools of agriculture are hoes, cutlasses, axes and knives, etc, as a result of conscious British policy; which aimed primarily at the development of the agricultural resources of Nigeria through the agency of their indigenous inhabitants like the Royal Niger Company, which buy from the local farmers for exports. By no means all traditional agricultural output production is for subsistence consumption. However, following the oil boom of the 1970s, there has been a sharp and steady decline in agricultural output. This negates economic theories, which posit that agriculture should serve as a major supplier of labour to other sectors of the economy at such a rate which non-agricultural sector can absorb. (Awoyemi; 1983).
    It should be noted that while the share of labour force in agriculture is declining at an average rate of about 1.35% per annum since 1970s, those of industries and service sectors, for example, have been increasing at the rate of 3.3% per annum and 1.36% per annum respectively. (Awoyemi; 1983).
1.2    STATEMENT OF THE PROBLEM
•        Since the emergence of oil boom in Nigeria, people have diverted their resource income away from the agricultural sector to the oil sector. (NACB Bulletin 1997). In the circumstance, the major problem of this project work is to assess the extents to which default in the repayment of agricultural loans has affected the growth of the agricultural sector during the period of 1981-2005.
 1.3     OBJECTIVES OF THE STUDY
In view of the problems encountered in agriculture, the objectives of this study are as follows;
•    To examine the contribution of banks towards agricultural financing in Nigeria.
•    To evaluate the constraints that inhibits the effective financing of agriculture by the banks.
•    To assess the performance of the banks in relation to their lending policies towards the small-scale farmers who are the perceived drivers of the agricultural sector.
1.    To access the performance of agricultural sector.
2.    To examine farmer’s judicious use of the loan granted by the bank.
3.    To determine if the available fund gets to the hand of the real farmers and not fictitious ones.
4.    To determine if these loans granted are used for agricultural purposes or diverted to other endeavors.
5.    To make policy recommendation on how these problems can be curtailed if not totally eradicated.
1.4    RESEARCH QUESTIONS
1.    What is the impact of the agricultural sector on the Nigerian economy?
2.    Does the activity of the agricultural sector really justify funds from banks?
3.    What are the shortcomings of financing agriculture in Nigeria and how can they be improved?
1.5     STATEMENT OF HYPOTHESES
Research techniques are always a tentative answer to a research question. The following analysis is formulated for this study and will be used to ascertain its validity.
    The secondary data obtained from the Central Bank of Nigeria’s Statistical Bulletin and Annual Reports, would be utilized to estimate the model specified for the study. This would be done through the Ordinary Least Squares (OLS) regression technique of the applied econometrics. The Microsoft 4.1 software package of the computer would be employed for the estimation processes.
HYPOTHESIS I
Ho:     Default in credit repayment plays a positive role in  
agricultural financing.
H1:     Default in credit repayment plays a negative role in  
agricultural financing.
1.6    SIGNIFICANT OF THE STUDY
    The significance of this study is viewed from two dimensions practical and academic significance.
PRATICAL SIGNIFICANCE
This study will throw more light and understanding on the following:
1.    To farmers in general, it will expose the general guidelines, which are required to enable them secure credit from banks in order to boost their productivity.
2.    To banks, it will reveal what needs to be done to reduce the high rate of defaults in agricultural loans.
3.    To traditional or peasant farmers, it will review why banks shy away from granting them loan; for example, lack of record keeping and others and not necessarily the security for the loans.
4.    To policy makers in agricultural sector, it will present an outline through its analysis that could coincide with the turning point in agriculture.
ACADEMIC SIGNIFICANCE
It will contribute to the enrichment of the literature on agricultural financing and development.
1.7     SCOPE AND LIMITATION OF THE STUDY
During the course of this research, I encountered some constraints in collecting the necessary data. Information from the commercial banks visited and the opinion gathered from few farmers’ involved high cost during the course of this study. It was discovered that banks were not readily forthcoming in obliging data. This study covers a period of 25years (1981—2005).
1.8    DEFINITIONS OF TERMS
AGRICULTURE: it is the act and science of cultivating land for the purpose of planting crops and raising livestock for man’s consumption and providing raw materials for industrial development. (Google.com)
AGRICULTURIAL CREDIT: It is the sum total of the arrangement through which cash and kind inputs are made available to farmers/producers who repay such cash inputs in the form stated in the repayment schedule with interest. (Nwosu, 2001)
AGRICULTURAL DEVELOPMENT: this may be defined as the sustained growth in output, increased productivity per worker and per hectare and constantly changing technology. (Akinyemi, 2002).
 PEASANT FARMERS: these are groups of people that are involved in the cultivation of farm land for the purpose of planting crops and raising live stocks for mans’s consumption with the use of traditional implements and their farms are relatively small due to little capital for acquisition of improved tools. (Akinyemi, 2002)
BANKS: these are commercial banks and merchant banks which are financial institutions established to receive deposits (money) and other valuables for safe keeping, grant short terms advances to members of the public as well as to offer some advisory services for their customers in financial matters in a project with the aim of maximizing profit. (Badmus, 2002)

THE IMPACT OF BANK CREDIT ON THE DEVELOPMENT OF THE AGRICULTURAL SECTOR IN THE NIGERIAN ECONOMY

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Details

Type Project
Department Banking and Finance
Project ID BFN0928
Price ₦3,000 ($9)
Chapters 5 Chapters
No of Pages 52 Pages
Methodology Ordinary Least Squares
Reference YES
Format Microsoft Word

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    Details

    Type Project
    Department Banking and Finance
    Project ID BFN0928
    Price ₦3,000 ($9)
    Chapters 5 Chapters
    No of Pages 52 Pages
    Methodology Ordinary Least Squares
    Reference YES
    Format Microsoft Word

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