University of Nigeria Research Publications

ANI, Udoagha N.

Aut

hor

PG/MBA/03/38559

Title

Credit Facilities and Its Impact on Small and Medium Agriculture in a Developing

Economy (A Study of Nkanu West L. G. A.)

Facu

lty

Business Administration

Dep

artm

ent

Management

Dat

e September, 2006

Sign

atur

e

TITLE P M E

CREDIT FACILITIES BND ITS IMPACT ON SMALL ClND

MEDIUM BGRICULTURE IN A DEVELOPING ECQNQMY

(A STUDY OF NKANU WEST L.G.6)

ANI UDOhGHA .No

REG, NO: PGIMBBl03138559

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR

THE AWBRD OF MASTER OF BUSINESS

ADMINISTRATION IN MANAGEMENT

MBNAGEMENT DEPARTMENT

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA. ENUGO CAMPUS.

TO GOD ALMIGHTY - MY CREATOR

ACI<NOWI,ISDGl<MENT

Special a cknowledge~~~e~ i t to Mr. C. 0. Chukwu for h i s immeasurable

support. Also to my parents Mr. Sr. Mrs. Adolphus and Maga -ct Ani.

My gratitude also extends to my bsot11er.s and sister-: especiafly my

senior Cl~ul<wudi.

I must not forget the staff of management department JNEC for their

understanding and moral support.

In all to God be the glory.

CERTIFICATION

I Ani Wdoagha, N a graduate student in the Department of Management, Facu ity of

Business Administration with Registration number PGIMB A/03/38559, has - atisfactorily

completed the requirements for the course and research work for masters in F usiness

Administration (MBA).

The work embodied in this report is original and has not been submitted in p: rt diploma

or degree of this University or any other University.

Project Supervisor CHEF EZE J.A Head of Departr lent (Management)

Date.. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ABSTRACT

Agriculti~ral activities in a dcvcloping cconomy of whit I1 Nigcrin is 3

typical example still manifests tlie typical symptom of a peasa i t agriculture.

The farming activities are dominated by small scale farriers who are

responsible for about 95% of total production. l'hcy arc 1ar;:ely rural and

usually unorganized and politically powerless. These chzl-acteristically

combined togethes to make the services of formal sourcr s of finance

inaccessible to the small-scale farmers.

The importance of credit to sinail and medium scale far711er cannot be

ovcr-cmplmizcd due to tlie fact that, the gl-cater rnajoritj of Nigerian

farniers that feed the nation are in the category of small and nediuln scale

farmers.

Many attcrnpts have been made in Nigeria in the last t\ decades to

provide credit to small and medium scale farmers with limited ffect.

All tlie efforts of government to ensure adequate credit to small arid

medium scale farniers in Nigeria notwithstanding, both the Esnlcs arid the

fanners experience immense problem in the provision and :ollcction of

credit since finance constitutes an indispensable aid to agricult~ ire.

I t is in the light of tlie above proble~n that the rcscarch :I- sets out to

investigate the credit problems of small and medium scale Agriculture in

Nlanu West Local Government Area with a view to identifyin: the various

rolcs playctl by both thc commercial banks and othcr nun-Sorwal sourccs 01'

finance in tlic provision of credit to this vital sub-sectors.

Major problems of the study such as stringent collatetal rcquiremcnts

in tlie provision of credit to small and medium scale farmers were

highlighted.

Thc other problems are roles played by coliimercial l m k s and other

nun-l'inancial suu~.ccs and as to dch-mining thcir inllucncc n thc PI-ovision

of finance to sinall and rnedir~ni scale farmers.

Also the reasons or otherwise for defaulting in the rep.~ytnent of loans

granted by comruercial banks so as to reduce the rate of loall default by thc

small and medium scale farmers in Nltanu West Local Gover iment Area.

Therefore this research focused on the sources of crec'it facilities, the

security required, sate of default in repayment and its impact.

'The ot~jectives of the study is to evaluate thc impact of credit facilities

011 srnall arid medium agriculture in Nkanu West Local Govc -1irnent Area as

has been explained earlier.

Three hypothesis were posited and these arc tlie null h~?>otIiesis (Hoi)

which states that there is no significant influence of com~nercial bank's

credit on the provisior~ of finance to srnall and medium sr ale farmers in

N k a n ~ ~ West Local Government Area.

While the second liypotliesis states that there is no sigriificant

influence of stringent collateral requirements on the provision of credit to

s~naPI and medium scale farmers in Nkanu West Local Goverrment Area.

The third hypothesis states that these is no prevalence 3f high rate of

loan default by small and medir~m scale farmers in Nkanu West Local

Cliovernnicnt Arca. All thcsc arc in chaptcr onc.

vi i

Chapter two contains the literature review on different n -eas relevant

to this project and a review of conniients and views of different authors.

Cllapkr 1111-cc contaius research clcsign and rnchdolcgy while i n

chapter four data where presented and analyzed. Tablc, ~t~ltistical and

clcscriptivc analysis wcrc uscd Tor clarity purposes.

The test statistics used were chi-square which is best suited for a

study of this nature.

It was found that commercial bank's credit has a sigtiific.~nt influence

on the provision of finance to small and mediuni scale farmcrs.

The second discovery is that stringent collateral require nent has no

significant influence on the provision of credit to small and n edi~un scale

farmers. The third is that fhrmers in Nkanu West have a high ratc of loan

repayment default.

The data used in this research work were obtained th ro~~gh persoiial

intcrvicws, mailing of qucstion~raircs and from published and unp~tblislied

texts, reports, documents e.t.c.

