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IMPACT OF COMMERCIAL BANK IN FINANCING AGRICULTURAL SECTOR

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IMPACT OF COMMERCIAL BANK IN FINANCING AGRICULTURAL SECTOR

 

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Bank credit if managed properly helps in maintaining a business to help to prevent an economic activity from total collapse in the event of a national disaster (Nwayanwu,2011). Maftau (2003) argues that bank credit helps in reactivating, expanding and modernizing all types of agricultural enterprise.  Which are considered economically feasible and desirable to the achievement of stated economic goals of self-sufficiency in agricultural production. In this context, bank credit provides incentives to adopt new technologies that would have been more slowly accepted (Eyo,2008 and Ojoko, 2011).

 

Credit to the agricultural sector could take the form of an overdraft, shot, medium, or long term credit, depending on the purpose and gestation period of the project (Muftau, 2003). The work of Rahji and Adeoti (2010) identified that agricultural credit is a major input in the development of the agricultural sector in Nigeria, yet there has been a decline in banks enthusiasm to lend to the sector because of the inherent problems associated with the sector. Iheanyi (2012). However, shows how commercial banks have exhibited their concerns for the agricultural sector in Nigeria by finding it extensively.

The major objective of this chapter is to examine the farmer oriented loan practice of Banks in Nigeria with a view to determine their coverage and effectiveness, especially, the study shall review the practice of financial institutions which include Agricultural, co-operative and rural development Bank limited and other commercial banks.

Finally, the research work will be reviewing some of the previous studies which are relevant to the role of banks in the finance of Agricultural development in Nigeria. The study of economic history provides us with ample evidence that an agriculture revolution is a fundamental pre-condition for economic development (Eicher and Witt, 1964: 239). The Agricultural sector has the potential to be industrial and economic springboard from which a country’s development can take off. Indeed, more often than not agricultural activities are usually concentrated in the less-developed rural area where there is a critical need for rural transformation, redistribution, poverty, alleviation and social-economic development (Steward, 2000) the central hypothesis of this work, therefore is that a productive agricultural sector lies at the root of the stupendous economic advancement of Nigeria.

 

The Nigeria experience is of course, a striking example of how agriculture can advance beyond its primary function of supplying food and fiber. The agriculture of supplying food and fiber. The agricultural sector has the potential to shape the landscape, provide environmental benefits such as land conservation. Guarantee the sustainable management of renewable natural resources, preserve biodiversity and contributes to the viability of many rural area (Humbert, 2000: 1-3) in fact through its different spheres of activities at both the macro and micro levels, the agricultural sector is strategically positioned to have a highly instrumental growth has been highly instrumental to Brazil rapid rural transformation, the empowerment of Brazilian peasants and the alleviation of object poverty.

Interestingly, the Nigerian economy, like that of Brazil, during the first decades after independence could reasonably be described as an agricultural economic because agriculture served as the engine of growth of the overall economy (Ogen, 2003: 231-234) from the standpoint of occupational distribution and contribution to the GDP, agriculture was the leading sector. During this period, Nigeria was the world second largest producer of cocoa, largest exporter of palm kernel and largest producer and exporter of palm oil. Nigeria was also a leading exporter of other major commodities such as cotton, groundnut, rubber and hides and skins (Alkali, 197: 15-16). The agricultural sector contributed over 60% of the GDP in the 1960 and despite the reliance of Nigerian peasant farmers on traditional tools and indigenous farming method, these farmers produced 70% of Nigeria’s exports and 95% of its food needs (Lawal, 1997: 195).

However, the agricultural sector suffered neglect during the hey-days of the oil boom in the 1970s, ever since then Nigerian has been witnessing extreme poverty and the insufficiency of basic food items. Historically, the roots of the crisis in the Nigerian economy lie in the neglect of agriculture and increased dependence on a monoculture economy based on oil. The agricultural sector now accounts for the less than 5% of Nigeria’s GDP (Olagbaju and Falola, 1996: 263). It is against this back drop that from the Brazilian experience for possible replication in Nigeria.

1.2 STATEMENT OF THE PROBLEM

It is sad to note that agriculture which as the most important industry in Nigeria economy is still in early development stage with farmers using the crude implements and reports of agricultural products to some extent is very poor. Therefore, unless the agriculture base is developed we shall labour in vain in trying to improve the standard of living of the people of this nation. Insufficient capital and credit facilities to the farmers are major constraints that have been identified to because of poor agricultural development.

The contribution of agriculture to the Nigerian economic growth is very low compared to what it used to be in the past! Nigerian agriculture to a large e4tent still possesses the characteristics of a peasant economy that was prominent in the independence period! 'n spite of the presence of two major rivers 3 the Niger and the venue, the agricultural sector is still predominantly rain fed! Agricultural productivity has seriously declined over the past two decades and as a result, rural poverty is rampant. World bank data shows that more than 70% of Nigerians live below the poverty line (Which is less than a dollar/ day) implying that there has been an astronomical growth in the levels of poverty of Nigerians most of whom are engaged in agriculture from independence till today (Chigbu, 2005). It is therefore imperative to examine the contribution of agriculture in Nigerians economic development.

The effect of government (Central Bank) regulation toward agricultural financing in Nigeria is also problems that militate against the improvement of agriculture in Nigeria. The low volume of business in the rural areas where poverty is most prevalent cannot guarantee sustainable business activities to encourage the establishment of commercial banks to provide the needed finance for agricultural production Although, the commercial banks finance agricultural activities but their credits are urban based and so small that their impact cannot be felt in the rural areas where farming actually takes place.  Lack of priority attention to rural population in credit delivery by commercial and other banks in the economy contributed to the depressed economic conditions in the rural economy, and this situation also affects the overall economic growth and development of the nation (Bamsisele, 2000).

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