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CHAPTER ONE

1.1    BACKGROUND OF THE STUDY 

Agriculture according to Longman Dictionary of Contemporary English (New Edition) is the science or practice of farming.

Agriculture has a key role to play in the economic development of Nigeria, it is a leading sector in any meaningful economic development being carried out by any nation such as ours. Agriculture as its output tends to contribute significantly in the areas like employment opportunities, provision of food to the increasing population, contribution to GDP where the country is able to earn foreign exchange, also the provision of raw materials to our local industries particularly the agro-allied industries for further production.

An overview of Nigerian agricultural sector during 1960’s revealed that

agricultural sector was the most important to the economy. In fact, the generation of this period can still remember those days when the pyramid of groundnut was the pride to the northern region and cocoa production areas of the west also boosted the foreign earning from cocoa exports. Today, the nation is still not independent in terms of agriculture providing food for its people to feed on.

Credit is an important instrument for improving the welfare of the poor directly through consumption smoothening that reduces their vulnerability to short-term income. It also enhances productive capacity of the poor through financing investment in their human and physical capital. The demand for credit for productive investments usually comes from the poor who are less risk-averse and it enables them to overcome liquidity constraints, making it possible to undertake investments that can boost production, employment and income. Financial intermediaries have not been able to accommodate small-scale farmers because it is risky and a different task associated with high transaction costs. Lack of information prevented large formal leaders who had capacity to serve the smallscale farmers and the poor from doing so. It is undisputable that small-scale farmers have always had a problem of access to credit facilities. To improve the access, improvements need to be made in the provision of financial services. In order to implore financial services, leaders need to consider the preferences and socio-economic condition of clients. This contributes to both regulatory process as well as product development – thus, an understanding of characteristics influencing farmers’ decision to use agricultural credit could assist policy formulation that could enhance welfare of the poor or those excluded from access to credit

facilities.

The poor performance of Nigerian agriculture and its attendant effect prompted government to

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