This research project was coiicluded in chapter five with t liscussion of

findings and conclusion.

vii

TABLE OF CONTENTS

Title Page

Dedication

Acknowledgment

Certification

Abstract

Table of Contents

CHAPTER ONE: INTRODUCTION

Background of the study

Objectives of the study

Statement of problems

Research Hypothesis

Significance of the study

Scope and Limitation of study

Definition of Terms

References

CHAPTER TWO: LITERATURE REVIEW

Signi ticancc o r sm:~l l scnlr: fi~~-nicr.s

Sources of finance

Uses of finance

The role of Comercia l Banks in Agriculture

P;~ctors Affecting the Distribnlion of csedit i'acilit!es lo Agric

Farmers. 26

Fam~rns and their finance problcms 27

References 3 1

3.0 METHODOLOGY AND RESEARCH DESIGN

3.1 Introduction

3.2 Study Area

3.3 Universe

3.4 The target population

3.5 Sample size

3 0 Determination of sample size

3.7 Sources of Data

References

4.0 CHAPTER FOUR: PRESENTATION OF

DATA AND ANALYSIS

4.1 Data Presentation

4.2 Data' Analysis

4.3 Interpretation, Meaning and Discovery

References

5.0 CHAPTER FIVE: DISCUSSION OF

FlNDlNGS AND CONCLUSION

B ibli ogaphy

Appendix

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Agriculture in most developing countries including Nigeria is

predominated by small and medium scale farming activities. T h ~ s is easily

traced to the low level of economy prevalent in these economic s. Scveral

constraints within and outside the operating environment, limit .he overall

fanning activities. There's no gain saying the obvious that the d1:stiny of a

developing econonly heavily rests on the shoulders of the small and medium

scale farmers. They constitute in estimation well over 80% (eighty percent)

of the total farmers in Nigeria, which is undoubtedly significant to be given

due attention.

The Nigerian small scale farmers are characterized by their low status

in the economic mainstream, excessive number of their class il terms of

available resources and occupation, low productivity, illiteracy, lack of

access to logistic support and inputs.

Furthermore, the largely neglected rural areas claim al)out 98%

(ninety eight percent) of small scale farmers who because of the i~bsence of

unionization are un-organized and politically powerless.

These characteristically combined together to make thc sc:rviccs of

formal sources of finance inaccessible to the sn~all scale fa1 mer. 'The

resultant effect is that it become inevitably exposed to othLr sources of

fimnce and stands to be exploited at the slightest opportunity.

The il-tlyortance of credit to small and medium scale fa.lners cannot

be over-empl1asized due to the fact that, the greatel- lnajol-ity of Nigerian

farmers that feed the nation are in the category of small scale farmers. These

farmers employ very little capital for their production. Unfortun~tely factors

mentioned earlier make it difficult for small scale fanners to have acccss to .

thc scrviccs of financial institutions.

Many attempts have been made in Nigerian in the last two decadcs to

provide credit to small scale farmers with limited effect. The n e d for credit

however, tends to increase with every passing year d r ~ c to:

1 . Population Increase

2. The competition for funds by the expanding agricultur: and non-

agricultural sectors for scarce firnds.

3. Another is the inability of existing credit institutions to suit the

particular needs of the farmer in their socio-economic s e t - I I ~ .

Credit is a vital eletnent in agricultural set-up without whicl the

famlers can hardly do much. It contributes to farn~crs welfar~. enllances

productivity; help ill capital formation and c o n t h ~ i t y of ill~~lt-le. It is the

lack of adequate credit facilities that makes it impossible for f w w s in our

rural areas to adjust to new and improvcd teclmiques that % i l l :cad to

increased output and productivity. This implies that inclwsed credit

facilities will lead to rapid agricultmal development by accelel ating tile rate

of adoption of new and improved method and techniques of farn~ing by our

rural farmers.

I t is in full realization of the dearth of agrici~ltural protjuct that thc

federal Govcrnment of Nigeria has made its' effort towards inl:rcascd food

prod~rction by sctting up such prograinmcs and schcmcs as national

accelerated food production scheme. The Nigerian Agricultural and Co-

operative Bank (NACB), AgricuItural Credit Guarantee Scl erne, Rural

Banking Scheme, River Basin and other agricultural schemcs povided by

the third and fourth National Developn~ent Plans respectively. At thc state

level Old Anambra State Government set-up a supervised 4gricultural

Credit Loan Board (SACLB), to issue loans to fa~mcl-s in their statc. From

the abovc, one will understand that both the Federal arid State G WCI-nments

have now come to show some degree of concern for thc I-ural 'hi-mcrs a n d

their need for credit loans.

The Nigerian Agricultural and Co-operative Bank (VACB) as

rnerrtioned earlier was established by the Federal Government o I ' Nigeria i11

1973 tlic name Nigeria Agricultural Bank (NAB), a:: a fedci-a1

Agricultural Bank. The Co-operative Banks formed until then h;:d confind

their activities to certain parts of the federation and hence a Feleral Bank

was badly needed to cater for the financial needs of Nigeri:~n Farmers

il-respective of the states to which thcy happen to bclol~g. The dcclaled

objectives of NAB was rapid transformation, expansion and r ~odernization

of Nigeria's Agriculture in all its various facets. This objcctiv'e was to bc

achicved by i~ljecting funds n~assively and yct efficien ly into the

agricultural enterprises of the country, and was in time with 'hc cmplmsis

laid on agriculture by Federal Government.

