Agriculture Financing: Its Problems and Prospect in Nigeria
Agriculture Financing: The three basic needs of the early man had been identified as food shelter and dialing. Amongst these foods is considered the most important hence the need to improve agriculture to enhance food production (ozetu C.N. 1984)
It is necessary of this point to attempt a definition of the term agriculture”
There is differing view of what can be included in the agricultural sector of a national economy. All of their however see agriculture as a chnique and different from other sectors.
(Ames G. C.W 1973) divergent view on agricultural stem essentially from different degree of in concisely physical condition of agricultural production such as evil climate and topography which very considerably from place to place. Historical condition and present practices determine for example whether forestry or fisheries are to be considered as part of agriculture.
These are those who think that agriculture includes only production of crops and size stock those who believe it should conclude only what take place on the from and those who view agriculture more broadly. Agriculture must not be though of only as growing crops and give stock.
It includes also the machines of the former selling of his products and selling of land and renting of land and finally the use of credit. In agriculture and the provision of it. Is this provision of credit which is regarded as the most important factor on agricultural development that forms the basis of this research work? It is common knowledge that Nigeria of pre-independence era was predominantly an agricultural country. Some of the agricultural products for which the country was windy noted were cocoa, groundnut. Rubber palm product and cotton. Theses crop were the main sources of revenue and foreign exchange. As soon as the nation attained independence most of the formers in rural area embark on massive population movement to the urban areas in search of wages an labour. This reduced the agricultural labour force and from produced decreased. This social and economic change was aggravated by the advert of oil as a major source of revenue. Consequently Nigeria becomes a dependent nation in food and raw material.
It is against this background that both mile and present civilian administration decided to take sold and realistic sleep to translate into action.
2.2 THE ROLE OF THE AGRICULTURAL SECTOR IN THE NIGERIA ECONOMY .
It seems me that the basic reason for government concern over the winding condition at the economy is the recogni9tion of the important ways in which agricultural output and productivity can contribute to the overall economic growth.
An adequately financial agricultural sector would therefore:
1. Agriculture ensures that food supplies are adequate in quantity and guilty keep peace with population.
2. Agriculture spends the production of seaport commodities with a view to increasing and diversifying the country foreign earning.
3. Agricultural increase significantly the production agricultural row materials to support domestic manufacturing activities especially in the agro-based industries.
4. Agriculture check to a lesser or greater extent the effect of inflationary pressure.
5. Agriculture entrance bilateral and multilateral relations between the country and other countries.
6. Agriculture creates rural employment opportunities to absorb more of the increasing labour force.
7. Promotion of agricultural production and rural development
PROBLEMS OF AGRICULTURAL FINANCE
According to (Orji 2002) there have been considerable effort by government increase the flow of credit to agricultural financial institution are included by moral seasons and correction to steed a minimum prescribed percentage of their loan able fun as credit to agriculture at concessionaire interest.
In 1981 the maximum interest rate chargeable on a loan sector from 6% while for other sector it rang from 6% to 111/2%. In 1977 the agriculture credit guarantee scheme fund (CGSF) was established as an encouragement to bank to lend to agriculture a sector which ordinarily should not have appealed to lender
The respond to bank has been positive dank in their lending to agriculture as in the other sectors except that the principal amount should be repaid as an when due together with the interest margin.
Recently some bank has shown concern about repayment of loan and advance extends to agriculture. Between 1978 when the agriculture credit guarantee scheme (ACGS) effectively to off and in 1981 many bank have experienced difficulties. In the repayment of loan made to the agriculture sectors. The non payment of agricultural loan is undoubtedly of the major constricting of the financial system to increase the lending to the sector. There are still some other problems that constraint financing agricultural.
1. Availability of land: land should be available deform a client applies for loan as the bank does not give loan for the acquisition of land. In addition to providing the land on applicant is regard to make a minimum contribution of 15% of the total project cast in cash and is a problem.
2. Security: while loans will be granted against at least 40% security the main emphasis with on creation of repayment capacity of the borrower as a result of a technically and economically sound use of investment funds provided Example of securities required as first legal mortgage of the project hence real property endowment insurance policies government guaranties stock and bound of reputable comprise.
2.4 SPECIALIZED FINANCIAL INSTITUTION INVOLVED IN AGRICULTURAL
Financial institution matured in agricultural financing dated back to the 1950’s and 1960’s when various lending schemes such as agricultural development boards Agricultural credit corporation and native administrative loan schemes were initiated. Today the partake in financing various facets of agricultural production. (Orji 2002) financials institution mutated in agriculture financing in Nigeria includes the central bank of Nigeria the Commercial bank the merchant bank specialize financial institution and institutions that contribute to a greater or lesser sextant to the development of agriculture.
