Rural Economies in Nigeria -Impact of Banks in Financing Rural Economies in Nigeria
Rural Economies in Nigeria – In most developing countries rural economies is both the main traditional pursuit and the key to sustained growth of the modern economy:- Economies growth has give hand in hand with rural economies progress; Stagnation in rural Economies is the principal explanation for poor economies performance profile rising rural economies predicting has been the most important successful indoctrination.
Okoro (2004) opined that rural economies are the production of animals and food crops both for export and local consumption.
Rural economies production is of predominant important in Nigeria. This stemmed from the high level of its contribution of the country’s gross national product. Secondly, it is the major employer of labour especially during the years proceeding.
The oil boom era, this is because the other sectors are yet undeveloped. Thirdly, rural economies production in Nigeria accounts for over sixty percent of the food censured in the counting, the balance being imported fourthly, rural economies is a major foreign exchange earner for the comply, the cash crops such as cocoa, groundnut, cotton etc are demanded and bought by foreign countries.
Abagomi (1997:11) pointed out that the roles conventionally ascribed to the rural economies sector in a growing economy includes the following:-
- Providing adequate food for an increasing population.
- Supplying raw materials to a growing industrial sector.
- Constituting the major source of employment.
- Earning foreign exchange though commodity export.
- Providing a market for the product of the industrial sector.
During the period of civil war in 1970, the Nigeria economy witnessed a depression which as a result of the effect of war. Based on this, the economy was grouped into two; namely:
The preferred and the less preferred sectors.
The preferred sector comprises the rural economies, naming and quarrying, manufacturing, transportation, communication while the less preferred sector is made-up of personal and professional credit and financial institution.
Between 1973 and 1979 Nigeria witnessed another differentiation in the rural economies sector of the economy. Because of this, there was widening food import bill, which led to the rapid decline in the revenue of the government from the rural economy sector. This was a result of the discoveries of few oil well and the oil boom. This led to Naira appreciating more money in circulation and dependant in the importation of agricultural product. Since then rural economies has been felt as a substandard instrument for foreign exchange earnings.
Of recent the economies situation high employment level (devalued Naira value) has motivated our economies planners to realize and appreciate the fact that no nation can grow when her agricultural sector is given little attention or completely neglected.
This sector is viewed as the catalyst for the survival of the nations economy and the growing population and as such have been given premium over other sectors of the economy. Government have now shifted emphasis from the over dependence on oil sector to the development of our rural economies sector. This is geared towards attaining the economies objective of full employment equilibrium.
Because of this the federal government in her monitoring and fiscal policies, through the CBN serving as her agents, formulate and implement policies which are aimed at directing financial institutions to charnel certain percentage of her total loans and advances to the preferred sector of the economy and a pole of penalty awaits any Bank that fails to comply with the stipulated techniques such as moral suasion.
STATEMENT OF THE PROBLEM
The role of rural economies growth and development of any nation cannot be under scored. As a result the symbolic relationship between Agricultural and industrial development in any nation holds the key to genuine structural transformation and self-reliance.
Unfortunately, since re-orientation towards rural economies development, the results gotten so far are not encouraging. One is forced to ask if the awareness is spread wide the same. How well have banks fulfilled their obligations to finance rural economies development.
The researcher will try to find answers to these questions as he (the researcher) looks at the impact of banks in financing rural economies in the Nigerian economy.
PURPOSE OF THE STUDY
The aim of this study is to ascertain by viewing, evaluation and quantifying the extent to which banks have gone in supporting rural economies growth in Nigeria. This will be achieved through discovering:-
- The various sources of finance available to Nigeria farmers.
- The problem which banks encounter in advancing loans
- Evaluating the various government policies programmes and schemes which are aimed at improving this sector.
- How banks have been complying with this mandate (to finance agriculture).
- Find out how well agriculture has contributed to economic growth.
This work will try to answer the following questions:
(a) What is the impact of Banks loan and advances on the level of our domestic output?
(b) Is agricultural funding enhanced by the legislation stipulating allocation to preferred sector?
(c) What are the factors impending the effective implementation of this mandate by banks?
(d) Does the level of education of farmers affect their utilization of this provision?