The panel on co-operativc principles, laws and regulatio~ s in Nigeria,

set-up in pursuance of the policy objectives of the government recognized

the impo~tant role co-operatives have to play in the devl:lopment of

agriculture. The committee on Nigerian Financial system also rr conimcnded

that the Nigerian Agricultural Bank renamed the National Bank for

Agriculture and co-operative so as to reflect the emphasis laid by the

government on co-operatives.

The recommendation was accepted in principle in the government

while the NAB was renamed Nigeria Agricultural and co-operative Bank

Limitcd (NACB) and was cntrustcd and dircctcd lo bc I-csl)onsiblc Tor

financing viable cooperative projects of various kinds, in adllition to its

traditional function of financing agricultural projects. As a result of t i is rc-

orientation, the Fedcral Government entrusted the s~lpervision, control and

management of NACB to the co-operative Division of the Fedcral M~nistry

of Trade.

To encourage commercial banks to give grant to farmers the federal

government stipulated that at least 6% of commercial Ban14 loans and

advances (raised to 10% i11 April 1986, to 12% 1987 fiscal year) must be

given to the agricultural sector. In other to facilitate this crejit guide line,

the Agricultural Credit Guarantee Scheme Fund Act No. 26 of 1977 camc

into being because of the serious constraints which have been indicated

against the active participation of Commercial Banks in t'le finance of

Agriculture in Nigeria.

111 otlicr to overcomc some of thc risks in lending to agri :i~lturc. $41 00

million fund to be contributed, 60% by Federal Government and 40% by the

Central Bank of Nigeria was provided by the Agricultural Crcdit Guarantee

Scheme Fund. The fimd is under the management of the Agric~ltural Credit

Guarantee Scheme Fund Board, but the Central Bank of F igeria is the

managing agent for the day to day administration of the ~;chcrne. The

purpose of thc fund was to provide some guarantee in rcs.sect of loan

granted by banks for all types of agricultural activities throughout the

federation. The funds maximum liability guaranteed to banks i r 74% of any

amount of loan to farmers in default, subject in the case o - loan to an

individual to a maximum of ~1 ,000,000. This and several oth~:r aspects of

the scheme are presently being reviewed by Federal Govcrnnicnt to maltc

the scheme more beneficial to fanners in line with the statr d policy of

"Green Revolution".

Furthermol-c, as part of government efforts to revive ant sustain the

agricultural sector of the economy, fund for small scale Industries credit

6

scheme (FUSST) was established. The edict establishing it, defined as small

scale industry as any m a n ~ l f a ~ t ~ r h g , processing or servicing ndLlstry with a

capital investment of LIp to but not exceeding $41 50,000 i l l nachinery and

equip~neiit alone.

The fimd is established at the state level for the ~w-pon: of providing

financial assistance in the establishment, expansion or n1n lelnization of

productive snlall scale industries in the state.

The tetms of FUSST loans are:

- One year of grace.

- Five years of repayment period

- Seven percent interest charges

The scheme would have collapsed before now if not for loan.

All the efforts of government to ensure adequate crcdit to small and

medium scale farmers in Nigeria notwithstanding, both the banks and the

farn~ess experience immense problem in the provision and ;ollection of

credit since finance constitutes an indispensable aid to agricult~~re.

It is in the light of tlic above problcni that t l ~ c rcscarc11l:r scts out to

investigate the credit problems of small and medium scalc ogricultore in

Nkanu West Local Government Area with a vicw to identifyin;; the various

roles playcd by both the Commcrcial Banks and other non-formal sources of

finance in tlle p v i s i o n of credit to this vital sub-sectors. The reseal-cher

7

rvill also highlight the problems posed by stringent collater: I requirements

in the provision of credit to small and medium scale agriculturist

1.2 OBJECTIVES OF THE STUDY

The purpose of this study is to evaluate the impact of credit facilities

on small and medium agriculture in Nkanu West Local Gov1:rnment Area,

with a view to determining the role played by con~mercial banks and other

sources of finance open to this vital sub-sector of the econom: .

In an effort to achieve the above objectives, the stud;: will seek to

investigate the following:

The extent to which the commercial banks have given out loans to

small and medium scale farmers in comparison with other no11 formal

sources of finance.

The problems faced by small and medium scale farmeis on the one

hand and the banks on the other with regard to credi~ flow to the

framers.

The problems of loan repayment and identifying the reasons for

default in loan repayment including the socio-econornit: factors that

reduce the farmers ability to repay loans.

The influence of conmercial bank's loan on the us[: of foreigl~

implements such as tractors by the small and medium sca lc farmers.

1.3 STATEMENT OF PROBLEMS

The study will try to investigate the extent to which cledit facilities

has impacted in srnall and medium scale agriculture in Nltanv West with a

view to ascertaining the roles played by various banlts and on-financial

sources and the problems encountered, by farmers in the acquisition of thcsc

facilities. The study will also try to ascertain the:

i. Role played by conmercia1 banlts and other non-financia' sources and

to specifically determine the inflirence of commercial baiik's credit in

tlie provision of finance to small and mediunl scalc farmcrs.

. . 11. Effect of stringent collateral requirements by comtnerc a1 banks on

tlie disbursement of Ioans to deserving small and m=diun~ scale

farmers so as to enable morc farmers benefit from commercial banks

credit.

. . . 111. Reasons or otherwise for defaulting in the repayn~ent of loans granted

by commercial banks so as to reduce thc rate of loan dcfault by the

small and medium scale farmers in Nl<anu West Local ~Tjovcrnment

Area.

