Agricultural Financing – The Role of the Nigerian Agriculture and Co-Operative Bank

Agricultural Financing – The Role of the Nigerian Agriculture and Co-Operative Bank

The Concept of Agricultural Financing – Agriculture in Nigeria has over the years been largely a private indigenous activity inspite of the relatively recent intensification of interest by government in the sector and official efforts to infuse foreign private participation.
According to Ugwuanyi (1999), Agricultural financing is the sourcing of fund and making it available for agricultural production and uses. Agricultural financing Simply means the acquisition and utilization of funds for agricultural purposes. It involves the efficient sourcing of funds on both money and capital market and the judicious and efficient disbursement of funds so sourced for agricultural and agro-allied productions so that the investor will be able to pay both the interest and the principle as at when due and enough return for his capital.
In the words of Anyanwu (1993), Government at Federal, State and even Local level has made both direct and indirect effort to finance agriculture through moral suasion and other monetary policies. Infact, commercial banks, merchant banks and other non-banking financial institutions through one incentive or the other are being urged to finance Agriculture.
However, when it seemed that the effort of these financial institutions are not encouraging, government went a step further in establishing specialist financial institutions, specifically charged with the financing of agricultural activities alone. Among these specialized banks in the Nigeria Agricultural and cooperative bank, which is now known as Nigeria Agricultural, co-operative and Rural Development Bank [NACRDB].

The Nigeria Agricultural and cooperative Bank was established on 6 march 1973, and was informed by the experience of frustration and dissatisfaction with the system of Agricultural credit in Nigeria over the years. According to Orjih (2002), Nigeria Agricultural and cooperative  Bank was established for the provision of medium and long-term credit for the creation or expansion of mostly agricultural activities. This was established by the Government to fill the financial gap in the agricultural sector; specifically, low savings, inadequate investment and lack of entrepreneurial skill are among the various factors that necessitated the establishment of the Nigeria Agricultural and cooperative Bank.

In Nigeria agricultural sector is one of the sectors, which is very central to her economic growth and development. Agriculture plays very vital role in the economy by providing food, increasing domestic savings, providing foreign exchange earnings, providing basic raw materials for the industrial sector, employment, rural development, as well as improving the gross domestic product of Nigeria. In the words of Ezema (2001), Several measures have been taken by the government to encourage agriculture in the country, but they have not yielded the necessary efforts for which they were meant.
According to Orjih (2002), the Nigerian Agricultural and co-operative Bank, the peoples Bank, the Rural Banking scheme, and the family Economic Advancement programme were among the institutional set ups, which the government established to provide financial and other logistic support to agricultural sector, but they could not achieve the purpose. It is in search for an efficient agricultural development financial institution that the Nigerian Agricultural cooperative and Rural Development Bank was established.
The Nigeria Agricultural co-operative and rural Development Bank was established in the year 2000 following the merger of Nigerian Agricultural and Co-operative Bank [NACB], the peoples Bank of Nigeria [PBN] and the family Economic Advancement programme [FEAP].

The Bank’s Organisational structure is a systematically planned arrangement of functional line responsibilities through which the bank is governed. The bank has the Board of Director as the highest policy making Organ. The zonal officers and the branch officers are expected to work jointly to implement the programme of the bank.

According to Ugwuanyi (1999), the need for special funding towards agricultural sector stems from the following reasons:
The agricultural sub-sector is saddled wit peculiar risks, risks that can hardly be diversified, calculated or quantified, making it almost near impossible for commercial, merchant Banks and other  financial institutions to make accurate forecast and prediction in granting loans/credits to the sector.
Very much like the above reason, is the fact that most conventional insurance institutions  shy away in handling or insuring most agricultural risks.
No marketable securities: in Nigeria for example, farmers are peasants that can not afford any meaningful collateral to obtain loans from banks and other financial institutions, the communal land system in Nigeria compounds the case more.
Illiteracy and ignorance: Most Nigeria are illiterate and ignorant of the services being offered by banks and other financial institutions. They are in a world of their own.
Interest Rate: Most farmers cannot compete favorably with other sector of the economy in finance market as interest on agricultural loans are always high as a result of the risk associated with agro-business.
The place of food in man’s life makes it impossible for it to be neglected. In the hierarchy of man’s need, food comes first, thus at any cost food must be produced as life must go on.
Culture: in many communities in Africa, borrowing is usually regarded as living above one’s income. Thus to discourage these sort of beliefs and attitude so as to increase agricultural production, the need for agricultural financing arises.

