The Role of CBN in Agricultural Finance Development in Nigeria



Agricultural Finance Development in Nigeria – Many agricultural credit programmes in Nigeria have been  establishment  of each of these schemes since the early 1960s. The main purpose of each of these schemes has been to make credit available to small-scale farmers to enable them procure those modern inputs that are capable of raising the productivity of the traditional agricultural inputs – land and labour. It is a known fact that agriculture is the mainstay, of the economy of Nigeria since it is the major source of food for the growing population and was the only source of foreign exchange before the discovery of oil.

Besides, the impact of the various credit programmes has not been felt in rural area where the real farmers live and operate. The credit schemes and their facilities have not been made accessible is the small farmers. In addition, the collateral and security requirements of the schemes can hardly be met by the small-scale farmer in villages.

In this sector, solution to problem resulting into the project is sought from the works the various people and institution along this same lime, it is pertinent to point out here that most people use government instead of Central Bank of Nigeria in their discussion after all the Central Bank of Nigeria is only an agent of the government.



                   Ishiyaka (1993) the managing Director of Nigeria Agricultural Insurance company on vanguard spoke on the relationship with Nigeria Agricultural Co-operative Bank, he said “They are leading partners in promotion of Agriculture development”. Nigeria Agricultural Co-operative Bank, he said was established because  of lack of capital to finance the agricultural insurance company was established for the security as all agriculture lending must be mandated by it.

On the achievement of Nigeria Agricultural Insurance Company the managing director noted that inspite of the mis-givens when it was established, a lot has been recorded and government and the people really appreciated it and the government is quite concerned and in full control of Nigerian Agricultural Insurance Company (NAIC), he disclosed that Nigeria Agricultural Insurance Company settled at total claims of N69,566,350.80 about N70m since its inception in 1988 to 1993.

During same period, the company recorded accumulated premium income of N83,451,322.00. Ishiyaka explained that out of this, the largest single claim of N60m ever settled by the company was on the federal government fertilizers importation mishap of the hast of Finland in the last Quarter of 1999.



According Babatunde (1999) in business Times in articule entitled “Accelerating cheaper food production”. It is starting that almost all prices of traditional staples (food) have increased rather steeply over the last decade levels, with no ovious sign that the price will fall” despite favourable agro-climate conditions.

In an attempt to identify the causes of this problem, the author came up with the following courses:-

  • There is consistent increase in urban migration.
  • There are middle men cream of the profits from the high urban of food prices stuffs at the expense of the poor rural farmers who sell at very low prices.
  • Apart from the ageing work force, resulting from the above, available practices and planting materials in very low output per unit area which is the most important determinate of profitability on food production.
  • The extremely poor state of rural infrastructure has over the years strangulated agricultural production by obstructing the prompt evacuation and distribution of farm produce after harvest and timely supply of needed farm inputs.
  • The exorbitant lost by level development in the hunud and sub-hunud ecological zones in Nigeria has been a major constraints to large food cultivation.
  • Existing rural roads are not in good state and this affects agriculture since farming is predominantly done in the rural areas.
  • Poor access to credit farmers.
  • Irregular availability and expensive inputs such as seeds, agrochemicals, fertilizers and farm machinery, and also lack of capital.
  • The pressure on agricultural products occasioned by local sources of raw material syndrome.
  • The impact of naira devaluation on certain agricultural inputs like agrochemical.

The author opined that if the problems outlived are tackled, there will be enough food items. He also believed that prominent among these problems is the inadequate of capital and other input and that government should give a helping hand. It is pertinent to point out that the encouragement to large scale farmers would also assist the country revamp agriculture.



Arubayi (1987) attributed the reasons for the deteriorating conditions of Nigeria’s Agriculture sector to the following:

(a)     The marked failure of the sector to achieve growth rates that corresponds either to the growth in consumer demand (a function of both of the population growth and of raising consumer expectation) or the potentials of available technology.

(b)     A decline in predictive capacity, that is attributed to the quality an in some cases the waistring of the natural element of agricultural production.

(c)      The change in Nigeria position from that of a significant net exporter whose domestic consumption depends increasingly on external sources of supply.

(d)     The continuing and substantial rural to urban migration which among it’s other effect, places an increasing strain on available food supplies, at the same time it was the farmer or it’s most productive workers.

(e)      The effect of inflationary pressure on food, budgets and the standard of living of low income majority of Nigeria.

Oguntogun (1986) went further to say that the decline in agricultural productivity is as a result if decline from urban based activities and services which are still modest and have therefore not provided the big push to the national economy into sustained growth. He said that the population is growing at an alarming rate and rural urban migration has accelerated the problems of food supplies. According to him, this is aided by the lack of workable strategy for moral participate involvement in rural development planning and implementation.