1.4 RESEARCH HYPOTHESIS

In the course of this study, the following research - hypotl ~esis will bc

formulated by the researcher.

9

HYPOTHESIS ONE

There is 110 significant influence of coxnmercial bank': credit on the

provisioll of finance to small and medium scale farmers i13 Nltanu Wcst

Local Government Area in En~igu State.

HYPOTHESIS TWO

'I'licrc i s no significant infl~~encc o i stringent collateral rccluircmcnls

on the provision of credit to small and medium scale farmers i l l Nkanu West

Local Government Area.

HYPOTHESIS THREE

There is no prevalence of high rate of loan default by small and

medium scale farmers in Nkanu Wcst Local Government Arm.

1.5 STGNIFTCANCE OF THE STUDY

This study could not have been significant at any othel period otl

than now that a lot of policy measures are being implemented to increase the

productivity of our agriculturist in agricultural sector.

The study is also important in view of the following:

- I t highlighted the problem that arises in the implencntation of

agricultural credit programme with a view to understanding necessary

adjustment to such policies in other to meet promptly the real necds

of the farmers.

- The priblic will gain from the study as the outcome o " this research

work will improve agricultural loans in Nkanu West Local

Government Area as more fanners stands to benefit from the loan and

thus, output and productivity increascs.

The study will help to explain the misconception peop'e have about

Commercial Banks loan schemes and will also be of help to ally researcher

working in related field of study.

1.G SCOPE AND LIMITATION OF STUDY

The scope of this research will be restricted to the eval.~ation of the

impact of credit facilities on sinall and medium scale farmers i l l developing

economy, with emphasis to determining the extent to which cornlnercial

banks have given out loans to small scale fanners, and the problems faced

by these class of farmers with regard to obtaining credit fro171 banks and

repayment of the loan. Nkanu West will be our case study.

1.7 DEFlNITTON OF TERMS

(i) LOANS

This is the transfer of fund from onc economic entity to anothcl-

wllic]l lllust be rcpaid with interest over a stipulated period of tinle.

(ii) AGRICULTURAL CREDIT

This encompasses all loans and advances granted to boi-rowers

whether beneficiaries of agricultural reforms or some other one to finance

and service production activities relating to agriculture, fishxies, forestry

and for the processing, storage and distribution of production 1,esulting from

these activities.

(iii) CREDIT

The word credit comes from the Latin word "credo" meaning, "I

believe". It means the ability to command the capital of anothe~. in return for

a promise to repay at a specified time in the future (usuall) with a cost

represented by repayment of interest).

Credit and loan shall be used interchangeably in the course of tlkis work.

(iv) HYPOTHESIS

A hypothesis is a tentative statement of claim which is to be accepted

or rejected when confronted with facts.

We have the null and alternative hypothesis.

CHAPTER TWO

LlTERATURE REVIEW

As in many developing countries, Nigeria is c11aractr:rized by low

farm incomes, low levels of capacity to satisfy the food and ibre needs of

country and primitive techniques of production. It is infact a hoto-type of

peasant agriculture which has been described by various writer; as caught in

a constant circle of poverty. Low income leading to poor sac ing and little

investment in yield increasing technology, because techno1 sgy is poor,

output is low, and income is low. Agriculture in Nigeria is the-efore caught

in low equilibrium trap. The rate of return cannot rise because 3f the nature

of technology in use. Such agriculture has been described at va-ious time as

efficient but poor.

Nigerian still manifests the typical symptom of a peasany agriculture.

The farms are dominated by small scale farmers. Who are res~onsible for

about 95% of total production. The livestock is in the hands of nomadic

herdsmen, the poultry is still essentially the backyard type altl ough a few

commercial units are springing up. The fish sector is also pr(5dominantly

altisans. Industrial forestry is only just beginning over the years, we sin~ply

exploited the bounties of nature and even failed to make adeq~late plans for

early regeneration.

' ? fc;Olll-IC'I'S I ) ! ( ' !'INANCII</(:Itl7I)I'I' -.-

! I i:; :I C I I I I I I I I O I ~ I,, ~o~vlcdg.~ ' t11;1t t11ost s111;iI I SC:IIC I ' ~ ~ I I I C I . S i 11 b!i;;cria C I C ~ C I I C I 0 1 1

pl-ivalc soul-ccs o f Iil~a~tcc sucl l as S I I i s i s :~nd li-icilds; illir~lc~.

lulldcr, t \>l- i l i so~.ic.[ics c .y . (ISIIS[JC'I,IIIZS) ancl cclopcrativc ;ociclics. I'rivatc' or

pci~s~n:lI s : ~ \ . i ~ i p ; I I X i t~s~.~l l ic ic t~t : ; C ) L I I C ~ ill 111ost cases. 1 1 1 [IIC c a s ~

In the case of "~susuchb financing" the amount llsed isr

PWJose varies according to the competitive demand of the n 3n-agricultural

sector, personal needs and the level of agricultural product 011. The Isusu

type of credit institutions has a basic principle of self imp,sed or gmup

influence savings on a regular interval with some form of credit facilities

made available to most of the participating members. Loans 11 this type of

institution arc usually small, granted on personal basis, secur1:d with verbal

pledge but backed up with an obligation to repay. What appxrs to bc the

major economic function of the system centers 011 the Fact that fimds which

has to be frittered away in small bits are pooled togcthcr in niorc cconomic

lump sums in some productive activities.

