EFFECT OF CREDIT ACQUISITION AND REPAYMENT ON AGRICULTURAL PRODUCTION IN CROSS RIVER STATE NIGERIA

ABSTRACT

This research was designed to study the effect of credit acquisition and repayment on Agricultural production in Cross River State. The major objective is to study the effect of credit acquisition and repayment on agricultural production in the state. Specific objectives included: determination of credit disbursement and recovery strategies of agricultural credit institutions, determining and comparing agricultural production among beneficiaries and non-beneficiaries of credit schemes, identifying factors that affect credit acquisition and repayment and to compare agricultural production among credit defaulters and non-defaulters.

The analysis was done with sample drawn from 120 farmers, 60 beneficiaries and 60 non-beneficiaries and credit officers in Cross River State, by the use of a multistage sampling technique and structured questionnaire, which felicitated information on farmers credit use, repayment rate, agricultural production of credit beneficiaries and non-beneficiaries, credits administration etc. Analytical tools used were descriptive statistics such as percentages, mean, frequencies, etc. to show the socio economic factors influencing credit acquisition and repayment in the state, multiple regression analysis was used to estimate the production function of both credit beneficiaries and non-beneficiaries and the chow test to determine the magnitude of the coefficient obtained from the two samples.

Cassava was used for the analysis of the production output of beneficiaries and non beneficiaries of credit because it is cultivated in the 3 agricultural zones and a staple food of the people. The mean output of the crop for both farmers taken from 3ha of land is 1520kg and 967.50kg respectively. The chow test result was 8.920 showing that the marginal effects of the regressors on the regressants vary. Findings showed that agricultural production is still of minimal output. Among other factors, the socio-economic characteristics of credit beneficiaries influence rate of repayment and for non-beneficiaries influence the acquisition of credit.

The study recommended among others that credit should be released to farmers during planting or stocking, Credit officers should reduce bureaucratic processes to encourage farmers to borrow credit and my key recommendations based on the study were:

–    Reduction of interest rate to at most 5 percent to get more farmers to borrow.

·         Long gestation periods of up to two years should be given to allow the farmers prepare for repayment.

·         Increase in the credit amount because of the inflationary era we are into.

TABLE OF CONTENTS

Title page              –        –        –        –        –        –        –        –        i

Certification-          –        –        –        –        –        –        –        –        ii

Dedication             –        –        –        –        –        –        –        –        iii

Acknowledgment   –        –        –        –        –        –        –        –        iv

Abstract                –        –        –        –        –        –        –        –        vi

Table of Contents  –        –        –        –        –        –        –        –        viii

List of tables          –        –        –        –        –        –        –        –        xii

List of Appendices           –        –        –        –        –        –        –        xiii

CHAPTER ONE

INTRODUCTION

1.  Background information   –        –        –        –        –        –        1

1.  Statement of problem.     –        –        –        –        –        –        3

2.  Research Objectives       –        –        –        –        –        –        5

3.  Research Hypotheses     –        –        –        –        –        –        5

4.  Significance of study       –        –        –        –        –        –        5

CHAPTER TWO

LITERATURE REVIEW

2.1 Agricultural Development     –        –        –        –        –        –        7

2.2 Concept of credit       –        –        –        –        –        –        –        8       

2.3 Socio-Economic Characteristics of Farmers in Nigeria         –        14 2.4Nigeria’s Agricultural Credit Policy          –        –        –        –         –        15

2.5 Agricultural Productivity Among Beneficiaries and Non-Beneficiaries of Credit     –        –        –        –        –        –        –         16    