(e) Is there a relationship between the value of loans and advances extended by Banks and the value in the Gross Domestic Product (GDP.
(f) Is there a significant relationship between the value of agriculture output and the value of Gross Domestic Product?
The study has two hypotheses that will be listed with the required statistical tool,
Ho1: There is no significant relationship between the value of loans and advances extended by banks and the value of agriculture output.
Ho2: There is a significant relationship between the value of loans and advances extended by banks and the value of agriculture output.
SIGNIFICANCE OF THE STUDY
The study will be of immense benefit to perspective farmers, as it will enlighten the on the benefits Bank loan. It will provide useful source of information to Bank Credit Managers. Staff and depositors, for direction on how to analyze loan to farmers.
The government and the general public will also benefit from this study as it will provide them a general analysis on how their legislations on sect oral allocation is headed to.
Finally, it is expected that the study will significantly contribute to existing stick of exchange.
LIMITATIONS OF THE STUDY
Gathering information for the study was a difficult exercise as it was not possible to get across to all the banks that have at one time or the other participated in financing rural economics in Nigeria. Major limitations are, financial constraint and the negative attitude of some respondents to interviews and questionnaires towards releasing information’s necessary for the study, moreover, the constraints were carefully taken care of and within units of error and variance.
- Inadequate research material: Much research have not been done in this area and because of this, it was problematic to the researcher.
- Finally it has been undisputable facts that time have been a big problem to this research work and as such these are likely to affect the scope of this works.
DEFINITION OF THE TERMS
- Preferred Sector:- This is the priority sector of the economy which includes the agricultural sector, mining and quarrying, manufacturing and construction etc.
- Rural Economic Financing:- This is the economic study of acquisition and use capital to obtain control over the use of capital goods and services to enhance rural economic growth with a promise to repay at a future time.
- Advance: This is a credit facility which is extended for the main purpose of providing working capital for the borrower.
- Bank: A bank could mean an organisation or financial institution that has the regular practice of accepting deposits of values commodities, i.e. cash, precious metals etc from the general public which it returns on demand and for which interest is charged or paid.
Experience they say is the best Teacher. In matters like this, the experience can only come by sharing other people’s view on the issue because of the essential nature of the topic to Nigeria or the entire world at large. However, the intension here is not to collect on extension array of literature of the performance of the rural Economies Sector, but to select these reference that are relevant to this work.
Consequently, a systematic presentation of literature on issues relating to this topic will be presented here.
Odozi (1997) aptly remarked that Banks in Nigeria are not usually very enthusiastic to grant credit facilities to institution on long term projects where huge capital is likely to be tied down. He further said that the reluctance of Banks to commit their capital to rural Economies production had forced the government to establish the Nigeria rural Economies and co-operative Bank with the sole responsibility of liberalizing credit facilities to farmers and Agricultural Institutions.
Afolabi (1999:6) like any other Economist stated that Nigeria is a structurally imbalance Economy. He pointed out that before the oil boom, the Economy depended wholly on rural Economies for employment, foreign exchange earnings, government revenue raw materials etc. He asserted that the emergence of oil distorted the attention paid to rural Economies in Nigeria.
Hence, Nigeria embraced a changed emphasis on petrol dollar. Concluding, he remarked that banking industry has come to play significant roles in the development process of our economy. Since 1970’s to date there has been many publications as well as directives from the monetary authorities on the need for and how to promote and sustain industrialization in Nigeria. Most of these writings are of the view that bank especially commercial banks should form the main avenue from which sustainable funds would be conveniently made available for the over-all Economies development.
Azubuike (1993:33) stated that banks in Nigeria are noted to shy array from their responsibility of providing development oriented funds to enterprises in general and to indigenous entrepreneurs in particular. The further observed that this practice has been rationalized on the banks of the orthodox concept of commercial banking which preludes banks as mobilisers of short-term funds from generating medium and long-term credit.
THE EVOLUTION OF BANKING IN NIGERIA
The word bank is derived from the Italian word “banco” meaning bench. The jews in Lombardy, the early bankers conducted their business at benches in the market place. A bank could mean an organization or financial institution that has the regular practice of accepting deposits of valued commodities i.e cash, precious metals, etc. from the general public, which it returns on demand and for which interest is changed or paid as viewd by (Okoro, 2001 55:57).
