The study examined the deposit money bank
loans and agricultural sector performance in Nigeria.
This study employed regression analysis
method to show if there is significant relationship between deposit money bank
loans and agricultural sector in Nigeria for the period of 2006-2015. Real bank
rate could not be given by the CBN and financial institutions, 45% of the total
100% of the original distribution bank credit gotten from its Statistical
Bulletin of the Central Bank of Nigeria was used.
Hypothesis generated for the study was
tested at 0.05 level of significance using ordinary least square (OLS)
regression analysis, To ensure the content and face validity of the instrument,
Serial Correlation LM Test and White Test of Heteroskedasticity were carried
out to ensure that the data for this study was fit for the model for the
validity of the instrument.
Result from the study indicated that bank credit is key
variables of deposit money bank loan that significantly have relationship with
Also, agricultural sector with better bank credit naturally
tend to perform better than other sectors.
Findings were discussed and relevant
recommendations were made for further studies.
BACKGROUND TO THE STUDY
is the largest country in West Africa and shares its boundaries with Cameroon
on the East, Niger and Chad on the North, Benin on the west and the Gulf of
Guinea on the south. Its topography consists of the northern savannah, the
middle belt tropical rainforests and the southern mangrove swamps. Anyanwu (1979) observed that the significance
of the agricultural sector to human existence generally cannot be over
emphasized in an emerging economy such as Nigeria. This is in consonance with
the fact that Nigeria as a country is highly endowed with abundant natural
resources including land and labor with a large percentage of the populace
living in rural areas that depend on agriculture to a large extent to make a
living. Okwuosa (1970) argues that this enormous resource base, if well
managed, could support a vibrant agricultural sector capable of ensuring the
supply of raw materials for the industrial sector as well as providing gainful
employment for its teeming population. This underscores the
contribution of agriculture to the overall development of the economy
especially in emerging economies which is apparent in the provision of gainful
employment, provision of increased food supplies, provision of capital, capital
formation, increasing foreign exchange and increase in the welfare of the
citizens through wealth creation among others.
Tomori (1979) posited that, the Nigerian agricultural sector has been
seemingly, if not totally, neglected with the discovery of oil. This is evident
in the sharp decline in the contribution of agricultural sector to the gross
domestic product (GDP) from 64% in 1960 to 35% in 1988 and presently, the
agricultural sector in Nigeria contributes less than 30% to GDP, with crop
production accounting for an estimated 85% of this total, livestock 10% with
forestry and fisheries contributing the remaining 5%. Compared with other African and Asian
countries, especially Indonesia, which is comparable to Nigeria in many
respects, economic development has been disappointing because Nigeria has
become one of the poorest countries in the world. Having earned about $300
billion from oil exports between the mid-1970s and 2000, its per capita income
was disappointingly 20 percent lower than that of 1975.
In the wake of the declining trend in agricultural sector’s contribution to the
GDP as a result negligence in terms of finances leading to insignificant
contribution to the overall GDP vis-a-vis poor output, there is every need for
concerted efforts to enhance productivity in the agricultural sector (Manyong,
2003; Okwuosa 1970). This accentuates the importance of credits as a means for
improving farm capital investment in Nigeria with which there may be little or
no progress in the sector to adequately fulfill its expected roles in our
current economic realities.
view of the above, Iganiga and Unemhilim (2011) posit that the role of deposit
money banks’ in financial intermediation which facilitates the linkage between
mobilization and use of resources should be effectively and efficiently
utilized as this will lead to an enhanced agricultural output. Thus, there
should be resolute efforts to harness the enormous resource from surplus sector
for increased agricultural output. Iganiga et al (2011) further hypothesized
that the three main factors that contribute to agricultural growth are
increased use of agricultural inputs, technological change and technical
efficiency which agricultural credit or funding appears to be an essential
input along with modern technology for higher productivity. This is perhaps
because finance, also called capital in economics, coordinates all the other
factors of production.
According to Nzotta (2004), banks play
very important roles in the economic development of any country. Banks, which are also known as
financial intermediaries provide loans and credits to deficit units. This
sector is needed to provide the necessary funds for the agricultural sector to
acquire land, mechanized farming implements, raw materials and so on which
invariably will lead to an increase in agricultural productivity.
Following the adoption of universal
banking in 2001, the Banks and Other Financial Institutions Act (BOFIA) 1991
was amended and banking business is now defined as “The business of receiving
deposit on current, savings or other accounts, paying or collecting cheques
drawn or paid in by customers, provision of finance, consultancy and advisory
services relating to corporate and investment matters; making or managing
investments on behalf of any person and the provision of insurance, marketing
services and capital market business or other services as Governor of the
Central Bank of Nigeria by gazette designate as banking business”.
According to The Encyclopedia of Banking
Business in Nigeria (2008), the generic name “Deposit Money Bank” was adopted
for all banks (Commercial and Merchant) operating in Nigeria since the
commencement of universal banking in 2001. Banks owe some basic
responsibilities to their communities. The traditional functions, which they
render in form of financial intermediation, must be efficiently delivered to
maintain the confidence of their customers.
Financing the agricultural sector is
necessary because agricultural sector has a multiplier effect on a nation’s
socio-economic and industrial fabric, as a strong and efficient agricultural
sector would enable a country to feed its ever growing population, generate
employment, earn foreign exchange and provide raw materials for industries
(Ogen, 2009). It also has the potential to be the industrial and economic spring
board, from which a country’s development could takeoff, shape the landscape
and provide environmental benefits but the agricultural sector cannot do this
without the funds needed.
a long time, the relationship between the banking industry and
the agricultural sector in
Nigeria has been controversial. If one
takes a vote of every judgment on the matter by various governments
since independence and classify them into two groups; those praising
of the banking industry and those castigating them as regards granting credit to
agriculture, one will likely notice that
the ratio would be around one to four. This could further be reflected in the legislation
of governments and the directives of quasi government institutions like the CBN.
Nwanyanwu (2012) posited that the setting up of a wholly government owned bank;
the Nigerian Agriculture, Cooperative and Rural Development Bank (NACRDB) with
the aim of lending solely to agricultural endeavours on short, medium and long-term
basis is predicated on the philosophy that the mainstream banking industry does
not adequately and effectively cater for the urgent need of credit required to rapidly
transform the agricultural sector of the Nigerian economy.
This study dwells on the pertinent areas:
and institutional network for agricultural credit in
Nigeria under ACGSF policy
Assessment of the impact of credit on agricultural performance.
Identification of some major constraints that
dwarf the growth of this sector to
achieve its desired goal and expectation in the economy of the country.