The impact of commercial bank Credit on agricultural production in Nigeria 1981-2015. Download the full research work in doc editable format. In recent years, Nigeria has been of hand with agriculture, yet the sector still accounts for a significant proportion of her gross domestic product. Agriculture was the leading sector in the pre-oil boom era, contributing 63 and 54 percent to GDP in the 50s and 60s respectively (Aigbokhan , 2011).
1.1 Background of the Study
In Nigeria, agriculture remains the mainstay of the economy since it is the largest sector in term of its share in employment. Philip, Nkonyo, Penderd and Oni (2009), in an effort to diversity her oil base economy, Nigeria is placing much emphasis on financing other sectors most especially agricultural sector since agriculture has the potential to stimulate economic growth through provision of raw materials , food , jobs and increased financial stability (Obansa and Madeuekwe, 2012). It follows that agriculture financing is one of the most important instruments of economic policy for Nigeria, in her effort to stimulate development in all directions , finance is required by agricultural sector to purchase land, construct building, acquire machinery and equipment, hire labour, irrigation etc in certain cases such loans may also be needed to purchase new appropriator technologies. Not only can finance remove financial constraints, but it may also accelerate the adoption of new technologies.
Adegeye and Dittohs (1985) defined Agricultural finance as the economic study of the Acquisition and use of capital in Agriculture.
Dim and Ezenekwe (2012) opines that life expectancy is modeled against agricultural output and agricultural expenditure, amongst other variables. Agricultural output is also modeled against a host of socio- economic natural and human factors which influence agricultural productivity. Agriculture has often been touted crucial in economic development of most third world countries. Recent researchers on the causes of development and underdevelopment have identified agricultural as key to the economic emancipation of ailing states (Dim and Ezenkwe, 2012).
In recent years, Nigeria has been of hand with agriculture, yet the sector still accounts for a significant proportion of her gross domestic product. Agriculture was the leading sector in the pre-oil boom era, contributing 63 and 54 percent to GDP in the 50s and 60s respectively (Aigbokhan , 2011). The sector’s share in gross domestic product though fell in the post oil boom period, maintained yet persistent increase. For instance between 1970 and 1980, the share of agriculture in real gross domestic product (RGDP) in Nigeria averaged 29.2%, it was 33.3% between 1980 and 2000 and 41.2% between 2001 and 2009, (Aboyomi, 1997). This performance depicts the relevance of the sector to the Nigerian economy. Also worthy of emphasis is that agriculture employs a majority of the Nigeria labour force of 65 percent according to Emeka (2007). This majority consist of peasants who engaged in agriculture not merely as a source of income or even as just an occupation, rather they have subsistence agriculture as a way of life. They solely depend on agriculture to eke out a living, which they really do achieve having a miserable existence, a life plundered by diseases, malnutrition and poor housing, poor clothing and poor access to energy. This scenarios is not disconnected from the position of Okuneye, Fabusoro, Adebayo and Ayinde (2004) that the incidence of poverty is highest among households in which the head is engaged in agriculture as the main source of income, yet agriculture plays crucial roles in economic development (Makie, 1964, Abayomi 1997, Abdulalahi 2002). World Bank, (2007) observed that the sector contributes to the development of an economy in four major ways:
Product contribution, factor contribution, Market contribution, foreign exchange contribution .
Iganiga and Unemhilim (2001) opines that in Nigeria, Agriculture is estimated to be the largest contributor to non-oil foreign exchange earnings. This means that Agriculture holds abundant potential for enhancing and sustaining the country’s foreign exchange. Okumadewa (1997), world bank (1998), winters, Janvry, Sadoulet and Stamoulis (1998), food and agricultural organization (2006) observed that agriculture contributes immensely to the Nigerian economy in various ways , namely; the provision of food for the increasing population, supply of adequate raw material (and labour input) to a growing industrial sector, a major sources of employment, generation of foreign exchange earnings and provision of a market for the products of the industrial sector. support for Agriculture is widely driven by the public sector, which has established institutional support in form of agricultural research extension, commodity marketing, inputs supply and land use legislation, to fast track development of agriculture .