Different national have maintained very unique and stylish banking system, each system peculiar to the particular nation. However a simple observation could be made on the basic fact that all the nations banking have consciously or unconsciously maintained a common feature in the area of performing the fundamental and the orthodox functions of the banks.
The banking system of Nigeria is made up of many banks variously classified, for instance commercial, merchant and development bank of various sizes and structures.
The growth and development of international trade along the West African coast played a major role in extending the medium of exchange beyond trade by barter in the nineteenth Century. The “native currency” system which relied on items such as cowries, manila, brass and copper rods, had to accommodate foreign currencies such as Maria there dollar (this was an old Austrian coin which was popular in Hausa land and in the Northern part of Nigeria) and British Silver coins. Increased trade motivated the setting up of the banks of British West Africa (BBWA) in 1894, thereby drastically reducing the barter system and ushering in a rudimentary from of commercial banking. The issue of legal tender currency for the West African Region was however deferred till 1912 when the WACB was established. The WACB was an offshoot of the recommendation of the Emmot Committee set up by the then secretary of State, the RT. Hon. Levis Harcourt. The WACB retained the services of the BBWA as its currency distribution agent. It set up four currency centres in Lagos (Nigeria), Accra (Ghana) Freetown (Sierra Leone) and Barthurst (The Gambia). The currency in circulation in West Africa increased steadily through the 1950s in response to the growing demand for West African primary products (such as cocoa, groundnuts and palm oil) and increase in the world prices of such products.
The WACB, however did nit have discretionary control over the money stock of the territories under its sphere of influence.
It was set up primary to promote the financing of export trade. Specifically, it was charged with the issue of a West African currency, the exchange of existing currencies, the repatriation of such currencies and investment of reserves. There was a fixed party between the local currency and the British pound, while the currency had 100 percent sterling coverage. The reserves were invested in Britain and this in a way facilitated Nigeria’s international payments. As the WACB was automatically linked to the British system, the investment policy was rather conservative in the sense that sterling reserves were invested only in Britain. Moreover, the WACB could not engage in monetary management, neither were Nigerians trained in the art. In order to eliminate this deficiency and promote the growth of the domestic money and capital markets, especially as the country marched towards political independence in 1960. The Central Bank of Nigeria was established by the Central Bank Nigeria Act of 158. The bank commenced business on 1st July 1959 with an initial capital of N3 million.
ECONOMIC DEVELOPMENT IN NIGERIA
Economic development is a process whereby the real per capita income of a country increases over a period of time (Meier: 1970) Economic development is the totality of the underlying structural institutional and qualitative changes that expand the countries capacities (Hogendorn: 1992). From the above definition, it can be stated that economic development involves economic growth plus sustained structural changes that affect wider segments of the Economy.
In talking about Economic development, one or the most important factor is capital. Capital here means money and property that may be used for the production of more wealth. It represents a stock of goods and services not denoted to immediate consumption but operated to increase the volume of consumption in future periods either directly or indirectly through production. The main purpose of Economic development is therefore to build capital equipment on sufficient scale to increase productivity in agriculture, mining, plantation and industry. Infact, the essence of economic development is the creation of economic and social overhead capital. Perhaps it is obvious to say that in a country like Nigeria where capital is in short supply, it is the role of banks to mobilize savings very well and transfer them to productive investment. This is more true for rural capital formation.
Various factors affect the Economic development:
ü Technological innovation: This has a direct bearing on Nigeria’s productive capital.
ü Rate of population growth: High rate of population growth is inimical to economic development as it lead to a reduction of per capital income, increases dependency level and exerts unhealthy pressure on the economy and on societal and family security (NPC: 1999).
ü Capital formation
ü Development of Agricultural Sector
ü Human Resources Development etc.
i. RURAL DEVELOPMENT IN NIGERIA
Rural Development is defined as a Socio-economic transformation and restructuring of the rural economy to lift it from being a peasant subsistence agricultural Economy to a modern commercialized agricultural enterprise with all the legal, political, organizational and attitudinal changes that it thus entails (Savatore: 1977). Rural development as a socio-economic transformation entails issues of growth, modernization but also goes beyond these to create new social structures within which the gains of the rural population from all of them can be consolidated and reinforced in a cumulatively upward spiral of performance.
