ABSTRACT
The objective of this study is to find out the impact of
agricultural financing on economic growth in Nigeria for the period 1981 to
2014. The study used endogenous components of Agricultural Credit Guarantee
Scheme (ACGS) loans to Individual Farmers (LIF), loans to Informal Group (LIG),
loans to Co-operative (LCO), and loans to Company (LCY) as explanatory
variables to capture agricultural financing. Gross Domestic Product (GDP) at
constant prices was used to proxy economic growth. Data for the study were
obtained from the Central Bank of Nigeria (CBN) statistical bulletin of various
publications, and regression analysis was carried out using IBM SPSS
statistics. The t-test coefficients which attests to the significance of each
of the independent variables of the study reveals that three of the parameters
of the explanatory variables; ACGS loans to Informal Groups (LIG), ACGS loans
to Cooperatives (LCO) and ACGS loans to Companies (LCY) counter apriori
expectation with negative signs respectively. This implies that they do not
have significant impact on economic growth (GDP). On the other hand, the
variable of ACGS loans to individual farmers (LIF) as revealed by the
regression result proved to have significant impact on economic growth (GDP).
This indication is as a result of the variable’s conformity to the aprori
expectation with positive sign in the analysis. It was recommended that more
loanable funds should be made available to individual farmers (for commercial
purposes), as ACGS loans to individual farmers can be used to formulate
policies that can impact significantly on economic growth (GDP) in Nigeria.
Further recommendation made was that, all economic stakeholders, monetary and
regulatory authorities; both at the public and private sector of the economy
should combine efforts and formulate policies aimed at improving financial
inter-mediation, in the area of providing
adequate credit to farmers in Nigeria. This will eventually lead to the
achievement of a favourable productive-based economy and viable growth of GDP
in the country. The study has contributed to the body of knowledge by providing
current information on agricultural financing vis-à-vis Agricultural Credit
Guarantee Scheme (ACGS), with an extensive period of 1981 to 2014 (34 years).
This study thus has implications for global economy particularly in the area of
food production and living standard of nations.
CHAPTER ONE
INTRODUCTION
1.1 Background to
the Study
Finance for agricultural development has an increasing role
in contemporary times. Finance affects economic growth, stagnation or even
decline in any economic system. However, a growing concern has developed over
time regarding the need for effective access to credit facilities for farming
purposes. The Nigerian government recognizes that finance is an essential tool
for promoting agricultural development because the agriculture sector is one of
its main sources of sustainability. Access to finance for agriculture is an
incentive for increasing the agricultural sector’s performance; it stimulates
productive growth, and supports the survival of small and new enterprises.
Access to finance increases the average inputs of labour and capital which has
positive effects on production output. Irrespective of the benefits that can be
derived from financing agriculture, there is an inherent risk of loan defaults
amongst farmers, which discourages banks from lending to farmers.
According to Beck and Demirguc-Kunt (2006), specific
financing tools can be useful in facilitating greater access to finance. The
government of Nigeria, being fully aware of the need for progressive policies,
has introduced various initiatives and policies dating back to the 1970s to
attract finance to enhance agriculture productions. Such policies have mainly
been in the form of specialized agriculture lending, the supply of credit finance
by the commercial banks in favour of the agriculture sector and through various
programmes. While some of these efforts have failed, the operation of the
remaining leaves one to wonder if they are actually achieving their intended
objectives as rural poverty is on the increase and yet a large portion of the
population is engaged in agricultural activities.
The problem of access to finance for agriculture is not
solely as a result of non availability of finance but it is caused by the
reluctance of credit providers to give out loans without a certainty of
recovering the loan. However, the banks are not to be blamed as they are not
charity organizations who disburse money without recourse to repayment; rather
they are in business to make profit from their lending operations.
Unfortunately, the situation makes farmers a neglected group in the economy
because they are not able to provide the adequate collateral needed to secure
bank loans. Because of the challenges facing farmers, which have adverse
effects on agricultural production, the government thought it fit to act as an
intermediary through the Agricultural Credit Guarantee Scheme (ACGS) whereby
the government stands as a guarantor for agricultural loans in order to
mitigate the risk involved in agricultural financing.
Agriculture contributes immensely to the Nigerian economy in
many ways, namely; in the provision of food for the increasing population;
supply of adequate raw materials to a growing industrial sector, a major source
of employment generation, foreign exchange earnings; and provision of a market
for the products of the industrial sector (Food Agricultural Organization,
2006). The agrarian sector has a strong rural base; hence, generation concern
for agriculture and rural development. Support for agriculture is widely driven
by both government and the public sector, which has established an
institutional support in the form of agricultural research, extension,
commodity marketing, input supply, and land use legislation to fast-track
development of agriculture and rural economic empowerment. Central Bank of
Nigeria (2010) asserts that over the years, the inability of this sector to
expand and as well contribute meaningfully to the growth of Nigerian economy
was due to inadequate financing to improve on the situation; that is,
facilitating agricultural credit). Also, the problem of agricultural
development in Nigeria indicates that efforts directed at achieving expanded
economic base in the rural farmers were frustrated by the scarcity of, and restrictive
access to loanable fund. One of the reasons for the decline in the contribution
of agriculture to the economy is lack of formal credit policy and paucity of
credit institutions which can assist farmers
The role of financial capital as a factor of production to
facilitate economic growth and development as well as the need to appropriately
channel credit to rural areas for economic development of the poor rural
farmers cannot be over emphasized. Credit is viewed as more than just another
resource such as labour, land, equipment and raw materials (Rhaji, 2008).
According to Shepherd (2002), credit determines access to all the resources on
which farmers depend. Since banking cannot be separated from economic
development, the banks (especially Deposit Money Banks) in the banking industry
have been instrumental to various development schemes of Nigeria over the
years. However, their performance in the facilitation of agricultural finance
has not been adequately felt in the Nigerian economy; especially in the rural
areas (farmers).
Also, in line with Nigeria’s quest for development; the
erratic nature of events within the banking industry vis-à-vis agricultural
financing is a cause for concern. This uncertain nature of access to credit by
farmers in the agricultural sector could result to total loss of confidence in
banks by citizens in the sector, as well as growth impediment in the overall
economy of Nigeria. Questions are been asked concerning the role of
agricultural financing, its contribution to the attainment of agricultural
growth and development. It is therefore pertinent to empirically analyze
agricultural financing and its economic implication (impact) on Nigeria with
the aim of identifying measures to tackle the existing challenges and rebuild the
lost glory of the agricultural sector.