This research examined the effects of
commercial banks in agricultural financing in Nigeria. Respondents were
selected based on simple random sampling technique. One Hundred (100)
staff of First bank Nigeria Plc. were sampled.
Three hypotheses were formulated and
tested with the use of Chi-Square analysis. The analysis resulted to
rejecting all null hypotheses and hence accepting the alternate
Based on decisions of the tested
hypotheses conclusions were reached there is significant relationship
between the type of borrower and their repayment patterns, evident from
the result of hypothesis one where the null hypothesis was rejected and
the alternate hypothesis accepted.
The result of hypothesis Two also
resulted to rejecting the null hypothesis and accepting the alternate
hypothesis and concluding that there is significant relationship
between the educations of farmers and loan repayment.
It was also revealed from hypothesis
three that there is significant relationship between the types of
security pledged and loan repayment patterns.
Conclusion was drawn and recommendations were proffered to commercial banks, government and farmers.
TABLE OF CONTENTS
CHAPTER ONE: Introduction
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research Hypotheses
1.6 Scope of the Study
1.7 Limitation of the Study
1.8 Historical Background of the Case Study
1.9 Definition of Terms
CHAPTER TWO: Literature Review
2.2 The Nigeria Agricultural History
2.3 Credit and its Role Agriculture
2.4 Sources of Agricultural Credit
2.5 Agricultural Finance
2.6 The Role of Financial Institution in Agricultural Financing
2.7 Agricultural Credit Schemes
2.8 Terms of Agricultural Credit Repayment
2.9 Rural Banking and Agricultural Extension
2.10 First Bank Agricultural Scheme
2.11 First Bank Nigeria Plc Finance Operation and Evaluation
2.12 Problems of Agricultural Credit Repayment in Nigeria
2.13 Problems of Agriculture
CHAPTER THREE: Research Methodology
3.1 Re-Statement of Research Question
3.2 Restatement of Research Hypotheses
3.3 Research Design
3.4 Population of the Study
3.5 Sample Size and Sampling Techniques
3.6 Data Collection Instrument
3.7 Method of Data Analysis
3.8 Reliability of the Research Instrument
3.9 Validity of the Research Instrument
3.10 Research Limitations
CHAPTER FOUR: Data Presentation and Analysis
4.2 Personal Characteristics of the Respondent
4.3 Response of Respondents to the Problem Areas
4.4 Testing and Interpretation of the Hypotheses
4.4.1 Analysis of Hypothesis One
4.4.2 Analysis of Hypothesis Two
4.4.3 Analysis of Hypothesis Three
4.5 Discussion of Result
CHAPTER FIVE: Summary, Conclusion and Recommendation
5.2 Summary of Findings
5.4.1 Recommendation for the Government
5.4.2 Policy Recommendation for the Bank
5.4.3 Policy Recommendation for Farmers
5.5 Suggestions for Further Studies
1.1 BACKGROUND OF THE STUDY
Like many other African
countries, Nigeria is primarily agrarian with its abundant land and
water resources. Despite the rapid growth of the oil industry over the
years, agriculture still accounts for 40% of GDP and provides employment
(both formal and informal) for about 60% of Nigerian’s 150 million
people. Nigeria’s agriculture remains largely subsistence-based with
about 80% of agricultural output coming from rural farmers living on
less than a dollar per day, earned from farming less than one hectare
(2.47 acres). Nigeria has diverse agro-ecological conditions that can
support a variety of farming models to create its own green revolution.
administrations neglected agriculture over the years and failed to
diversify the economy away from overdependence on the capital-intensive
oil sector. Nigeria was once a large net exporter of agricultural
products and the sector was the major foreign exchange earner before the
advent of oil in 1970s. Nigeria is currently a huge net importer of
agricultural products, with such imports exceeding $3 billion in 2010.
The country has the potential to return to its previous position if
adequate attention is given to agricultural growth policies, finance and
provision of rural infrastructure.
The fact of the matter
is most of the smallholder farmers lack access to capital to acquire the
needed inputs to increase their productivity and incomes and reduce
their poverty. Farmers require credit to purchase seeds, fertilizers,
herbicides, and buy or rent mechanized equipment and related services.