SPECIALIZED FINANCIAL INSTITUTION
The main specialized financial institution involve in agricultural financing is the Nigeria Agricultural and co-operative bank. (Orji 2002)
“Period to March 1973 various regional government and later state government has made attempt at establishing institution that would specialized in agriculture lending in their various region and states. There was no financial institution to take care of agriculture nation wide in march 1973 the federal government set up to the Nigeria agricultural bank limited which later become Nigeria agricultural and co-operative bank limited in 1978. NACB in the first federal government Agriculture credit institution which is a limited liability company. It’s paid up share capital of N150 million is subscribed in the ration of 60% by the federal ministry of finance and 40% by the CBN. Basic objective of establishing the promotion of agricultural production rural development improvement of life of Nigeria rural population.
– Granting of loan to state4s or state institution for on lending to any formers group of formers or corporate body subject to the state or state institution guaranteeing repayment of the loan.
– Granting direct loans to individual farmers co-operative societies or other bodies provided the dank is satisfied that the project for which the loan are required are viable and there is security to cater a least 10% of such loan the courage of the loans is term of direct loan to farmers tend to be limited because the dank does not have a branch office not work. Sufficiently development to bring its service which a reasonable distance to formers.
This sections is intended to louch on other institution that have been proposed or set up to support agricultural production in Nigeria under this section mention will be made of such institution as the agricultural credit guarantee scheme the rural scheme insurance companies the agricultural insurance scheme and the school to9 land projects.
In order to salve the problem associated with high risks and low return and facilitates the finding of agriculture by the bank the federal government established by decree no 20 of 1977 the agriculture the credit guarantee scheme fund source?
The fund has on authorized capital of N100 million subscribed 60% by the federal government and 40% by the CBN. So for paid up capital of the fund is 85.5 million.
Under the scheme loan and advances granted by the banks for agriculture production are guaranteed to the extent of the amount in default.
5. PROSPECT OF INSTITUTION FINANCING FOR AGRICULTURAL
It is considered patient in this chapter to direct our alternation to what expectation we have of institutional financing of agriculture in future. It should infact die noted that in spite of the problems and risk involved in agricultural lending the level of loans to agricultural has been rising both in fulfillment of CBN directive and as a result of the banks and the government themselves to help develop the economy. Records show that the government in recent years show unprecedented emphasis on institutional financing for agriculture.
Taking the 1986 budget as a case study. A lot of institutional financing for agriculture is envisaged for instance it is estimated that the savings from the reduction of petroleum subsidy will yield about 900 in 1986.
In this it is estimated that 60,00km of rural feeder roads will be strutted in 1986 from the funds to be realized from this reduction.
Adulation of importation of rice maize stock-fish, etc, is to encourage domestic agricultural production. This will result in more institution financing for agriculture is the directives are complied with.
Many export incentives were provided in the budget some of some of these include that export duty on raw material used for the production of support manufacture will the refunded. Raw material imported for export production will the exempted from import duty.
The realization from these incentives to what agriculture will be dusted through institutional financing from order to serve that advantage of these incentives. Also in the C B N credit guidelines the level of credit from the merchant bank to the agricultural sector has been increase from 12 to 15 percentage. This indicates an improved institutional financing for agriculture. It is also anticipated that during the national development plan. A large some of money will be allocated to the agro-based industries. His should be so in realization of the prospect that agro-based industries have for Nigeria with the allocation on the part based industries there will be no hesitation on the part of the institution. In financing agriculture. This is because with the establishment and improvement or the agro-based industries Nigeria will no more depend on the imperialist for the supply of from and other agricultural implements.
An assessment of bank achievement in the areas of agriculture assistance can not fail to mention the rule of rural dancing programme which was resources in the rural areas and improve channeling of credit to the rural sector of the economy. Under the programme commercial bank were requested to establish 200 rural drenches across the country in the first phase and another 266franches in the second phase. The effort of the banks in the first phase is commercial (Tunde 1985)
As regards the proposed agricultural insurance scheme it is estimated that it into reality the scheme will compensate former for lesser incurs on his from and reduce banks risk of not having us loan repaid. This will in future enhance the flow of fund of the sector from the financials institution.
Also the scheme will bring about market expansion of the insurance business many farmers have no insurance cover at present and hence there is large potential to be irrupted. There is also going to the product development which wills naturally a product of research and the degree and the extent of innovation by insurance’s. There is also going to be market penetration.
“As regards the school to land project the programme will provide employment or young school levers. Unemployment youth and graduates while improving agriculture production in country. I have no levitation in stating that he further of agricultural financing is bring having regard to the present awareness at nearly all level.
Banks over the year have been accused being advanced to lending to the risk proem agricultural sector. But this is almost a this of the past commercial bank are now more dynamic and adventurous in the direction.
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This article was extracted from a Project Research Work/Material Topic
“AGRICULTURE FINANCING IN NIGERIA PROBLEMS AND PROSPECT”