AGRICULTURAL LOAN DISBURSEMENT AND REPAYMENT IN NIGERIAN COMMERCIAL BANKS [A CASE STUDY OF AFRIBANK NIGERIAN PLC]
Agriculture as explained by KOMOLATE(1989). Refer to the science of producing food industries; Agricultural loan therefore is a credit facility obtained from a lending institution by a farmer or Agro-allied industries to boast the production agricultural products, such loans are obtained from commercial banks and other agricultural and co-operative bank. Government has development of agricultural and Nigeria. Many authorities have also agreed that a way out of the problem of economic development for developing countries in general and Nigeria in particular is to devote rigorous efforts towards the development of the agricultural sector. The reason for this cannot be over emphasized owing to the important role agriculture plays in an economy.
Important role agriculture play in and economy. In this regard attention will directed to review articles, journals, textbooks and other periodicals written on agricultural loan disbursement and repayment for the purpose of achieving agricultural development in Nigeria.
THE NEED FOR AGRICULTURAL DEVELOPMENT THROUGH CREDIT POLICY MEASURES:
According to EVBUOMNAN AND UKEJU (1993), in the bullion publication of the central bank of Nigeria agricultural and Agro-based industrial development policies, and programmers in Nigeria have undergone many changes since independence” these changes they said were in the main, a reflection of changes in Government philosophy on the nest approach to economic development, while the philosophy changes were in themselves often brought about by changes in government and the economic fortunes of the nation.
Other policy instruments introduced, the use of tariffs to promote agriculture exports (particularly raw materials that can be soured locally). In 1993, the direct allocation of foreign exchange agriculture was adopted. Ijere, (1993).
The main objectives of government agricultural credit policies over the years, as reflected in successive National development plans and other official documents are:
i To ensure the flow of adequate funds from banks and other financial institution .
ii To facilities the flow of credit to farmer to enable them adopt improved farming techniques and.
iii To assist banks to aggressively support agriculture through minimization of some risks and moderate costs involve in lending the agro-industrial credit policy objective are similar to those for agriculture.
2.2 GOVERNMENT CREDIT ALLOCATIONS AND CONTROL POLICIES OF AGRICULTURE:
According to AFELUMO(1993) ‘credit allocation and control policies involves requiring banks and other financial intermediate rise to support a particular development activity’ in order to promote the growth of agricultural and agro-based industries activates, the central bank of Nigeria, through its monetary policy circular, has usually directed commercial banks to lent a certain percentage of their loan portfolio to farmers and agro-industrial lists.
In 1994, for instance, commercial banks were required to lend a minimum of 60 percent their total loan portfolio to the agricultural sector. Failure to comply with the guideline attracts a penalty for failure of the amount in default with the central bank of Nigeria transfer to the Nigeria agricultural and co-operations.
Banks were also encouraged to acquired acuity in industrial enterprises. In addition grace periods were stipulated for loans to agriculture. It was one year for small scale peasant farmers growing satrapies and seasonal cash crop, such ad grows, cotton and groundnut and loans granted for construction, of on farm storage structure requiring small scale oat lay and shot period construction, for loans to farmers of cash with relatively long gestation period such as oil-palm rubber and cocoa plantation etc for these, the agreed period was seven years banks whose portfolio comforts to the requirements of certain minimum percentage of loan to the high priority areas were allowed to lower cash or liquidity ratio than the normal ration.
2.3 AGRICULTURAL CREDIT GUARANTEE SCHEME
The agricultural credit guarantee scheme (ACGS) was set up by the government to provide financial for agricultural production. The scheme according to Ukeje, (1993) a principal economist, with the central bank of Nigeria, was designed to encourage banks to increase lending to the agricultural sector by providing some form of guarantee against risks inherent in agricultural lending. The extent of liability of the fund he stressed, in respect of guaranteed loans is 75 percent of any balance either realization of pledged securities subjects to a maximum of #100,000.00 to an individual farmer and #1 million to a co-operative society/corporate body.
The number of loans guaranteed under the scheme b/w 1990 and 1993 are estimated to be between 50-75 percent.
- COMMERCIAL BANKS AND AGRICULTURAL LOAN OPERATIONS:
A case look at the available data showed that commercial banks consistently lent short of prescribed limited under the credit allocation policy average short falls in commercial bank lending to agricultural, for instance ranged from 10% in 90 to2923% in 1993. with regard to the specialized lending institutions, The trend in annual loan disbursement is generally very discouraging. Apart from existence of a would divergence between approvals and allocations, they tend to rely most on the fortunes of government subvention for meeting there operation. How ever it is observed that growth in commercial banks credits to agriculture was mostly Substantial in periods when re-financing, guarantee and on lending scheme where in operations olumbi ( 1984 ).
The result, so far, suggest that credit policies institutional lending and borrowing behavior of farmers and agro-industrialist and in stimulating the growth of these sectors. For instance, growth of agricultural production average 2.6% in the same period. Admittedly, growth of out put of these sectors does not depend on the level of credit alone. Form the borrower’s ( Farmers and agro-industrialist ) perspective, credit policies have has little impact on borrowing behavior for several reasons.
Among them are cumber some procedures for loan approval and disbursement as well as delays mostly associated with institution rigidities. Related to this is a high degree of variability of farm incomes, owing to incessant crop failure or losses through that fire and other hazards for which no insurance cover us available. Some of these factors have heightened the risk of borrowing resulting in low repayment rate. Other factors include the inherent tendency of borrowing to diver(cheap) credit to users than those for which it was intended. Ijere (1993 ).
Besides, since inception of SAP and the deregulation of interest rules in 1987, the problem of accessibility has remained largely innersoles this is mainly because returns to productive investment giver high borrowing rules are generally lower than returned to trading and this dampens farmer’s demand for credit.
From the institutional lender’s perspective the key factor policies include week base for agricultural lender’s perspective the key factor which militate against effectiveness of credit supply. Largely blc of the relative low profitability of agricultural credit portfolios, political interference in the operations of lending institutions which in mo interference in the operations of lending institutions which in most case undermine repayment performance, failure or most institutional lenders to adopt their lending practices to rural behavior and needs. In particular their banking hours, and other demand such as minimum cash balances on account before loans can be granted and the insistence on the provision of adequate collateral render ineffective some credit policies, especially at the rural level.
At the national level credit gout and allocation on policies have not signification inspired both borrowers and lenders committed to investing in priority sectors of the economy to investing in priority sectors of the economy credit gout and allocation policies has inbuilt weakness. These include the case with which credit for agriculture has often been diverted to other uses owing to fundability and the high cost associated with monitor in the use of funds lent to an individual entrepreneurs.
Another major factor responsible for the ineffectiveness of credit policies is the failure to integrate saving mobilization scheme into credit programmers. This has often created a serious bottlenecks for financial. According to Uzoaga (1991 ). Specifically, it denies of the borrower, and the institution sometime depended on extension services agents to determine the level of credit worthiness of farmers. It also makes the task of loan recovery difficult and fact or which may be instrumental to the high rate of loan delinquency among beneficiaries ( of specialized lending schemes ). Who do not participate in saving mobilization schemes. The former credit institution tended to locate their branches at urban centers. While this situation has been convenient for urban entrepreneurs rural borrowers have been incurring high community and transaction cost in the process of meeting requirements for loan approvals and disbursement