policy recognizes the vital role of agriculture finance in attaining the
much desired green revolution. A major focus of the policy is to
establish a system of sustainable agricultural financing schemes,
programs and institutions that could provide micro and macro credit
facilities for the small, medium and large-scale producers, processors
and marketers. However, public expenditure on agriculture which serves
as the bedrock of financing for the sector has consistently fallen short
of recommendations. It is therefore not surprising that these policies
have failed to achieve the set goals of food self-sufficiency, self
reliance, poverty reduction and rural development. Importantly, Nigeria
agriculture is abysmally under-financed. At a public forum in early
2011, the Governor of the Central Bank of Nigeria (CBN) was quoted to
have said “currently agriculture accounts for 40 percent of the GDP, yet
it receives only one percent of total commercial bank loans.” This is
significantly below the level of other developing countries, e.g. Kenya
and Brazil which reportedly registers 6 percent and 18 percent,
The Nigeria Agriculture Public
Expenditure Review, a collaborative study carried out by the
International Food Policy Research Institute (IFPRI) and the World Bank
in 2008, revealed that public spending on agriculture was less than 2
percent of federal expenditure during 2001 to 2005. This is far below
the 10% goal set by African leaders under the Comprehensive Africa
Agricultural Development Program (CAADP). CAADP was established by the
AU assembly in 2003 with a focus on improving food security, nutrition,
and increasing incomes in Africa's largely farming based economies. It
aims to do this by raising agricultural productivity by at least 6% per
year and increasing public investment in agriculture to 10% of national
budgets per year. Very low levels of funds are available for activities
considered vital for promoting agricultural growth, such basic and
applied agricultural research, agricultural extension and capacity
building, and agricultural credit and irrigation development. In spite
of this poor investment, agriculture contributed on average 32% to the
country’s total GDP during 1996-2000 and 42% between 2001 and 2009. For a
successful transformation of the agricultural sector, experts suggest
that Nigerian agriculture requires additional annual investments of as
much as $8 billion.
Nigeria's agricultural development is
constrained by the lack of access to credit for the predominantly
smallholder farmers. Efforts by successive governments to address the
problem have been largely unsuccessful. Commercial banks in the country
perceive agricultural finance to be high-risk. The Central Bank of
Nigeria is making efforts to de-risk the sector and encourage banks to
lend to farmers.
This research work tends to asses the
effects of commercial banks in financing agriculturein Nigeriawith
special reference to First bank Nigeria Plc. The role of the Central
bank of Nigeria (CBN) and some other commercial banks will also be
1.2 STATEMENT OF THE PROBLEMS
It is important to note that in the
early 70s when the oil price increased, the agricultural sector suffered
a serious neglect as the focus and concern of the nation’s economic
activities and government revenue shifted to the industry. Consequently,
price fell in the world market.
The Nigerian food import bill assumed an
unprecedented level of about N1.5billion while the traditional
agricultural exports were progressively declining. The need then arose
for re-engineering the agricultural sector and a fundamental
restructuring of the economy towards self-sustaining growth and
development. After the post independent, the CBN established some
agricultural agency like Credit Guarantee Loan Scheme (1972) to address
the problem of agriculture by granting loan and advances to agricultural
sector, but this scheme was not properly implemented. In 1971, an
agricultural reform was established called “Operation Feed the Nation”.
Poor assessment and implementation of the programme could not allow the
government to achieve its objectives.1989, the government came up with a
reform called Structural Adjustment Programme, the programme was also
with a wrong motive.
The Bank reform (2005) by CBN resulted
in the growth of the banks with new branches springing up everywhere
across the major cities, and was celebrated by self-deluded bourgeois
ideologues. The banks were given a clean bill of health, and they were
said to be poised to finance the critical sector of the economy. Rather
than invest in the real sector of the economy like agriculture,
manufacturing, iron and steel, etc that will bring about improved
productivity in the economy, the banks went into the oil whose price has
now crashed at the international market. In addition, they also
invested colossal sums of money in the casino market, where they
speculated wrongly in anticipation for quick returns, but the stock
market has now crashed, and the banks have lost over 900 billion naira
invested in shares.
First Bank Plc currently has a loan
scheme called Farmers First, which started in 2008. Under this scheme
purportedly meant for all categories of farmers, the individuals or
group of farmers who want to access the loan (N1million minimum) are
expected to meet the following requirements before they are eligible:
own an existing farm for some time; open and run current account for a
period of six months; deposit 25 per cent of the total sums intended to
borrow; six months moratoria; agriculture insurance; and other sundry
charges. These hurdles notwithstanding, many poor farmers who have
scaled it are still denied the loans on flimsy excuses, grounds for the
Nigeria's agricultural development is
constrained by the lack of access to credit for the predominantly
smallholder farmers. Commercial banks in the country perceive
agricultural finance to be high-risk making it difficult to grant
predominant farmers loan.
The researcher tends to examine the
impact of commercial banks to these problems and proffer suggestions and
recommendation that could limit these challenges.
1.3 OBJECTIVES OF THE STUDY
The broad objectives of this research
work is to examine varying the impact of bank credit on agricultural
development. Other specific objectives include;
- To examine the effect of CBN Credit guidelines and other financial bodies on Agricultural development.