Ajakaiye (1989), He said before we delve into these questions, it might be useful to put the issue into perspective business recalling grounds in financing agriculture in near future. The expectation on the part of the banks in the new policy is demanding and challenging. He said, that it is better appreciated against the background of the fact that for agriculture to be transformed from it’s present near subsistence stage, more capital will have to be injected in the farm business to enable farmers acquire tested and modern technology, acquire the necessary inputs (improved seeds, seedlings, agrochemical) and other materials and services necessary in the farm.

He continued by saying that another crucial factor is the fact that even though small holders producers are presently dominant and produce the bulk of food and fiber required, the long – run strategy should be to reduce the proportion of the population that engaged in farming. In doing this, more medium and large scale producers will be able to fully commercialized farming and of course increase on both their output and productivity and profitability.

Apart from this, he  continued, that bank can  inproveon their performance, more especially in time with perspective plan outlined in the agricultural policy in Nigeria. The areas of attention includes:

  1. Increases in Loan: We said earlier that despite the coercion on the banks to ensure that a minimum parentage of their fund are channeled to the agricultural sector. Despite this, the demand of the structural adjustment programme are such that the raw materials of most companies can be sourced loathly and that puts a lot of pressure on the local procedures especially the grain producers. Therefore, there is the need to channel more credits to the primary producers of grain etc to enable them cope with the challenge.
  2. The Nigerian Agricultural and Co-operative banks will need to accelerate the decentralization programmer the commercial banks, the rural branches of the Nigerian Agricultural and co-operative banks. This will enable the banks to improve on the timeless of credit delivery and enhances project maintenance and supervision. The decentralization will improve farm produce marketing and help stabilize market prices and drastically reduce post-harvest losses normally incur by farmers who sell their produce uneconomically after harvest in order to meet social and personal consumption needs.
  • Guiding Against Risk:- We allude that agricultural lending is unattractive due to the high level of risk and uncertainties resulting from crop failure, natural hazards and other unpredictable factors. Due to this, banks subscribed for fund from the Nigeria Agricultural Insurance company which is yet at it’s plot stage, covers only some parts of agricultural products, the small, medium and large scale farmers are to be benefit from this scheme either in group or as individual farmers.



Improvement in agricultural production required use of productive inputs, inputs – that are essential for increased crop yields. These productive inputs which constitute agricultural capital, cannot be acquired with the farmer’s financial resources alone. There is with borrowed funds in order to acquire adequate agricultural capital, since it (capital can substitute for other resources in the production process while savings are the major and most reliable sources of agricultural capital. It is doubtful if they can be available in a sufficient amount as needed for the agricultural economics of developing countries. As Miller (1977), points out, it is difficult to reduce the proportion going into saving in developing economies where majority of the citizens have little more than enough for mere subsistence. According to classical economic theory, credit which is defined as the “ability to command the capital of another in return of a promise to pay at some specific time in the future”, occurs to facilitate the purchase of capital goods that can add to total production in toe future.

Infact it has been referred to agricultural credit as the “acceleration” of agricultural development. In the same vein, notes that were the proper condition can be created, a well managed product credit can give agricultural development a strong best by accelerating the rate of adoption of improved technology by farmers who would otherwise be prevented from using it so credit is a major input to agriculture.



It has been observed that in developing countries majority of the population are engaged on agriculture, and that most of the food grown in these countries are produced by small scale farmers and large proportion of them, product is destroyed by various perils both before and after harvest. These losses noted are the major production constraints which farmers face.

There are many instances where many heavy economic losses and famine have occurred despite the fact that land higher yielding varieties and adequate fertilizer and other inputs have been sufficiently supplies. These losses of agricultural produce are mainly due effect of natural hazards beyond the control of the farmers. It was reported that the occurrence of maize steak virus in Ibadan Nigeria and Prior to 1981 high incidence of the disease were usually confirmed to day season irrigation crops. There was a serious disease incidence reported in Kaduna and Sokoto states of Nigeria in 1885.

Furthermore, Rosette and aphid epidemics of the groundnut is associated with the disappearance of the groundnut pyramids which used to be a common feature of most cities on the growing areas of Nigeria. It coverted Nigeria from the leadership role of world producer and exporter is a net importer.

CBN (1986), pointed out that the cassava mealing of 1984 divested all the cassava planting areas with yielding losses that worth millions of Naira. Also  in 1990, flood disaster no Old Anambra State especially River – vine areas. The Nigerian Agricultural Insurance Company no that year recorded the highest claims since it’s inception no Rivers State.