Nigeria has tried various means over many years to ensure that credit gets down to the rural people, co-operative societies have been formed to ensure that small farm have access to credit as a member of a larger group. Government has forced banks to give out a proportion of their loans to the agricultural sector. Apart from insisting on a lower interest charge for loans to the sector, it has since established the agricultural credit guarantee scheme since 1977 to underwrite some of the risks of banks lending to small farmers without normally acceptable security.
ii. RURAL ECONOMICS IN NIGERIA
There is no clear-cut definition of a rural area. This is because in most countries of the world, the degree of urbanization varies a great deal and more so. Urban and rural communities overlap one another. What may be regarded as rural community in Europe for example, can be viewed as an urban area in African. However, some attempts have been made by different school of though each definition is given on the basis of what a person or group of persons feels the population and available infrastructure in the area should be.
Rural community brought about by the united nation as a population of less than 10,000persons and characterized by a highly integrated social system, social values, activities, their characteristics are necessary but not sufficient criteria for grouping communities into “urban” and “rural”. Therefore, the placement of dividing lines between urban and rural is particularly arbitrary.
Court, (1981:112) viewed rural economy in Nigeria as a sector of the economy where agriculture forms the man economic activity of the population irrespective of the population size while other activities like handcrafts, petting trading and other small scales production units from a second line of activities undertaken usually to augment the meager income from agriculture. He continued by saying that occupied by peasant farmers, artisans and small occupational practitioners who live in close inter-relationship within communities of varying population the rural inhabitants depend mainly upon agriculture for their sustenance and have adapted their way of life to relative isolation and little access to national resources and very low influence over their future. He describes the other characteristics of rural economy to include low standard of living, low level of productivity, widespread illiteracy etc.
THE ROLE OF BANK IN FINANCING RURAL ECONOMIES IN NIGERIA
There is a wide acceptance of the assumption that financial institution and in particular banks are major engines of Economic growth. The assertion of Cameroon stated that “the way in which Banks performed their functions of financial intermediation may well determine the degree of the development effort”.
However, it is believed that Banks are supposed to assume dynamic position in a nations’ development
efforts. As intermediaries they are expected to vigorously seek out to attract entrepreneur for investment on project with a huge rate of social returns.
Also, if we assume that the growth of rural economic sector is critical factor in the process of rapid and sustainable economic development in Nigeria. Then, a balance and efficient economic and output structure cannot be attained without a corresponding growth in rural Economic, it then becomes clear that one of the critical areas to divert savings and financial resources of the Banks is to the rural Economic Sector of the economy.
Furthermore, Bank have dual role to perform as financial intermediary, they as custodians of their customer’s money as well as their share holders not withstanding.
It is on the content of the above that we are going to critically analyze the role of bank in rural Economic financing.
Finally, the significant improvement recorded from the past years record, indicated that banks are able to more with the changing circumstance of the economy.
HISTORY OF BANKS AND RURAL ECONOMIES FINANCING IN NIGERIA
The financing of rural Economies in Nigeria by Banks have a long history of lending in the economy. By late 1950’s and 1960’s this Banks played significant and dominant role in the activities of the farmers by marketing credits available to farmers and serving as their licensed agents. Even at present, the bank still supports the later under the commercial bill financing scheme, introduced in 1962, the marketing board met the bulk of their cash requirements by drawing 90 days produce marketing company limited and discounting the accepted bill with a consortium of Banks.
Today, the involvement of Bank in rural economies financing takes different ways, which includes the bank funds project, by body of corporate finance, corporate societies, and individuals groups of farmers. One of the corporate societies that these banks funds are the women corporate society which has been initiated in almost all the towns and villages in the country
These banks also lend or give grants to the Government. The Government also mandated Banks to extend a specified percentage of its total loans and advances to rural Economic Sector of the Economy.
