1.1 Background to the Study
The revitalization of the agricultural sector has been the
cornerstone of the government development policy. This is aimed at
moving the country quickly to self-sufficiency in food production of
agricultural raw materials for domestic agro-based industries. The need
to increase agricultural productivity is implicit in the fact that It
remains the leading non-oil sector of Nigerians population. The main
objective of the agricultural policy as laid down by “Agricultural
Policy for Nigerian”- 1988, are Attainment of self Sufficient in basic
foods commodities, increase production and processing of export crops,
modernization of agricultural production, processing, storage and
distribution through improved technology, increase rural population and
lastly improved protection of agricultural lands.
In most developing countries, agriculture is both the main
traditional pursuit and the key to sustained growth of the modern
economy. Stagnation in agriculture is the Principal explanation for poor
economic performance while rising agricultural productivity has been
the most important concomitant of successful industrialization.
After independence, the agricultural sector accounted for 53% of GDP
by 1980. This has however gone down to 36%. The aggregate index of
agricultural production with 1984 as the as the base year rose by 5% in
1993 compared to 66% and 59% in 1992 and 1991 respectively
(Abdullahi,1991). Agriculture constitutes the dominant sector of
populations who are small farm producers and reside in the rural areas.
It is observed that over 80% of the rural population in Nigeria are
small holders farmers. (Mellor, J. W., 1996).
As a matter of history, up to early 1970s, agriculture dominated
Nigeria’s economy, but since then oil has held the principal position
and Nigeria started to experience growth without development. As a
result, agriculture has suffered, and increasingly, has occupied a back
seat in our drive towards economic take-off. Stagnation on agriculture
became more apparent during the 1970s and agricultural services to the
economy started to decline at an increasing rate and thus, the Nigerian
agriculture is now characterized by low income, low levels of capacity
to satisfy the food and fibre needs of the country, primitive techniques
of production. According to Ogunfiditimi (1996) it is in fact now a
proto-type of peasant Agriculture, which is caught in a vicious circle
of poverty, that is, low income, leading to poor savings and little
investment in yield-increasing technology. Because technology is poor,
both output and income are low.
As part of government strategy to attain increased productivity in
the agricultural sector, several policies, activities and projects were
being formulated. These include developing rural infrastructure, supply
of fertilizers, seeds and other inputs, improving agricultural extension
services, and provision of credits aimed at encouraging small scale
The predominant of small scale agriculture is a resource based
agriculture and is basically subsistence. The farm size ranges from 0.10
hectares to 5.99 hectares and often is scattered holdings per
household, production inputs consist mainly of land and family labour.
Capital investment is negligible, inputs like fertilizers and chemicals
are seldom used and levels of production technology are low. Soil
fertility is maintained by bush fallowing, the production is much less
market oriented. Several policies to enhance small scale agriculture are
been taken by various governments, however, the corresponding impact on
production has not been realized, as policies are seldom fully
implemented and fraught with frequent changes. This is due to a variety
of reasons changes. This is due to a variety of reasons such as shortage
and improper disbursement of funds, lack of executive capacity and
manpower management problems and inadequate plan preparations.
According to Soludo (2006), sustained small scale agriculture cannot
be achieved without putting in place well focused programmes to reduce
the problem militating small scale agriculture (farmers) by increasing
their access to factors of production especially credit. The latent
capacity of the rural small scale farmers would be significantly
enhanced though the provision of micro financial services. Microfinance
is about proving financial services to the poor who are traditionally
not served by the conventional institutions. He believes that
microfinance can be distinguished from other formal financial product
though the smallness of loans advanced, the absence of assets based
collateral and the simplicity of operations which is at the level of the
The practice of microfinance in Nigeria is culturally rooted and
dates back several centuries. The traditional microfinance institutions
provide access to credit for the rural and urban low income earners.