I t has been observed that one serious weakness of t11.s club is it's

great incidence of default. Loans and gifts from relatives, friends and

ncighbours constitute another means by which fanners espxially small

l~older farmers finance their agricultural activities. Under tl is source of

finance, an individrlal seeking money for his farming opera.ions goes to

either his relatives or friends for credit or grant. These loans attract very low

interest rate where it exists at all, and loans are given out b a e d purely on

their confidence that the bosrowcr will dcfinitcly rcp:ty thcnl. 1 'owc\lcr, this

form of credit is not a very sure source of finance and where po ;sible should

llot be relied on fillly as a means of credit for agricnltore. This was because

tile collateral info~m of mortgages of one's p a h plailtation 1 sually give11

out at prices below the market price associated with this sour :e of credit. In

addition, thc Icnding capacity was found to be I-ather too low.

Another source of finance open to small scale agriclllt~rrist is the

money lender. Irrespective of the fact that those money lendcr charge

exorbitant rates of interest, the government sponsored agencic s have rarely

been able to provide the marketing and credit facilitates n1:eded by the

peasant farmers as easily and effectively as the existing money lenders.

As earlier stated credit co-operative including tradi ional credit

groups such as the "Isusu" friendly societies, c.t.c. were 01-iginally the

institutional agencies for credit supply to Nigerian farmers. While this

traditional credit system still persists and indeed reigns supreme in large

parts of the rural areas of this country, the emergence of bank; credit and

direct intervention of the federal and state government in agricultural

financing have brought out a significant shift of emphasis to meaningful

improvement and expansion of farming. The co-operatives are organized as

an apex institution and other agencies for ultimate ~ltilization by ihe farmers.

The financial institutions are other sources of finance for ,lgriculture.

The two institutions that appear suited to the needs of small sc ile farmers

are Commercial Banks and co-operative banks. This sti~dy wils howevcr

con~rnittecl to analyzing the role of both. The role that Comma :id Banks

can play in the provision of finance for agriculture canno! be over-

emphasized because of their ability to control large sums, thoug 1, tlley are

17

held regarding agriculture and it's related enterprises as toc risky and an

~tnreliable area of investment. It was observed that though coo1)erativc banks

are suited for agricultural financing, they suffer the problem of slellder

resources and the provision of credit to non co-operative venture.

The loan conditions stipulated by NACH present considerable

difficulties to small farmers, hardly any of whom can satisfy such

conditions. They cannot provide the security demanded by the NACB as a

pre-requisite for granting loans nor can they prove their t i f l e to 'be land they

cultivated. These fanners find the cumbersome NACB p'.ocedurc as

exacting as the procedures followed by commercial Banks. Hen :e, they feel

that the NACB is very poor substitute for commercial banks. -Tcncc, thcy

feel that the NACB is very poor substitute for commercial Banks. The on-

going Iending schemes of the NACB are expected to channel credit to small

fanners who cannot borrow directly from the NACB. Hov ever, such

schemes have not been successful with the small farmers as is e7,ident from

the fact that less than 30% of the total NACB loans are in favour of such

schemes.

In response to such criticism, NACB introduced the Nl\CB small

holder Direct Loan Scheme designed to meet the needs of s m l l farmers.

Under this schcmc, most of the Si~ndamcntal rcquircmcnts of 'llc NACB

were waved to enable the small scale farn~ers to benefit without hindrance.

Thus, the requirements as to the certificate of occupancy, the sulvey ~ l a n s ,

real estate assets were waved and the credit wortlliness I ,f borroM~ers

and the Warantors, the viability of the project and the pra,:ticc of modesl1

f x m mnnagcmellt Were the factors emphasized. However, loan period

was limited to two years.

In its pl.op@sal for a national scheme for alyicultural !:rcdit to small-

scale farnler-s, he noted observable achievements of NACII in loans and

advances to medium and larger scale falmers. However, it is :ioted that as at

May 1380, loans approved by the NACB amounted to N358.4 million of

which g308.7 million were actually disbursed on the avc rap , thcsc loans

were sizeable, an~ounting 441.2 inillion per project which is an indication

that the loans were sometimes mainly for large scale projects.

Chidebelu (1982 : 32) however, stated that Comi~ercial Banlts

contributed only inarginally to the credit needs of small holc!er farmers in

South-Eastem Nigeria.

In his story of small holder cocoa farmers of Wes ern Nigeria,

Olayelni (1973 : 198) found that their major sourccs of credit was nloncy

Icnding while none of the farmers interviewed had ever received loans from

Commercial Banlts.

specifically speaking there are two basic sources of finslnce open

and medium Agricoltu~-c, naillely illtcmal a d extcl*lnl sources.

A) Internal Sources:

This take the form of provisions, reserves and retained eat-ni igs.

I. Provisions:

Provisions are monies set aside to meet specific fiiture needs.

Provisions may be made for depreciation, bad debts, m~intenance and

repairs, renewals e.t.c. This money while apportional before lleterinining the

profit of the business is not actually being spent. However, the money still

remains in the business and the business can use it to finan:e growth. It is

only available to those small scale business enterprises that have adoptcd a

proper accounting system.

. . 11. -- Reserves

'I'hcsc are other forms of internally generated capital. 'I he resei-vcs are

charged as expenses against profit before determining the act la1 amount left

for the owner of the business. Like provisions, reserves are not spent at all

but are retained in the business. Thus the business can use :he reserves to

finance growth.

. . . 111. Retained Earning

These are profits that are retained i n the business to finance growth

and/or for the replacement of an asset. The more provision:, reserves and

retained earnings are made during an accoonting period, th: more capital

increases to finance growth and expansion.

Internally generated fund as a source of business copital depends on

the size of business profit.

