CHAPTER
ONE
1.0 INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Livestock are animals that are reared in
the farms (homes) for their economic importance. They are reared for the
purposes of consumption, savings and as capital assets. Livestock production
can be practised as a small or large scale enterprise. It can also be practised
as a full or pastime business. Examples
of conventional livestock are cattle, goat, sheep, pig, and poultry. There are
also micro-livestock or mini-livestock. According to Madubuike (2004),
micro-livestock or mini-livestock are the small sized animals, vertebrates and
invertebrates, aquatic or terrestrial, of weight usually lower than 20kg and
usually gathered from the wild. It
includes fish, snail, grass cutter, giant rat, quails and guinea pigs.
Generally, livestock are important because
of their products (meat). Livestock products provide animal protein which is
very necessary for a healthy human life. Animal protein significantly
contributes to the total supply of nutrients in food intake and increases the
productivity of human labour (Mahmood, Khalid and Kouser 2009).
The contribution of livestock production to
the national objective of providing sufficient animal protein at affordable
prices, generating income and providing employment to some of the populace
makes imperative the need for assistance in terms of credit to boost production
(Okogie, 1999). Also, the principles of Economics and Finance have shown that
by using other people’s funds along with his own, an entrepreneur is most likely
to improve his business substantially than if he had depended solely on his
equity (Lot, 1998).
Credit is the back bone for any business
activity including agriculture. Agriculture, as a sector, depends more on
credit than any other sector of the economy because of the seasonal variations
in the farmer’s returns and a changing trend from subsistence to commercial
farming (Mahmood, Khalid, Kouser, 2009). This is, in view of the fact that
credit plays an important role in enhancing agricultural productivity,
especially in developing countries (Iqbal, Munir, Abbas, 2003). The
unpredictable and risky nature of agricultural production, the importance of
agriculture to our national economy, the urge to provide additional incentives
to further enhance the demand by lending institutions for appropriate risk
aversion measures in agricultural lending provided justifications for the
establishment of the Agricultural Credit Guarantee Scheme Fund (ACGSF) by the
Federal Government of Nigeria in 1977 (Mafimisebi, Oguntade, Mafimisebi, 2008).
The scheme was established to facilitate
the flow of institutional credit from commercial and other deposit banks to
farmers in order to stabilize their farm productivity, increase their output,
income and loan repayment capacity. The fund is under the management of a board
while the Central Bank of Nigeria is the managing agent for the administration
of the scheme. In September 2003, the Central Bank management and Board of the
Agricultural Credit Guarantee Scheme Fund approved the participation of
licensed community banks (now Microfinance banks) in the Agricultural Credit
Guarantee Scheme with effect from January. 2004. The agricultural purposes for
which loans can be guaranteed under the scheme are:
a. establishment or management of plantations
for the production of rubber, oil palm,
cocoa, tea and similar crops;
b. cultivation or production of cereal crops,
tubers, fruits of all kinds, cotton, beans, groundnuts, sheanuts, beniseed,
vegetables, pineapples, banana and
plantains,
c. animal husbandry including poultry, pig,
cattle rearing, fish farming, rabbitry, snailery, grass-cutter farming, honey
production. (CBN, 1978).
The scope of (c) above was expanded in the
Amendment Decree of 1988 to include fish culture, fish captures and storage. As
at now, bank loans under the scheme are guaranteed up to 75% against default in
payment, subject, in the case of loan to an individual to a maximum of one
million naira and in the case of loan to a co-operative society or a corporate
body to a maximum of five million naira (CBN, 2005).
1.2
STATEMENT OF PROBLEM
Animal protein is usually used as a
criterion to measure food quality but this is recognized as a limiting factor
in the diets of many people in developing countries. Nigeria is rated as an
animal protein deficient country (Ohajianya, Onyeagocha and Ibekwe, 2006). Okorie (2002) reported that per capita
protein intake in Nigeria averages 51.7 grams daily of which 8.6 grams came
from animal sources. This is far below the minimum of 65 grams of animal
protein intake level recommended by the Food and Agriculture Organization
(Madubuike, 1992). It is also a known fact that Nigeria imports most of the
livestock and its products such as poultry products, fish and beef that are
consumed by her citizens. This situation
is attributable to low livestock production and its consequence is low
consumption of the products because of high prices.