They are mainly of the informal Self-Help Groups (SHGs) or Rotating
Saving and Credit Association (ROSCA). Others include saving collectors
and co-operative societies which have limited outreach due to inadequate
In order to enhance the flow of financial services to Nigerian rural
areas, government has in the past initiated a series of publicly
financed micro/rural credit programmes and policies targeted at the
poor. Notable among such programmes were the Rural Banking Programme,
sectorial allocation of Credit on concessionary interest rate and the
Agricultural Credit Guarantee Scheme (ACGS). Other Institutional
arrangements were the establishment of the Nigerian Agricultural and
Cooperative Bank (NARCB), the National Directorate of Employment (NDE),
the Nigerian Agricultural Insurance Corporation (NAIC), the Peoples Bank
of Nigeria (PBN) the Community Bank (CB), the Family Economic
Advancement Programme (FEP) and later merged the NACB with PBN and FEAP
in 2000 to form the Nigerian Agricultural Cooperative and Rural
Development Bank (NACRDB) to enhance the provision of Credit to the
Alfa (2002) observed that most of the micro-credit scheme suffer set
backs because they were founded on erroneous assumptions believing that
the poor constitute the same group and tends to employ the same solution
towards eradicating the problem of poverty. Researches shown or
revealed that the poor should be involved in solving the problem of
poverty since they are aware of their own conditions.
Against this background and the problems of inadequate credit and
finance, there is a need to device a strategy whereby credit will get to
the farmers living in the rural areas as at when due, as to increase
the contribution of the sector to our national development. Agriculture
is seen and thus believed to be major sector towards growth and
development in most countries like Nigeria, and as long as it remain so,
the future of this sector in performing its roles becomes imperatively
1.2 Statement of the Problem
The practice of microfinance in Nigeria, is culturally rooted and
dates back many years to the poor performances of the agricultural
sector in the country’s economic developments which can be attributed to
the traditional way of farming on the part of the small scale farmers.
There are many factors which hindered sustained development of small
scale agriculture. One of such factor is low technological level, which
comprises of small land holding and the use of traditional tools like
hoes, and cutlasses. Other factors include non-wide spread use of
fertilizers, and improper use of storage facilities. To raise
agricultural the agricultural sector must have its production raised via
the adoption of new technology and improvement in its capital
Based on the above, the Federal Government have realized that raising
Small Scale farmers output and income is very essential, if continued,
economic development and political stability is to be attained. The
present system by which small scale farmers depends on non-institutional
finance sources (friends, relatives and money lenders) as a source of
loans is been divided with paucity of data. However, it is often assumed
that capital from the source is generally low and inadequate relative
to the need of agriculture in general.
Government sponsored agricultural credit scheme and the establishment
of microfinance Banks have been some of the major programme among
others designed to facilitate easy flow of credits would enable the
farmers to procure the major input for a result oriented agricultural
1.3 Research Questions
However, this work was conceived based on the desire of researcher to
bring light to the micro financing activities of the microfinance banks
particularly the credit aspect in order to study and also ascertain its
participatory role in the provision of credit facilities to small scale
agriculture through their microfinancing policies.
The research questions to be addressed include:
i. What are the roles of
microfinance banks in small scale agricultural development in Nigeria?
ii. What are the possible measures or ways of enhancing small scale agriculture in Nigeria?
iii. What are the problems initiating against small scale agricultural development in Nigeria?
iv. Should microfinance policy be moderated or changed?
The answers to these questions will help to bring out the basis of this research work.
1.4 Objectives of the Study
The principal objectives of this research work is to critically
examine and analyze the impacts of microfinance in the Nigerian economy
and how it can help to improve the contributions of small scale
agriculture towards the development of the economy.