- To examine the relationship of bank lending policies in Nigeria as the relate to Agricultural development.
- To examine how effective or defective are these credit policies on the preferred Sector of an economy.
- To examine factors that are responsible for only few individuals
and small-scale agriculture industries benefiting from such polices.
- To proffer recommendation on Assessment of the Impact of Bank Credit on Agricultural Development.
1.4 RESEARCH QUESTIONS
Research questions are those
interrogative statements that arise often from the course of study or
alternatively they can be defined as research objectives stated in
interrogative form. Research questions are meant to generate possible
answers to different aspects of the research problem and they should be
clearly stated such that they act as guides in identification,
collection and analysis of relevant data. In order to achieve the
purpose of this research study, the study will attempt to provide
answers to the following research questions in order to arrive at a
- Does any relationship exist between the CBN credit guidelines on agriculture and agricultural development inNigeria?
- Is there any significant difference between the loan repayment of small and large-scale farmers?
- Is there any Relationship between the type of borrower and loan repayment?
- Is there any significant relationship between gender and loan repayment patters of farmers?
- Is there any significant relationship between the types of security pledges and repayment patterns?
- Is there any significant relationship between the educations of farmers’ and loan repayment?
- What are the banks lending policies in Nigeria as they relate to agricultural development?
- What factors are responsible for only few individuals and small scale agriculture industries benefiting from such policies?
1.5 RESEARCH HYPOTHESES
Hypothesis is a tentative answer to a
research question. It is a conjectural statement about the relationships
that exist between two or more variables which needs to be tested
empirically before they can be accepted or rejected. In a research work,
hypotheses are never proved or disproved, they are either supported
(i.e. accepted) or rejected. To provide answer to the research questions
arising from this study, the following hypotheses are postulated.
Ho: There is no significant relationship between the type of borrower and there repayment patterns.
Hi: There is significant relationship between the type of borrower and their repayment patterns.
Ho: There is no significant relationship between the educations of farmers and loan repayment.
Hi: There is significant relationship between the educations of farmers and loan repayment.
Ho: There is no significant relationship between the types of security pledges and loan repayment patterns.
Hi: There is significant relationship between the types of security pledges and loan repayment patterns.
1.6 SCOPE OF THE STUDY
The research would focuson the
activities of First Bank Nigeria Plc., towards the financing and
development of agriculture in Nigeria. Emphasis would be on operational
schemes of the bank, condition and pre-requisites for borrowing,
financing procedures, sources and application of funds, evaluation
financing. The study would cover a definite period to enable us have a
clear vision of the role of First Bank Nigeria Plc. in relation to
agricultural credit in Nigeria.
1.7 LIMITATION OF THE STUDY
In the course of conducting this
research work it is expected that the following will constitute
impediments to the effective conduct of the study
a) Time constraint within which the study must be completed.
b) Financial constraint
c) Inaccessible and inadequate data
Nevertheless, I believe the above limitations will in no way affect the reliability and validity of the research study.
1.8 HISTORICAL BACKGROUND OF THE CASE STUDY
First Bank of Nigeria Plc remains one of
Africa’s most diversified financial services solution providers. Since
its establishment in 1894, the Bank has consistently met growing market
demands for financial services, through a process of continuous
re-invention. Its customer-centered architecture combines service
delivery through the traditional branch outlet and emphasis on
person-to-person contact, with the ease of the automated delivery
channel, to create a customer-service experience that is strong on
choice, convenience, and mass customization. In the over one century
since its establishment, the Bank has continued to build relationships
with its customers and alliances with key sectors of the economy that
have been strategic to the well-being and growth of the Nigerian
Consequently, it has remained the most
profitable banking franchise in Nigeria with group profit after tax of
N20.4billion in the financial year ended March 31, 2007. Underpinning
this success is the Bank’s strategy, with its focus on the two critical
imperatives of modernization and growth.
With over 400 business locations, the
bank has one of the largest domestic sales networks in Nigeria, all
on-line real times. As a market leader in the financial service sector,
First Bank Plc pioneered initiatives in international money transfer,
MasterCard, Interswitch and the ATM consortium. It is the industry
leader in terms of value and volume of ATM transactions in the country.
The Bank has nine local subsidiaries and
a full-fledged subsidiary in the United Kingdom, as well as a
representative office in South Africa. First Bank’s growth strategy is
hinged on continued network expansion, product development, mergers and
acquisition and growth of its international footprint. In furtherance of
this strategy, and in line with the imperatives of industry
consolidation, the Bank in the 2005/2006 financial year, acquired its
investment banking subsidiary, FBN (merchant Bankers) Limited and
another bank – MBC International Bank Plc. Furthermore, the Bank is
currently exploring alliance with key prospects in the industry with a
view to creating the largest bank in West Africa and one of the largest
in the continent.