(B) External sources of finance

The cxtertial sources of finance may bc grouped into Il~cal and foreign

sources.

- Local Sources:

The local sources of finance may be sumniarized as t ~llows: Private

equity, government grants and loans fund arising through bu: imss activities

financial institutions non-institutionalized financial house and re-

organization of the enterprise.

- Private Equity

This is the nlajor source of finance available to small 8;cale business

enterprises. The owners equity arises from personal savings.

- Government Grants and Loans

Another source of finance available to small scale birsin :ss enterprise

is the government grants and loans. This is in the form of credi t schemes set

up in the whole states by the various state governments in rthcr to grant

loans to small scale enterprises. Many government loan scheme are

administrated departmentally or through specialized agencies. Such

departmental agencies include government small scale indrstries, loan

boards, ministerial loanslgrant boards c.t.c.

It is important however, to point out that only a few small scale

busincss enterprise benefit from these scheme. This is becat se the procedure

for granting of loan is so cumbersome that many slnal scale business

enterprises for whom the scheme is designed to assist, f i ~ d i t difficult to

obtain the loans. Other sources are:

- Trade Credit: -

This is an important source of short term finance. It lom~alIy arises

when a business orders raw materials or buys stock or credi :. The terms of

the credit is usually stated on the invoice delivered u it11 the goods

purchased. The period of credit may be extended up to threc to six months

depending on the volume of purchase. Trade credit forms a major- part of

small scale business financing. This is evidenced wlml onc examines the

accounts payable figures in the balance sheet. The advantage of this source

of fund is t l ~ t there is no fixed interest charge. It is necessal y to note here

that a certain credit limit should be boIme in mind and watc)ed so that

entire business should not be thrown into jeopardy. Again sou -ces of supply

should not be many.

- Cominerci a1 Banks

Comnlercial Banks are institutions established wii h a prima1.y

f~lnction of creation and lending of money. In this regard, thc y make funds

(loans and advances) available to individuals groups busine;~ enterpl-ises

and the government alikc. Prom the point of view of the rczipienl, these

22

loans and advances contribute in no small measures to allevia e the fii~ancial

problems of t lme individuals, businesses and the govel-nmcnt. All to that

extent enhances the economic development of the country. W

commercial bank, a business enterprises can borrow money 'ram the

i l l two ways:

1. By Overdraft

2. By Direct Loan

ill1 a

bank

The conditions of elljoying banks loans and overdraft v Iry from bank

Lo bank. Usually banks may require that the borrower offer some kind of

colIateral security such as share certificates, life assurance pol cy, title deeds

to property as a cover for the loans and overdraft. In some c ses , the balk

may require a feasibility study of projects in which the lo ins arc being

applied.

2.3 USES 0 1 7 FINANCE

Several authors have discussed the role of finance in the economic

development of small farm agriculture. Credit was described 1s the vehicle

for agicultural development and is necessary for farmers (small scale

inclusive) to drivc the benefits of improved technology.

Mac Namara (1973 : 42) was of the same opinion whcn he declared

that for the sniall holders operating with virtually no capital m cess to credit

was crucial, no matter how knowledgeable or wcll motivatc d he may be

~ ' i t h o ~ l t such credit, he cannot buy improved seeds, apply ;he necessary

~ ~ ~ ~ L I I ~ L I I - c " o l ~ s r ~ w x ~ tllat cl'l'cct 01. credit 011 tlic 1.a1-111~1-s \ws y,~-ralcst \,\,itti

1ah>i11- a i ~ d s ~ i ~ ~ ~ . c s t c c I L. , tlial c~xdi t e11:il3lc I ~ ~ ~ o L I I - to hc 13cttc1- L I I i li/ccl.

O l : ~ ~ v ~ i d c ( 108 I : 10) ; ~ I Y , L I U ~ '. that S ~ I I C C 111osl I.:LIIII~I.S T IJOOI.. t l~cy could

mrct Ilicir ~ ~ r o c l i ~ c t i o ~ l cxl)c~iscs olr ly b) mcatls 0 1 ' crccli t a11d ;ugycstccl that :IS a

p!mluclio~l i~ lcc l~ t i \ z. tlic slioi-l tci-IH p~-oduction ct-edit li)r Icss ilia11 13 ~iioiitlls

u.as t!ic 1110st i nipc~vtant 1ij1- small Ihrlllcrs.

1:inancinl ~ lccds lix agl-iculturc \.\/as classi lied \ \ / i t l i rc ipcct to time, into

\ l l l . ~ Y 2 jfl.tN!ps ~1cYOrdillg 1 0 tI1c \c>1,111 01- Io;111.

rural development. He observed that the bulk of credit in Ni ;eria came from

private sources which were largely inefficient. Thus, for e liciency, credit

should be institutionalized and backed up by adequate fu~lding, integrate

supervision and timeliness of operation.

2.4 THE ROLE OF COMMERCIAL BANKS IN AGRfCULTURE

The advantage of Commercial Banks derive from tl lt'ir divcrsitics,

competitive international connections, magnitude of lend~ng, capability,

flexibility, reasonable tenns and speed for response. It is ho .vever doubtfill

whether the diversity of Commercial Banlts Operations i : a significant

advantage to those seeking to utilized the institutions an; a means by

providing a major share of agricultural financing.

Nigeria Commercial Banks have not bceil spectac:ilar in crcdit

mobilization, despite their potential, though they can l e very great

institutional source of agricultural financing. Although Coin nercial Banlts

have in recent years steadily expanded their loans to the agri( ultural sector,

the prevailing concern is that their lending has been directetl to few large

farmers and corporate agricultural enterprises to almost tht exclusion of

many farmers who are small scale producer.