PROBLEM ENCOUNTERED BY BANKS IN ADVANCING CREDIT TO RURAL ECONOMIC SECTOR IN NIGERIA
Banks encounter different kinds of problems in advancing credit to rural Economic Sector, these problems starts at the time of approval of such credit proposals. Immediately a credit facility is extended to a borrower (i.e farmer) he develops handcore and may no longer care to utilize the credit, which was granted for the purpose it was meant for. And even at the time of repayment the borrower subsequently defaults. These defaulting attitudes of farmers are of great concern to the bank’s (commercial). Aside this, some farmers do not have enough collateral to secure loan from Banks and where collaterals were collected, the farmer finds it difficult to meet their responsibility.
CHARACTERISTICS OF THE NIGERIAN RURAL ECONOMIES
According to Sile (1996:12), the Nigeria rural Economies is structurally a near exclusive pressure of small scale pleasant producers who are responsible for over 80% of the rural Economies output, which at least 60% of the country’s population earn their living directly or indirectly from rural Economies.
Anoyemi (1999:37) maintained that “Nigeria still manifests the typical symptoms of peasant rural Economic” the farmers are dominated by small scale farmers who are responsible for about 95% of total population. He also stated that livestock are in the hand of the normadic herdsmen, poultry is still essentially the backyard type, although a few commercial units are coming up. The fishing sector is still predominantly artisanal, very few motorized canoes are in use, not to talk of fishing crawler, which are still very rare, except those that were brought into the country’s territorial waters legally or otherwise by foreign industrial fishermen, industrial forestry is also just beginning. However, from this analysis, it can be deduces that Nigeria rural Economies us still at subsistent level of production.
Therefore, greater efforts and major decision making are needed to transform rural economies to a more monetized basis.
Nigeria rural Economies is characterized by low farm incomes, low capacity level to satisfy the food and fibre needs of this country and primitive techniques of productions. This was assertion of Oyaloye (1999:50) she further observed that the rural Economies output couldn’t increased because of the nature of technology in use. That notwithstanding, the significant contribution to the Gross Domestic Product in pre oil periods. One cannot but agree with her that serious overhauling of the entire rural Economies Sector of the economy is overdue, if we actually want to attain self sufficiency in food production. The absolute and inefficient technique and system of rural Economies practice need to be changed for more efficient and acceptable system of rural Economies practice.
Also Unuokoro (1992:22) noted that, “Agricultural industry like economies activities is accompanied by risk and uncertainty”. Primarily, this is as a result of the fact that rural Economies deals with physical and biological phenomenon of land. Whether plants and animals. We therefore cannot but agree with this because we have witnessed some cases of render past distribution erosion menace and other rural Economies misfortunes in the economy.
PROBLEMS OF RURAL ECONOMIES IN NIGERIA
i. LAND FRAGMENTATION
This is the sharing of land into tiny portions with the result that each farmers gets piece of land for any meaningful agricultural production. This fragmentation result from the land ownership system in the Nigerian societies. Rural Economies productions thus maintained by the unavailability of bigger expanses of land.
ii. POOR MECHANIZATION
The use of sample manual tools is still predominant in rural Economic in Nigeria. The use of tractors and other mechanized implements are slow in gaining ground due mainly to the high cost of these machines. The average rural farmer cannot afford the huge capital outlay required for their acquisition.
iii. NON AVAILABILITY AND MISUSED OF RURAL ECONOMIES CREDITS
Initially, the average Nigeria farmer found it very different to secure loans from the banks. The reason for this being their inability to secure the loans they are demanding with adequate collaterals. Thus, the banks saw then as high risk borrowers and therefore, very unwillingly to lend to the farmers. The intention of government through the creation of banks for rural Economies changed the situation. Loans become easily available but unfortunately the farmers turned to misusing the rural Economies credit to procure machinery or better for inputs, they used it to acquire more village titles and more wives.
Inadequate education or none at all is a serious problem hampering high productivity in rural Economies, the farmer is not educated enough to make use of all the available modern technique of rural Economies which should yield high productivity. In some case even the use of fertilizers and other agro-chemical are difficult for the uneducated farmers.