The possible way forwards among others, include the provision of finance. Farmers need access to cheap finance and not to be forced to borrow at sky-high interest rates from local money lenders: this can be achieved by setting up rural banks specializing in the provision of finance to small farmers. As observed by Anyanwu, Ukeje, Amoo, Igwe and Eluemuor (2010), one of the objectives of agricultural credit policies over the years was to make adequate credit available to the farmers at the right time and at affordable cost. Various measures have been adopted in pursuance of this objective in the recent past. These include purveyance of credit to the agricultural sector at concessionary interest rate, establishment of agricultural finance institutions, and introduction of funding schemes, etc. Despite government efforts to ensure the provision of credit through the various mechanism embarked upon, credit to the agricultural sector remained low, as it did not result to increased allocation of credit to the agricultural sector.
Also in the recent time in Nigeria, following the central banks of Nigerian C.B.N (2010) annual growth rate of agriculture dropped from 55.2 percent in 2002 to 7.4 percent in 2006. It however, fell further to a mere 6.2 percent by the end of 2009. According to the African economic outlook (2011), however, the Nigeria agricultural sector has performed remarkably, well with an estimated growth rate in 2010 exceeding 6.0 percent, reflecting the good weather conditions that boosted crop production. The government’s effort to address protracted issues of inadequate credit and scheme has also benefited agricultural expansion as in 2009/ 2010.
Basher (2012) opined that the government made 200 billion Nigerian naira (NGN) available at low interest rates to farmers and other practitioners in the agricultural sector. As such, what roles have institution and schemes played in the financing of the agricultural sector. As such, how has interest rate policy impacted on agricultural production in the country?
However, this research will focus on using variables like interest rate commercial bank loan to agriculture and loan guaranteed by agriculture credit guarantee scheme to measure how commercial bank credit have impacted on economic growth in Nigeria.
1.2 Statement of the Problem
It is obvious that no aspect of the economy will do well without proper financial intermediation from the financial systems of the economy. Agricultural sector is not an exception; the contributions of agricultural sector in the economy have a strong relationship with the financial system.
However, the problems that gave rise to this work are lack of loan to agricultural sector by commercial banks in Nigeria.
There is high interest rate on agricultural loan in Nigeria. And the problem of low performance of the agricultural credit guarantee scheme fund as observed by Efobi and Osabvohien (2011) that the agricultural credit guarantee scheme fund (AGGSF) has lofty aims especially the need to make the agricultural sector lucrative but it has not lived up to its bidding , this calls to empirical assessment with a view to understanding the resultant effect from the huge investment from the government into this sector .
The vast employment opportunity and the quest towards diversification of the revenue sources by the federal government and development agencies have shifted attention towards the informal and the agricultural sector. For example, to sustain the agricultural production in Nigeria, the World Bank developed a project allied agricultural development project (ADPS) which was designed to enhance the production of agricultural outputs in Nigeria (Efobi, 2011). The drive to industrialize by many developing countries has often been highly damaging to agriculture especially in the poorest countries such as those of sub-Saharan Africa,. With a backward and run- down agricultural sector, with little or no rural infrastructure, many countries today face a food crisis of immense production (Basheir, 2012).
1.3 Research Questions
- To what has commercial bank credit impacted on agricultural production in Nigeria?
- Is there any observed long run relationship between agricultural production and commercial bank credit in Nigeria?
1.4 Objective of the Study
The overall objective of this work is to determine the impact of commercial bank credit on agricultural production in Nigeria.
The specific objectives are:
- To determine the impact of commercial bank credit impacted on agricultural production in Nigeria.
- To examine if there is any observe long run relationship between commercial bank credit and agricultural production in Nigeria.
1.5 Research Hypothesis
Ho: Commercial bank credit has not impacted on agricultural production in Nigeria.
Hi: Commercial bank credit has impacted on agricultural production in Nigeria.
Ho: There is no observe long run relationship between commercial bank credit and agricultural production in Nigeria.
Hi: There is observe long run relationship between commercial bank credit and agricultural production in Nigeria.
1.6 Significance of the Study
This study is significant in that it will reveals how commercial bank credit can contribute to the agricultural production if proper attention is given to it through the financial system. It will guide policy makers such as the government and the private sector in making policies that will favour the economy.
This study will also be useful to the students of banking and finance, economics etc as it will aid them in their further research.
1.7 Scope and Limitation of the Study
This study is aimed at accessing the impact commercial bank credit on agricultural production in Nigeria between 1980 – 2015, it captures the extent to which commercial bank credit have improved agricultural productivity, thereby stimulating economic growth.
Amidst other possible normal constraints, the work was a success. The researcher only hand difficulty in generating data and other relevant materials for the research.
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