An important aspect of the slow pace of farm advances by

Commercial Banks to s~nall scale producers has to be search:d on the side

of farmers who have by and large displayed shyness or un~villingoess to

adapt to the conditions imposed by banks in providing cte?it. The credit

26

policies under which Commercial Banks operate do not take small scale

farnlers into consideration. This is supported by the ma-~agcment of tlie

Agricultural Credit Guarantee Scheme (ACGS) which r:ported that the

Agricultural loan scheme of the various state government: especially, the

small ones, who perhaps, found the tern~s much easier and nlorc preferable

than loans obtained directly from banks. It is a well known 'hct that most of

these small farmers are for example, not credit worth: in the sense

acceptable to banks and cannot produce tlie substantial security which banks

require. According to the management of the AgricuItural CI zdit Guarantee

Scheme they have urged the banks to be less rigid i n th s demand for

securities especially with respect to small holders. It is obi ious fiom the

small fanners that this pleas has not been effective.

2.5 FACTORS AFFECTING THE DISTRTBUTlON ()F CREDIT

FACILITIES TO AGRTC FARMERS.

Bank face both internal and external constraints in their credit

operations with small farmers. Internal constraints include, +he nature of

operations of Commercial Banks, the need for security and th : shortagc of

qualified personnel.

Commercial Banks are profit oriented and prefer to give loans

becalrse of incentive i.e. of investment and the capital market. F lrmers often

prefer intermediate to long-term loans.

Thus, without overwhelming guarantee by these f n-mers, which

would have reduced the risk and uncertainties attendant on 1 mg-tcrrn sn~all

holder farmers are in most cases not given privilege by Comr lercial Bank in

the process of lending.

Commercial Banks operate with their customer's fi~n js hence, they

require their borrower's pledge of acceptable and C ~ S 1y niarketable

securities or collateral for loans since mere intention to reFly often never

materializes. Such acceptable, marketable securities/collat xal are often

beyond the reach of small holder fanners and therefore ban:; managers for

security reasons, refuse them loans. Shortage of qualified pero (onncl imposes

internal constraints on the Commercial Banks ability to gran certain loans.

The managers complained that loans to farmers i~lvolvecl field work to

assess and establish claims, and with the absence of an ag icultural staff,

such project evaluation were impossible.

2.6 FARMERS AND THEIR FINANCE PROBLEMS

Having identified the main sources of funds availakle to Nigerian

Fanners, one could be tempted to say that finance is no 101 ger a faimer's

problem. The truth is that this is not so. The level of farmini in niany parts

of the country has hardly gone beyond the subsistence level The lot of an

average farmer has but improved only marginally since indc pendence over

thirty years age.

In the first place, entry into farming for an indivil lual without family

assistancc or support from o t l ~c r sourccs is a ctifficult tasl with llic mounting

pressure on the use of land for industrial commercial and other prrrposes, the

available land for farming is diminishing. There is a1 ;o the problem of

competition which a new entrant would face from otha polential entrants

and from existing farm operators wishing to expend activ! ties.

The new entrant or call him the small farmer, : pproach the non-

institutional lenders and will be required to agree to 3xcessive intcrest

charges. In some cases, he may be required to make dow 1 payment if lie is

negotiating to purchase a farm business. The problem with this type of

transaction is that the highcr the down payment, the mol2 dirficult it is to

obtain sufficient fund to run a fain1 business, the lower t ie down payn~ent

the more difficult it is to make the installmental rep:ynmits after the

business has been purchased.

Certain credit institution notably the banks would w, nt to be satisfied

with the quality of the management of any venture into whi ;h they are being

called upon to invest. Unfortunately, very few farmers in T\ igeria posses the

necessary managerial skill or the technical knowledle which could

adequately meet the standard expected by these credit insti1 utions. A survey

carried out in 1978 by the Agricultural Finance Departmelrt of the Central

Bank of Nigeria (CBN) revealed that mere co~npletion of loan application

fonns was being considered by many farmers as an iinptadiment to their

elfort to procure loans from their banks under the Agric~~ltural Credit

Guarantee Scl~eme Fund.

Nigeria Farmers irrespective of the scale of their c perations geilerally

coinplain about the assistance of credit institutions 01 thc provision of

collateral. According to Abe (1981 : 3). Only a few Nii;erian farmers can

provide sccurity which would satisfy a typical bankers CI teria as adequacy

value vis-i-vis the loan, the marketability of the collaterai provided and the

cost of executing the mortgage deed or transferring the itle to the credit

granting institutions.

Most farnlers also encounter the difficulty in c o m p l , h ~ g with bank's

dctnand for fcasibility rcports on the pmjecls for wliicl~ CI ~ d i t is rcquircd.

While small fanners have been exempted from f~~lfi l l ing th;s obligation, in

as far as loans under the Agricultural Credit Guaran ee Scheme is

concei-ned, there is nothing to indicate that the banks do not demand such a

report from small farmers out-side the guaranteed scheme.

11 is not always the case that a particular credit insti t~lton would find

i t convenient to meet farmers request for loans. The loaim )lc funds of a

bank for instance, is not unlimited, neither is it free fi-om seve -a1 restrictions

including those mandatory imposed by the monetary authorities. A ty~ica l

apric~11tur;ll loan portfolio manager in a bank would not 10s. sigh1 o f thc

discoumging elements in agricult~~ral financing. Factors sucl as the slow

capital turn-over, low ret~lrn on equity capital as yard-stici~ f ,r measul-ing

the farrn's profitability, high capital requirement for medium and large

fanners in the face of the demands of modcrn far 11 technology, the

organization and management, of the farm with partisular reference to

record keeping, control of cost and efficiency in the use r f labour, materials

and machinery, price and market prospects and the cl anging economic,

political and social situation within the country.

