Impact of Commercial Bank Credit on Agricultural Development

Impact of Commercial Bank Credit on Agricultural Development

CHAPTER ONE

OBJECTIVE OF THE STUDY

The objective of the study is to find out the role of commercial banks in agricultural development in Nigeria from 1986-2010. The specific objectives of the study are;

1. To access the scope and achievements as well as highlight new role of Nigerian Commercial Banks to Agriculture.
2. To Identify the inherent problems of agricultural financing which have hindered the smooth flow of credit from banks to agriculture.
3. To offer solutions to identified problems.

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CHAPTER TWO

REVIEW OF RELATED LITERATURE

CONCEPTUAL FRAMEWORK

AGRICULTURAL SECTOR

Agriculture is the science or practice of farming, including cultivation of the soil for the growing of crops and the rearing of animals to provide food, wool and other products. It is as old as man. It is also an important development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the development of civilization. It is the first occupation of mankind. Agriculture is a major branch of the Nigeria economy, providing employment for about 70% of the labour force. Nigerian agriculture is characterized by considerable regional and crop diversity. In 1990, 82 million hectares out of Nigeria’s total land area of about 91 million hectares were found to be arable (Modebe, Ugwuegbe & Ugwuoke 2014). Much of this land was farmed under the bush fallow system, whereby land is left idle for a period of time to allow natural regeneration of soil fertility. 18 million hectares were classified as permanent pasture, but had the potential to support crops. Most of the 20 million hectares covered by forests and woodlands are believed to have agricultural potential. In the 1960’s, the agricultural sector was the most important in terms of contributions to domestic production, employment and foreign exchange earnings (National Bureau of Statistics, 2014). Agriculture contributed 32% to gross domestic product (GDP) in 2001. Agricultural holdings are generally small and scattered, characterized by simple farm tools and shifting cultivation. These small farms produce about 80% of the total food. The situation remained almost the same three decades later with the exception that it is no longer the principal foreign exchange earner, a role now being played by oil. The agricultural sector remained stagnant during the oil boom decade of the 1970’s, and this is accounted largely for the declining share of its contributions. The trend in the share of agriculture in the GDP shows a substantial variation and long-term decline from 60% in the early 1960’s through 48.8% in the 1970’s and 22.2% in the 1980’s (Salami & Arawomo, 2013).

CHAPTER THREE

RESEARCH METHODOLOGY

METHODOLOGY

The methodology to be adopted is multiple regression analysis, employing ordinary least square (OLS) technique. The other technique is adopted because of the following reasons,

• The parameter estimates obtained possess optimal properties of unbiasedness, minimum variance, linearity etc
• It is BLUE (i.e. best linear unbiased estimator).
• The computational procedure of OLS is fairly simple as compared with other econometric techniques.
• OLS is an essential component of most other econometric techniques (Kontsoyiannis 1997).

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF RESULT

REGRESSION RESULT

MODELLING RAGDP BY OLS

CHAPTER FIVE

SUMMARY OF FINDINGS, RECOMMEDATIONS AND

CONCLUSION

SUMMARY FINDINGS

This research work was carried out to known the impact of the banking industry in financing agriculture in Nigeria using a time series data within 1986 to 2010.

The past shows that some efforts have been made to finance agriculture in Nigeria but the effect has not been felt as the sector is dominated by the oil sector. The agricultural output in Nigeria is being affected by the regulation of the real exchange rate by the credit institution, since farmers find it difficult to exchange foreign currency into domestic currency.

The study identified some problems that have constrained reduction in agricultural productivity outside real exchange rate. This include using cost of farm input caused by prolong inflation in the economy. The implication is that there is inadequate supply and delivery of farm input, shortage of capital  low rate of technology, environmental hazards, processing and storage facilities, land and labour constraints etc.

However, the result of the regression shows that there is a positive change in banks credit to farmers and Real interest rate to change the agricultural output. On other hand, banks credit to farmers and the Real interest rate have a positive relationship with agricultural output in Nigeria economy by

1. Increasing the technological input of farmers
2. Removing the redtapism in the acquisition of credit land parcelization
3. It has helped banks to manage risk murder to speed specialization. Flexibility yield and proper policies
4. It has helped in providing adequate extension services, agricultural inputs, storage facilities, marketing information and efficient marketing arrangement, infrastructures such as feeder roads efficient, efficient power supply and institutional reforms.
5. The bank credit given to farmers has helped farmers to transform her agricultural output into industrial input which enable her to meet the rising expectation of her people and to correct the social and economic imbalance created by the top sided developments between the rural and urban areas which have encourage the youths and others to migrate from rural areas.

RECOMMENDATION

Based on the above findings and existing literature on the loans and agricultural productivity, and from the present research, it is obvious that the \real Interest Rate and Banks Loan have a significant impact on agricultural output in Nigeria. In the high of these, the following recommendations are proffered:

1. Real Interest Rate as it influence needs policy should be properly managed and periodically reviewed so as to promote the growth of the agricultural sector.
2. Real Interest Rate determination is a function of monetary authority like Central Bank of Nigeria; therefore, monetary policy should be promoted towards enhancing agricultural output in Nigeria.
3. International bodies sometimes give out loans to finance agriculture; for such loans to be properly utilized, they have to be channeled in such a way that the impact of such loans has to be felt by the peasant farmers. When such loans are taken, they should be used towards the achievement of specific objectives. And such loans should be seriously monitored. Since agriculture is an important sector of the economy, more loans should be allocated to its development and implementation.
4. The Central Bank should give adequate directives to the commercial banks mandating them to give out loans to farmers at affordable interest rate and collateral securities.

CONCLUSION

The potential increase on the effect of agricultural financing based on production does not exist, but the agriculture is yet to attain its full position and fulfill its role, especially in the production of basic agricultural commodities. Furthermore, it is important to emphasize here that the role of credit in Nigerian agricultural development cannot be over emphasizes.

Again, the loan given out by the international and local bodies does not reach the real farmers, rather it goes to the business men who resell them and use the loan to improve on their business.

Therefore, a policy stability and long-term planning should be given adequate attention in the policy design processes. The nature of agricultural practices and changing of domestic market into word market should be addressed. The economic situation of Nigeria requires that a regular policy review process should be instituted. By so doing, Nigeria will achieve its „7 Points Agenda‟ aimed at guaranteeing a better life for all Nigerians and solve the present frightening food crisis.

References

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• Anyanwu,  J.  C.,  et  al  (1977).  The  Structure  of  Nigerian  Economics. Onitsha: |Joanel Education Publishers Ltd.
• Adokanye, F. (1986). The Element of Banking. Lagos: B and A publishers. Gujarati,  D.  N  (2^nd  ed.)  (1997).  Theory of Econometrics.  Hampshires: Macmillan Ed. Ltd.
•  Helliner, G. K. (1966). Peasant Agriculture Government and Economics Growth in Nigeria . UK: Homewood.
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•  Ojo, M. O. (1980). Agricultural Performance and Policy Under the SAP in Nigeria. Nigeria.
• Onyemelukwe, O. I. O. (2004). Determinate of Nigeria‟s Private Consumption Expenditure.
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