Though credit has been established as a
very important component in agriculture, most farmers especially those engaged
in livestock production are constrained in obtaining required credit from
formal lending institutions which are accepted as the cheapest source of credit
facility (Ikhatua, 2000). This scenario
creates direct and indirect effects on their farm production. Directly, it
affects the purchasing power of the farmers to procure farm implements that
could lead to enhanced output. Indirectly, it affects the risk behaviour of the
farmers (Guirkinger and Boucher,2005).
Credit constraint condition of farmers
have been attributed to some socio-economic factors like educational level,
farmers’ income, inadequate collateral (Freeman, Simeon, Jabbar, 1998) and
rationing factors used by financial institutions to discriminate potential
borrowers (Striglitz and Weiss, 1981).The rationing of credit by lending
institutions as a result of imperfect information put borrowers into a
situation where the full amount of credit applied for is not received and in
some cases turned down.
Credit constraint has been shown to be the
major cause of low agricultural output of farmers (Iqbal, 1986), which
manifests into low farm income. Inadequate credit supply to farmers is a key
problem upon which other production factors exert negative influence on their
output. The inability of most farmers to have access to adequate fund because
of constraints is believed to have heightened the problem of low farm
production in South-east states.
Increase in livestock products can be achieved from adequate and
guaranteed flow of credit into livestock production (Jabbar, Ehui, Von-Kaufman,
2002). The amount of resources that a farmer controls, the terms and conditions
under which they are obtained, and the way and manner that they are utilized determine
to a good extent the farm output and consequently income. It is also believed
that for farmers that are fortunate enough to have access to credit, a wide gap
exists between the amount of credit requested and the amount obtained from the
lending institutions.
It is in recognition of the above that the
Agricultural Credit Guarantee Scheme Fund (ACGSF) was established in 1977 to
encourage commercial and other deposit banks to participate in increasing the
productive capacity of farmers through a credit lending program that will meet
the farmers’ needs. However, there is a growing concern that credit flow from
financial institutions under the scheme to the farmers especially the livestock
farmers in South-east states is poor leading to inadequate production and
consequently high prices of livestock products in the market. It is common
knowledge that most of the livestock products consumed in the South east states
are either imported or brought in from other states of the Federation. The
consequence is high prices of meat in the area. Available statistics indicate
that the average price of a kilogramme of meat in the Southeast is N1000.00.
This is high in view of the income level of majority of the population. It
becomes plausible therefore, for an investigation into the relationship between
the livestock farmers’ circumstances and their receipts or otherwise of loan
from financial institutions under the scheme. This will assist in determining
how the lending institutions respond to the borrowing demands of the farmers in
the study area.
Farmers’ accessibility and enhanced
borrowing capacity to adequate credit have been accepted to be a key to
improved farm output. It is believed
that access to agricultural credit from banks is an issue of segregation along
social strata, as the banks are apprehensive of the farmers’
creditworthiness. This study is
therefore, designed to determine how credit under guarantee by the Agricultural
Credit Guarantee Scheme Fund (ACGSF) is assessed by livestock farmers in
South-east, Nigeria. It will also examine the effect of the credit obtained on
the output of the farmers as well as the factors influencing the amount of
credit obtained under the scheme by the farmers.
Agricultural lending involves giving out of
credit to farmers for agricultural purposes. Lending for agriculture is a risky
business because its repayment can hardly be fully obtained (Kohansal and
Mansori, 2009). It is reported that agricultural loan repayment is poor
especially among formal institutions in Nigeria (Ukoha and Agwamba, 2002; Njoku
and Obasi, 1991), as farmers are believed to use credit obtained for farming
activities for other uses. This raises the question of creditworthiness or otherwise
of the beneficiaries and their characteristics. According to Von-Pischke
(1991), poor agricultural loan repayment in most developing countries has made
formal institutions to meticulously screen farmers’ applications. This is to
determine who is more likely to repay as and at when due. Also, loan
beneficiaries are closely monitored on their use of lent funds to ensure that
they are used majorly for the purpose for which it was lent so as to increase
the likelihood of repayment. The inability of the borrower to repay the
borrowed fund in accordance with the loan terms constitutes a major problem in
credit administration. According to Arene (1993), losses in both principal and
interest to banks can result in loan shrinkage, liquidation, and ineffectiveness.
Formal lending institutions concerned with losses from untimely repayment and
default seek to minimize these by choosing carefully the distribution of credit
among the loan applicants. It becomes
plausible therefore, to assess the credit receipts, its effect on farm output
and the repayment performance of the
farmers who obtained loans for livestock production under guarantee by
the ACGSF and also empirically determine factors influencing their loan
repayment.