2.6 Problems of Agricultural Credit Acquisition       –        –        –        17

2.7 Approaches to Evaluation of Impact        –        –        –        –        19     

2.8 Measurement of Impact       –        –        –        –        –        –        19

2.8.1 Regression Analysis         –        –        –        –        –        –        20

2.8.2 Chow’s Test           –        –        –        –        –        –        –        21

2.9 Theoretical framework         –        –        –        –        –        –        21

2.10 Analytical frame work        –        –        –        –        –        –        22

CHAPTER THREE

METHODOLOGY

3.1 Study Area       –        –        –        –        –        –        –        –        23

3.2 Sampling Procedure  –        –        –        –        –                  –        23

3.3 Data Collection –        –        –        –        –        –        –        24

3.4 Data Analysis  –        –        –        –        –        –        –        –        24

3.5 Model Specification    –        –        –        –        –        –        –        25

3.6 Hypotheses Testing   –        –        –        –        –       –        –        28

CHAPTER FOUR

4.0 RESULTS AND DISCUSSIONS    –        –        –        –        –        29

4.1 Socio-economic Characteristics              –        –        –        –        29

4.1.1 Age     –        –        –        –        –        –        –        –        –        29

4.1.2 Household Size-      –        –        –        –        –        –        –        30

4.2.3 Educational Qualifications –        –        –        –        –        –        31

4.1.4 Farm Size     –        –        –        –        –        –        –        –        32

4.1.5 Farming Experience         –        –        –        –        –        –        33

4.1.6 Income         –        –        –        –        –        –        –        –        34

4.2  Section 2

4.2.1 Source of Credit –   –        –        –        –        –        –        –        35

4.2.2 Distance from possible Source of Credit-       –        –        –        36

4.2.3 Size of Credit –        –        –        –        –        –         –         –        37    

4.2.4 Uses of Credit        –        –        –        –        –        –        –        38

4.3 Conditions for Agricultural Credit lending –        –        –        –        39

4.3.1 Categories of Agricultural Credit –        –        –        –        39

4.3.2 Criteria for lending            –        –        –        –        –        –        40

4.3.3 Short-term Credit              –        –        –        –        –        –        41

4.3.4 Medium-term Credit          –        –        –        –        –        –       

4.4 Factors Affecting  Demand for Credit  and Repayment-   —  42

4.4.1 Factors that Affect  Demand for Credit           –        –        –        42

4.4.2 Factors that Affect Credit Repayment             –        –        –        44

Section 3                        –        –        –        –        –        –        –        45

CHAPTER FIVE 

SUMMARY, CONCLUSION AND RECOMMENDATIONS         

 5.1 Summary        –        –        –        –        –        –        –        –        53

5.2 Conclusion       –        –        –        –        –        –        –        –        54

5.3 Recommendations     –        –        –        –        –        –        –        55

References            –        –        –        –        –        –        –        57

Appendices           –        –                  –        –        –        –        7

LIST OF TABLE

1.  Table 4.1 frequency distribution of respondents according to age.

2.  Table 4.2 .frequency distribution of respondents according to household size.

3.  Table 4.3 frequency distribution of respondents according to educational qualification.

4.  Table 4.4 frequency distribution of respondents according to farm size.

5.  Table 4.5 frequency distribution of respondents according to farm experience.

6.  Table 4.6 frequency distribution of respondents according to income.

7.  Table 4.7 frequency distribution of respondents according to source of credit.

8.  Table 4.8 frequency distribution of respondents according to distance from source of credit.

9.  Table 4.9 frequency distribution of respondents according to size of credit.

10.       Table 4.10 frequency distribution of respondents according to source of credit.

11.       Table 4.11 table showing interest paid by credit beneficiaries

12.       Table 4.12 table showing time of disbursement.

13.       Table 4.15 table showing regression result of the relationship between the output of cassava and independent variable of                                       beneficiaries

14.       Table  4.16  table showing regression result of the relationship between output of cassava and independent variable of non beneficiaries.

15.       Table  4.17  table showing regression result  of the relationship between the output of cassava and independent variable of both farmers.

16.       Table 4.18 table showing Chow test of difference between beneficiaries and beneficiaries of credit.

17.       Table 4.14 table showing output of cassava for credit beneficiaries and non-beneficiaries taken from average farm size of 3ha and 2ha, respectively.

LIST OF APPENDICES

1. Appendix 1: Questionnaire     –        –        –        –        –        –        68

2. Appendix 2: Regression Result for Credit Beneficiaries and Non Beneficiaries.  —     –             —        —          73

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND INFORMATION

In spite of the fact that oil still accounts for our major revenue (gearing toward 80percent) and almost 100percent of our export earnings (C.B.N,2003), agriculture especially farming, forestry, livestock and fishing is shown to be the major activity of Nigerians (Chigbu, 2004). Regrettably, the trend performance has declined over the years. The sector growth remained at 5.8percent between 1990-1993, falling to 3.5percent between1997-1998 and worse still declining to an abysmal 1.8percent during the 1999-2001 periods (C.B.N, 2003). The agricultural sector is expected to have a growth rate of between 7percnt to 10percent, in order to have any meaningful effect on poverty reduction (Ekpo, 2004).