Also in 1998, gall nudge infection of river sent some farmers to death. For instance, Mr. Chukwuma Ohua and Paul Onwe from Izza and Ishielu Local Government Area of Abakaliki respectively lost their livies that year. There are farmers where highly divested by the gall nudge infestation, to the extent that there were no salvage from I these areas. Farmers lost heavily crop yield was poor and in many situations there were complete failure.

Suffice it to say that realistic change can be expected from the present nature of Nigeria’s agriculture or from all the various programmers by government to improve food production without ensuring that farmers are protected from the effect of natural hazard on their crop / livestock. Hence, the need for agricultural insurance to offer such production cannot be over-emphasized.


In order to combat high default rate by borrowers and to strengthen the operation of the Agricultural Credit Guarantee Scheme fund of Central Bank of Nigeria and the Federal Government of Nigeria established the Nigeria Agricultural Insurance Company in 1987.

The aims and objective of the scheme are;

  • The promote agricultural production.
  • To provide agricultural financial support to farmers in the event of losses arising from natural disaster.
  • Minimize and eliminate the need for emergency assistance provided by government during perils of agricultural disaster.
  • Increase the flow of agricultural credit lending institution to farmers.

Under the scheme fund have made it mandatory for loans guaranteed by the Central Bank of Nigeria to be covered by  Nigeria Agricultural Insurance Company farmers are expected to pay some premium for crops covered in their projects which is 50% borne by the federal government.

Thus, a farmers is expected to pay only 50% to the stipulated premium no respect of insurable crops and the identity is designed in such a way as to ensure smooth participation and to plough back a farmer in case of unexpected eventuality. This has been calls for sense of responsibility and utmost good faith to minimize the prevalent notion that Nigerian Agricultural Insurance Company (NAIC) comes up with counter claims: That claims by farmers are fictitious and therefore will not settle such claims.



                   Agric-Insurance is concerned with the business of insuring property and life in the agricultural industry against the occurrence of natural hazards such as fire, wind, from drought flood and pest invasion etc. In order words, agric-insurance is one of the ways of reducing the impact of risk on the farm with a view to stabilizing farm income. It enables the farm to covert the channel of a possible large but unknown loss of income into a certain know fixed cost. The country has in the absence if agricultural insurance suffered considerable losses on crops, livestock, income, investment as a result natural hazards, a situation which has prevented some farmers not only getting back to production but also repaying outstanding loans.

Similarly, prospective farmers. investors were scared from investing in Agriculture since they could invest in other more profitable and relative risk free ventures that are insurable. In addition to these, financial institutions were not favourably disposed to farmers. For a long time, the need for agricultural insurance scheme has not been felt.

The Nigeria Agricultural insurance has not its broad objective – the protection of farmers from the effects of natural disasters such as five, flood, drought, pest etc and to keep the farmers in business after suffering a loss.

  • Promotion of agricultural production.
  • Provide financial support to farmers in the event of losses arising from natural disasters.
  • Increase the flow of agricultural credit from lending.
  • Minimizing or eliminating the need for emergency assistance provided by government during the period of agricultural disaster.

Some problems have been identified to constrain the successful implantation of the scheme among these are:-

  • Poor infrastructural development of rural areas.
  • Non-availability and unreliability of data.
  • Inadequate funding
  • Illiteracy and conservative attitude of farmers.
  • Ignorance of the farmers and the general public on the general public on the operations and merits of the scheme.
  • Poor faming practices and differential level of farm development.
  • Human problems of dishonesty.


Considering work or literature related to the role of Nigeria Agricultural Insurance company an that of the Nigeria Agricultural Insurance Scheme in financing agricultural projects as carried out by earlier researchers it is observed that they confined to the objective of selling the scheme. These researchers intend to suggest problems and solutions of natural hazard in agriculture. The researcher also intend  to suggest the need for insurance protection on farmer against those element and physical risks that threaten the life stay of farmers in agricultural sector of the economy.

Despite the fact that the above views centered on other areas of the topic: the study is fact intends to produce a comprehensive role of NAIC and NAIS in helping to increase agricultural productivity in an economy. In the event of natural disaster, this study intends to emphasis, the extent of production which the scheme renders to farmers and it elaborates how farmers financial losses are relieved as soon as it is discovered.

Moreso, the study intends to explain the role of Mgaran Agricultural Insurance Company loans stand as a collateral for any agricultural loan obtaining from any financial institution in the country.

From the study, the extent to which the relief package given by government in the event of heavy loss on agriculture can be distributed equitably will be disclosed.

In concluding this chapter, the researcher intends to find out how possible the farmers can utilize these roles of Nigeria Agricultural Insurance Scheme in their agricultural productions.

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