In the last decade, by playing key roles
in the Federal Government’s privatization and commercialization scheme,
First Bank has led the financing of private investment in
infrastructure development in the Nigerian economy.
A key element of the Bank’s strategy is
its continued focus on retail banking/consumer financing, gradually
shifting towards a high yield diversified portfolio by aggressively
targeting the relatively under-banked consumer spending, which is a
major driver of domestic demand in developed economies, still
constitutes a relatively lower percentage of GDP in Nigeria. To this
end, the Bank provides both business and consumers with a broad range of
finance asset acquisition. Marketed under the U-First brand name, this
suite of flexible products and services offers prospective customers
financial solution to help them achieve their “higher quality of life
goals”. The business of the Bank is operated along two main market
segments/Strategic Business Units (SBUs): Corporate Banking and Regional
Directorates (Lagos & West, North and South). These are defined
within broad limits to facilitate and give direction to marketing
activities within the bank.
Of particular note is the fact that
Regional Directorate whose purview encompass retail and commercial
banking, leverage the Bank’s domestic sales network of over 400
branches, acting as points of sale for all the Bank’s products/services
to customers in selected target markets and facilitating the Bank’s
ability to effectively dominate the market.
First Bank got listed on the Nigerian
Stock Exchange (NSE) in March 1971 and has won the NSE’s Annual
President’s Merit Award for the best financial report in the banking
industry twelve times.
In further evidence of the Bank’s
strength, is Standard and Poor’s, an international ratting of “BB - ”
“B” short term rating with stable outlook. This is the same rating
assigned the country by the same agency. Fitch, another international
agency, assigned the Bank “B+” (long-term) and “B” (short-term) and
stable outlook, which translates into a notch below what the agency,
assigned the country. The agency also affirmed the Bank’s “A+” and F1
(nga) national long-term and short-term rating respectively for the past
five years. Global Credit Company Limited, a licensed rating agency,
Alos assigned the bank national long and short term ratings of “AA” and
“A+” respectively. Both agencies accorded the Bank the highest rating in
the national short-term category, while Austo & Co. (a national
credit rating agency) upgraded its long-term outlook on the Bank from an
“A” rating in the 2001/2002 financial year to “Aa” in the last four
The ratings are a manifestation of the
strength of the Bank’s domestic franchise and systemic importance in the
industry in particular and the economy in general. The international
ratings by Standard and Poor’s and Fitch are particularly significant as
they indicate the alignment of the Bank’s practices with world-class
standards, expected to facilitate seamless integration into the
international financial markets.
First Bank was equally rated number one
among Nigerian banks in Corporate Governance practice in 2003 and 2005
by Johnston Irving Consulting, in collaboration with ICRA Pty Limited
(an associate of Moody’s Investors, USA). In addition, the Bank was
awarded the “Best in Nigeria”, “Best Trade Finance Bank in Nigeria”, and
“Best Foreign Exchange Bank in Nigeria” for three consecutive years
2004, 2005, and 2006 by the US-based Global Finance magazine, to mention
a few of the awards won by the Bank. The bank was also awarded bank of
the year “2011”.
In line with the Bank’s vision “to be
the clear leader and Nigeria’s bank of first choice”, its mission “to
remain true to our name by providing the best financial services
possible”; and its brand essence, “dependably dynamic”, the Bank has
continued to transform itself as it forges ahead in its second century
of providing qualitative banking services to the nation and maintain
leadership in a consolidated and more dynamic industry.
1.9 DEFINITION OF TERMS
CREDIT OR LOAN: Used
interchangeably. It refers to the cash or goods or services granted by
the financial institution (e.g. bank) to a beneficiary (borrower) to use
in the present with a pledge to pay back at a future date.
LOAN REPAYMENT: This is the fulfillment of a loan obligation
COLLATERAL SECURITY:Is an asset pledge against the performance of a loan.
LOAN DISBURSEMENT LAG: Gives
an indication to the timeliness of a loan delivery. This is measured by
the number of days between application and disbursement.
default or non-performing loan means the same. It is a failure to
fulfill loan obligation. A loan becomes defaulted if the interests is
ninety days over due and not enhance or extended.
SOCIO ECONOMIC STATION:Is
determined by the farmers’ asset structure which defines his/her
standard of living. The assets include: Type of House, Radio, Wrist
Watch, Motor Cycle, Bicycle, Car, Television, Farm Produce Processor.