V. NON AVAILABILITY OF IRRIGATION FACILITIES:
The absence of irrigation system has reduced all farming operations to only a portion of the year. This means that foods which is needed everyday, round the year must be produced only within a few months of the year. This has led to seasonal price fluctuations, price come low during harvests and go high after wards. Availability of irrigation facilities would have made possible for production all the year round.
vi. INADEQUATE STORAGE FACILITIES
Most of the rural Economies products produced in the country get spoiled before getting to the markets storage facilities are normal and in some cases impracticable. Products such as fresh tomatoes pepper and okra cannot be stored for a long time makes by refrigeration which is expensive and impossible in the rural farms owning to absence of electricity. The non existence of this facilities discourages farmers from extensive cultivation of some crops.
vii. POOR TRANSPORTATION
The rural privately owned farm settlements are usually located in the most interior parts of the country where there are no adequate road networks. Most of these farmers do not have motorable roads on many occasions access to such farms is only possible during the dry seasons. Thus the farm inputs required in such farms couldn’t possible be taken there, and farm products cannot also be brought to the market.
Okoro (2004) opined that in the light of all these problems facing rural Economic are many wonder whether there still exists any possibility of a business investment in rural Economic sector being successful. Through these problems are many and appear intractable, various governments in Nigeria have done much in an attempt at alleviating them.
GOVERNMENT EFFORTS TO REMEDY THE PROBLEMS OF RURAL ECONOMIES LOW PRODUCTIVITY
The government has responded to these myriads of problems by:
i. MAKING RURAL ECONOMIES A NATIONAL POLICY
The federal government has in its desperate effort to improve rural Economies included it, in its list of preferred sector. By so doing greater amount of credit is made available to the sector by banks under government directives issued through the central monetary authority i.e the Central Bank. Also foreign exchange is made readily available to rural Economies for the procurement of machinery and agro-chemicals and other farm inputs.
ii. TARIFF ON FOREIGN AGRO-PRODUCTS
The government has by banning the importation of food items into the country further encouraged farmers by increasing the demand for their produce food crops and raw materials produced here in Nigeria now enjoy ready market thus increasing the returns to agriculture investment.
iii. RESEARCH AND DEVELOPMENT
The effort of the government in financing research into rural Economic and attempts at developing locally agro-machinery cannot be overlooked. A good number of research institutes have been opened and maintained by the Nigeria institute for oil palm Research (NIFOR) National root crop research institute umudike Imo State. Also the government has funded the effort of centers like the project Development Agency (PRODA) Enugu at developing both tractors and food processing machinery. The center has successfully developed a Garri-processing machine, which is widely used in Nigeria today
iv. NIGERIAN AGRICULTURAL AND CORPORATE BANK (NACB)
the authorities together with the central Bank of Nigeria have supported agriculture by producing financial resources to the Nigeria agricultural and corporative banks (NACB). The bank was established in April 1973 to provide credit to all aspects of agricultural production (including horticulture, poultry, framing pig breeding, fisheries, forestry and timber production and to enhance the availability of storage facilities and promote the marketing of agriculture products through the liberalization of credit to farmers. The central bank holds 40% of the share capital of NACB which was raised recently to N150 million while then balanced of 60% is owned to provide medium to long term credit facilities to agriculture the banks minimum direct loan is N50,000 while indirect loans can be any amount depending on the resources of the relative agency. The banks has recorded some achievements in various sectors of agriculture.
OTHER RURAL ECONOMIES SUPPORT INSTITUTION
Small holder (farmer) loan scheme in Nigeria Agricultural and co-operative Bank. The Nigeria Agricultural and co-operative Bank is an apex development financial institution set up to external rural Economies and agro-allied sectors could be assisted by way of loans so long s the project to which assistance is being sought could satisfy the following general lending conditions:
ü The aims and objectives of the project are not supposed to be conflict with the laws, bye-laws regulations of any government in the country.
ü It must be economically viable by showing that it would make satisfactory financial returns on investment and be able to generate sufficient cash flow to service the loans in accordance with the agreed turns and conditions of the loan. Rural Economic has many loan schemes and each scheme is specifically designed to take care of the various requirements of a particular borrower.
—————-not complete———–not complete————–not complete——————–
This article was extracted from a Project Research Work/Material Topic “THE IMPACT OF BANKS IN FINANCING RURAL ECONOMIES IN NIGERIA (A STUDY OF SELECTED BANKS IN EBONYI STATE)”