Orjih (2002)
As a development finance institution, NACRDB was established to deliver credit to the agricultural sector, to the co-operative societies as well as to provide finance and other assistance to the as the primary objectives:
To provide agricultural and rural development finance.
To improve the income and welfare of Nigerians in the rural areas.
To contribute to the overall growth and development of the economy.
To mobilize saving from low-income earners and advance it to small-scale
To provide micro credit.
To provide funds for processing and marketing of agricultural products.

The NACRDB plays vital roles in respect to agricultural financing in Nigeria. However, according to Orjih (2002), the role of the NACRDB can be elaborated as thus:
•    It makes loans and advance available to individual farmers, co-operative Organisation, limited liability companies as well as other aspect of agricultural sector.
•    It provides direct financing investment in the form of equity capital to agricultural and agro-allied industrial ventures.
•    The bank provides guarantee for viable agricultural and agro-allied ventures to enable them raise finance from either the local sources or from the international finance markets or agencies.
•    It provide loans to farmers, rural dwellers and to co-operative ventures that have projects that are economically viable as well as having the capacity to contribute to rural development and employment generation in the rural areas.
•    It finances agro-allied projects such as tractor hiring operations, agricultural equipment leasing, and facilities for agricultural processing, preservation and storage.
•    The bank provides micro credit facilities to artisans, craft men and other small-scale farmers and industrialists for the expansion, modernization and consolidation of their businesses.
•    Pioneer micro credit Disbursements: Ezema (2001) said that, on July 2001, the bank commenced its pioneer micro credit disbursements of N268.595 million nationwide. The disbursement, which were made to 3363 beneficiaries, commenced simultaneously in the six geo-political zones. The funds were distributed as follows: South West, N 83.722 million; North Central
N 55. 436 million; South south N 49.848million; North East
N 37.053million; North West N 28.092 million; while South East   Settle for N14.404 million.

The NACRDB’s major banking function is granting loans. It is also engage in the provision of some non-banking services such as project identification and articulation and the search for the appropriate technical and managerial know-how  which will benefit its clients. According to Anyanwu (1993), the bank operates three major categories of loan schemes foe farmers namely:
•    The Small Holder loan Scheme;
•    The on-lending scheme; and
•    The investment loan scheme
The small Holder Scheme is meant for farmers whose loan requirements are not than N 5000. the processing is initiated and complete by the loan is two years with which both the principal and accorded interest are fully paid. Most of the condition that exist in the investment loan like demand for collateral, are completely waved to meet the requirement of the small farmers.
The on-loading scheme involves channeling of loans through state Government or state apex financial institutions or organization for on-lending to farmers, farmers group, or cooperate bodies subject to the state government accepting to guarantee such loans. The loan is granted at a lower rate of interest to the state or its apex organization which in turn on-lends to the ultimate beneficiaries at a mark-up rate.
Also, the investment loan scheme takes care of those whose loan request are above N 5000. As a result of the bigger size of such loans, there is a higher degree of requirement from the4 applicant and loan processor under this scheme involves both the British office and the Head office where the loan application is finally approved. The loan duration as well as the moratorium period vary depending on the gestation period of the project concerned; and it may be a medium or long term loan.