This ugly situation is attributed to poor and less resources utilization, as a result of lack of financial supportive measures like loans, subsidies, grants, etc toward agriculture (Chigbu, 2004). The contribution of agriculture to the gross domestic product (G.D.P.) shows an average growth rate of 2.6percent (C.B.N, 2003), a development not good enough for a sector employing about 70percent to 80percnt of Nigerians. Food supply situation is not favorable equally; it has been reported by the food and agricultural organization (FAO, 1994), that there is an average food deficit of 1.2percent, while the demand and supply of food stand at 3.7percent and 5percent respectively. This is why the World Bank (2003) data showed that more than 70percent of Nigerians live below poverty line, a situation that can be reversed through agricultural development. 

The World Bank’s statement about Nigeria’s poverty level has not gone down well for a nation with abundant agricultural resources: different varieties of livestock and wildlife, an agricultural friendly climate, coastal and marine resources of over 960m shoreline and a large consumer market.

In Nigeria, agriculture is not practiced in a purposeful and enterprising manner. It is practiced more as a survival strategy, rather than as a business venture. This is attributed to low-income status of farmers, which makes them seldom able to accumulate capital goods required for purposeful and sustainable agriculture, causing their level of capacity utilization to be very low.

Availability of credit to farmers has been observed as one sure way of increasing agricultural output, through the improvement of efficiency and the expansion of production. Credit to farmers according to Olatumbode (1990) would assist in the following ways:

Procure new improved technology in agriculture, purchase high yielding and disease resistant crops, put more land into cultivation and organize the farm better and more purposeful.

Insufficient extension of production credit to farmers according to Meyer (1986), is the more critical factor responsible for the declining agricultural production. There is a big gap between the demand for and supply of credit to farmers for agricultural activities. Problems faced by farmers in raising money for agricultural production is colossal, because according to Chidebelu (1983), commercial and merchant banks are reluctant to give money for agricultural production. The reluctance is due largely to the fact that agriculture is biological in nature, hence prone to risk.

The establishment of several credit schemes in Nigeria is intended to solve the problem of lack of credit to the agricultural sector. Efforts to encourage farmers in Nigeria with credit and other agricultural incentives have only given individuals with political loyalty to the reigning government access to exploiting the ordinary farmers. Such incentives usually get to the false farmers who use it for other non-agricultural activities.

Repayment of credit by farmers is a pathetic story; there is a general tendency of farmers not to repay credit. F.A.O (1994) asserted that the inability of small-scale farmers in developing countries to repay credit could be traced to imperfection of the delivery system, a host of institutional factors and to the farmers themselves. Some of these factors include: inadequate supervision and quality of supervisory staff, poor market outlets, poor management ability of the borrowers, poor selling prices, unsuitable disbursement procedures, wrong attitude of farmers towards credit (regarded as gift from government), natural disasters, etc. Problems of repayment also stifle further credit to farmers, since most agricultural credit recycles.

Small-scale farmers are supposedly potential beneficiaries of agricultural credit in Nigeria, but are hampered by their small peasant holdings found over wide remote areas which makes supervision by credit officers difficult (Eze, 1997). To reap the benefits of credit, information relating to sources of credit is required by farmers. Such information may include names of lenders, location and types of existing credit. They also need information on the terms of credit such as interest rate, credit amount and mode of repayment.

Credit institutions are the major source through which small-scale farmers can gain access to formal credit (Klonner, 2003); but the farmers are constrained by high interest rate and collateral. This development has informed successive Nigeria governments to initiate programmes and policies that would ensure adequate transfer of cheap credit to small-scale farmers (Nweze, 2001).   These programmes and policies have over the years given rise to.

·         The Agriculture Credit Guarantee Scheme Fund (A.C.G.S.F) in April, 1978.

·         The community Bank of Nigeria (C.B.N) in 1990

·         The Family Economic Advancement Programme (F.E.A.P) 1997

·         Nigeria Agricultural, Co-operative and Rural Development Bank (NACRDB), which is the most recent.