More especially, the study seeks to:
i. Analyse an examine the concept of microfinance as viewed by the different schools of thoughts.
ii. To assess the impacts of microfinance on small scale agricultural development in the economy.
iii. Review the past agricultural policies and their effect on the development of the Nigerian economy.
iv. To examine the contributions of small scale agriculture to national development.
v. Offer meaningful suggestions and policy recommendations
about how to improve the small scale agriculture towards our national
1.5 Hypothesis of the Study
The study will be based on the following hypothesis:
H1: Direct small holder loan scheme has not significantly
contributed to the activities of small scale agricultural development in
H2: Direct small holder loan scheme has significantly positively
contributed to the activities of the small scale agricultural
development in Nigerian economy.
1.6 Significance of the Study
The study is concerned with a thorough examination of institutional
practices of agricultural financing in Nigeria with particular reference
to Barnawa Microfinance Bank direct small holder loan scheme for small
scale agriculture. At the present time when Nigeria is striving for
agricultural development to reduce her food deficit situation, it is
important for financial institutions to look for ways and means of
improving her loans schemes to farmers, especially the small scale
farmers who provide over 80 percent of Nigeria’s food requirements.
Food production on a sustainable and self reliant basis for countries
of our contemporary world is one of the most important goal and
objective of the governments. Food security is an indisposal component
of the total security of a modern nation. Throughout history, food has
been used as an instrument of domination and enslavement.
Nigeria is directly or indirectly a major contributor to that food
import bill. With minerals and vitamins deficiency in our food intakes,
and energy and protein deficiency, we cannot but under perform and
subsequently be economic and social liability. Current realities
dictates and demand that both agric-business and small peasant farming
must co-exist in Nigeria.
Agriculture, in Nigeria is caught in a low level equilibrium trap.
The rate of return cannot rise because of the nature of the technology
in use such agriculture has been described as efficient but poor. In
order to break this vicious circle of constraints, there is then the
need to inject not only technology and agriculture services but also
capital into rural agriculture which is of great concern to this study.
Finally, as Nigerian economy remains dangerously dependent on one
sector (i.e. petroleum sector) the need for diversification and
attaining self-sufficiency in food production is necessary. Thus, the
tendency to justify the need for the much prudential agricultural
financing in Nigeria cannot be over emphasized.
1.7 Limitations of the Study
There are certain limitations which are placed in this study. The
research work is faced with a lot of problems amongst others are the
poor cooperation from institutional sources, constitute a serious delay
in the release of data necessary for the work to be complete. There is
also the problem of inadequate and accurate data for in-depth assessment
of the subject matter.
The sources of data whether primary or secondary was used in this
study were assumed to be valid and reliable. The size of the small scale
farmers in the area of study were of the range of 0.10 to 5.99 hectares
of farm land.
There are certain considerations which delimit the scope of this
study. First, although there are many financial institutions which
finance agriculture in Nigeria, this study is only concerned with the
area of Barnawa Microfinance bank financing.
Secondly, the findings will be based on Barnawa Microfinance Bank
Limited. It is meant to improve agricultural financing with particular
reference to Barnawa Microfinance Bank Ltd. Loans disbursement and
recovery respectively to and from the small scale farmers in the area
and the country at large. Thirdly, this study concentrates on the
Barnawa Microfinance bank Limited “Direct Small Holder Loan Scheme”
Beneficiaries of the microfinance programme had only scanty records
to present which made it difficult for the researcher to properly assess
the success of the programme.
1.8 Scope of the study
The main focus of this research work is to bring to light the
activities of microfinance banks and small scale agricultural
development in Nigeria. The study is more concern with the thorough
examinations of institutional practices of microfinance banks with
particular reference to direct loan scheme for small agricultural
development in Nigeria from 1996-2005 which would be used to bring out
precise and concise conclusions and recommendations. The outcomes are
meant to improve agricultural financing with particular reference to
BMFB Loans disbursements and recovery respectively to and from the small
scale farmers in the area and the country at large.
To assess the current policy practices and problems encountered by
BMFB in giving out loans and advances generally, with particular
reference to her Direct Small Scale Holder Loan scheme.
To also make a viable proposal for improving the financing of small
scale farmers to BFMB towards better service to the state and country at