According to Ugwuanyi (1999), there exists risks in financing every sector of the economy. However, there exists specific problems and risks associated with agricultural financing, which can be grouped into:
•    Problems associated with agriculture itself
•    Problems created by the farmers themselves
•    Other problems
•    Unsystematic Risk: Umebali et al (1997), stated that agricultural business involves the production, processing, marketing and utilization of the following: crops, livestock, forestry, fishery and wild life. The production of some are prone to a peculiar risk. These risk are mainly unsystematic risk which are risks beyond the control of the farmer. E.g natural hazards, flood, draught, etc.
•    TIME LAG: The problem of time lag could come as a result of
change in weather or climate. Failure of rain to come at the usual time could have serious consequences as farming seasons could be delayed, resulting in default in loan repayment or serving of loans
The almost inelastic nature of land and the immobility of qualified farm labour equally contribute to the risky nature of agriculture, making it difficult for those in business to have access to credit especially from financial institutions.
net-work for roads and the desired means of transportation to the hinter lands to collect agricultural produce. Also, the electricity supply and the available storage facilities are nothing to write home about.
•    SLOW RATE OF RETURN: some Agricultural activities require a very long gestation period, resulting in slow rate of return especially in early years. This funding as farmers take long tie to break-even and equally find it very difficult in servicing their loans.
•    LOAN DIVERSION: The causes of loan diversion are many and varied. For example, the burden of extended family system can compel a farmer to use a part or all the loans e has just received from a bank to pay for the hospital bill of a mother-in-law. Also, unfavorable investment climate in agricultural sector and delays in the disbursement of approved agricultural credit can also lead to loan diversion.
•    UNWILLING CO-OPERATIVE ATTITUDE: To be able to pay back the principal and interest on agricultural; credits and to make farmers accessible to agricultural credits at affordable rate, farmers are encouraged to form cooperative societies. Interestingly studies have show that where such co-operatives are formed at all, the spirit and absolute loyalty of the farmers is not there.
•    IGNORANCE ABOUT THE SOURCE OF FUNDS: Many farmers are illiterate and ignorant of the current happenings in relation to the availability of agricultural credits. Most farmers live rural areas and have the outside world.
•    LACK OF MANAGEMENT OR MANAGEMENT SKILLS: Many farmers lack the desired management or managerial skills. Many of them know nothing about the preparation of feasibility reports that could be acceptable to banks and also in the art of farm management. Many of them fail as a result.
These are associated with those environmental problems that militate against the farmer in obtaining agricultural credit. These are as thus:
•    COLLATERAL: Awoyemi (1981) regarded collateral as the greatest obstacles confronting the Nigerian farmers in sourcing agricultural credit both from the informal and formal financial institutions. The use of personal land, family land, economic trees or even sons and daughters as collateral to obtain credit for agricultural activities and other purposes were and are still common practices in some of our communities today.
•    GOVERNMENT POLICIES: Inconsistency in government policies affect both the availability and quality of agricultural credit to the farmer. Institutional lenders should as a matter of fact be consulted and their fee4lings incorporated in the credit policy guidelines. Most financial institutions are private institutions and if forced through any means to make credit available to the agricultural sub-sector against their will and against the current market prices and trends, they will probably find ways of circumventing the policy.

—-This article is not complete———–This article is not complete————

This article was extracted from a Project Research Work Topic



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Agricultural Financing – The Role of the Nigerian Agriculture and Co-Operative Bank

9 Comments on “Agricultural Financing – The Role of the Nigerian Agriculture and Co-Operative Bank”

  1. consultoria de says:

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  2. Dogos Zechariah says:

    Please I’m from the southern part of Kaduna State, major farmers and producers of Ginger, what is required of me to access loan from you to boost that aspect and possibly export it out?
    I will be glad if you can respond to my question.
    Thank you.

  3. Godsend Okoduwa says:

    what do I need a marketing project materials ,and other materials for? Do I need it to be guided on how to obtain a loan?


    I am about to invest in agriculture mainly cultivation of cassava, plantain and oil palm . i have acquired a 50 archer of land for the commencement of the operation. i want to find out any suggestion or advice that can enhance the maximum use of the land.
    Looking forward to your quick response.


    I am a graduate of agriculture from the University of Maiduguri, Borno State with five years working experience in the micro finance sub-sector. I kindly seek a job career opportunity in reputable organisation. A career in your organisation will avail me an opportunity to bring to fore my relevant degree, work and social experience.
    I look forward to your kind consideration and possible invitation for an interview.
    Thank you.

    1. Excellent project, but am writing an assignment through this project, so plz help me with it’s references, bcos without it,d assignment will b useless to d lecturer, so plz help me..

  6. Ismaila E Abdulazeez says:

    The government is not sincere with it’s citizens at all. I am a graduate of Masters in Accounting and Finance. My thesis was on Agriculture and micro financing. The major issues here is policy summersault. Take for example the youwin program on Agriculture. Funds were seized or delayed cos of some policy changes which greatly affected many agro business owners like me and my fellow colleagues. How do you explain this to livestock or plants.?Graduates took the pain to go farming after rigorous trainings and you abandoned them halfway before the business break even points. Is that an encouragement or discouragement?

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