It should be mentioned at this point that all the litelatuse reviewed by

the researcher in the course of this study were mainly .!rticles written in

News-papers: Jounials and Seminar Papers. The research r could not come

across any fill1 research work that is vely closely related to this topic so as to

compare results and methods of investigation adoptcd.

CHAPTER THREE

3.0 METHODOLOGY AND RESEARCH DESIGP

3.1 INTRODUCTION

The niethod adopted in any research work depenc, s on the problems

intended to be solved, the associated research questions md hypothesis (if

any). This is because the method of solving any partic dar problcm will

dcpcnd on thc problem itself.

However, this research work is an evaluation of cr :dit facilities and

its impact on small and niedium agriculture in a developin ;, economy using

Nltanu West Local Government in Enugu State as a case st tdy.

3.2 STUDY AREA

Due to convenience and high cost of carrying out this research work

the researcher restricted the study to a geographical/political entity called

Nkanu West which lies East of Enugu State.

It is made up of several autonomous comnlunities which include:

(i) Arnankanu

( i i ) Enugu

(iii) Eziokwe

(iv) Ojiagu

(v) Eziaba

(vi) Mbogodo

(vii) Ogbeke/Ukuruta

(viii) Arnakpu

(ix) Umuigbo Amuri

3.3 UNIVERSE

The objective of the study is to evaluate the impact of credit facilities

on small and medium scale agriculture in a third world usi ~g Nkanu West as

a case shldy. The universe comprised of the towns, farrne rs and produce in

Nkanu West. Also included are organizations.

3.4 THE TARGET POPULATION

The population in this context implies that aspect c~f portion of the

universe research has access to.

The target population in this study are the fcrmers and the

organizations that provided finance.

The population in this study is the entire Nkal u West Local

Government comprising nine (9) autonomous towns an l communities

mentioned earlier (Study Area).

3.5 SAMPLE SIZE

The ultimate aim of sampling is that of making infer :rice about thc

whole by studying only a part. A sample therefore can be defi led as a group

of objects selected from a population of the study for the p q ~ e of making

a generalization about the population from which the sample has been

drawn.

It is important to note that sampling possess severa advantages over

complete enumeration such as:-

Economy of Time

Reduction in cost of survey

More accurate information

3.6 DETERMINATION OF SAMPLE SIZE

Sampling will be carried out in four se1ect':d autonomous

towns/communities which includes: Amankanu, Ezio twe, Amakpu,

Mbogodo.

'I'l~c samplc s i x is determined using thc forniula bclow:

d

Where No - Sample size

t - Abcisa of normal curve fixed at 2

P - Proportion of people in the selected area.

cl - 1 - P

d - Margin of error = 0.05

Selected towns of studv and estimated population

/ TOWNS 2003 ESTIMATED PC I

Eziokwe 10,O 13

Amakpu 12,214

Mbogodo 15,117

Total population of Nkanu West Local Government Area = l2O,52 1

DECISION RULE

Accept the calculated No if it is less than 1% of he entire population.

Therefore a sample size of at least 387 is accc pted but for ease of

analysis 9 sample of 400 small scale and 200 medium xale farmers will be

studied.

3.7 SOURCES OF DATA

In the course of this work two main sources of c ata collection which

are primary and secondary sources will be exhausted.

Primary Sources of Data:

a. Mailing of questionnaires

b. Personal interviews

a. Questionnaires :

This involves the mailing of a list of questiois prepared by the

researcher for respondent who will answer the questior s an return, through

mailing of the completed forms to the investigator.

The prepared question (usually in kind of format) is called

questionnaire.

Considering the class of farmers under study, t i e researcher will

administer the questionnaire directly by himself and his a;;ent.

b. Personal Interviews:

This will be a personal conversation between t113 i~lterviewer (the

researcher) and the respondent or interviewer with the s ~ l e aim of getting

certain information from the respondents in their house ;, pIaces of work,

market or any place fbr that matter that is convenient for t IC ~+cspondents,

The researcher will ask the respondent the necessary questions and

will enter their responses on a specially prepared blanks (s zheduled).

Secondary Source:

Thc secondary sources of data to be used by the rcsearclier in the

course of this work will be from the following sources:

1) Books

2) Magazines

3) Libraries

4) Government Publications.

Questionnaire Design:

The questionnaire contained sections designed to prljvide information

from farmers about the following.

1) Financial needs and sources of finance

2) Problems encountered with regard to credit acqui ;ition.

3 Extent of loan repayment.

4) Collateral security required by the commercial bank and the ones the

fanners themselves can afford.

CHAPTER FOUR

4.0 DATA PRESENTATION AND ANALYSIS

4.1 DATA PRESENTATION

Table 4.1

TYPE OF FARMING

TYPES

Cash crop (Palm Produce)

Food crops

Livestock

Poultry

TOTAL

SMALL SCALE

No %I

Table 4.1 shows that 30 out of the 400 respondent: representing

7.5% are engaged in Palm Produce. Also 250, 50 and 7C repsesenting

62.50'%, 12.5% and 17.5% respectively are engaged in food crop typc of

fanning, livestock and poultry respectively.

Comparatively, medium scale farmers engaged in cas'l crop (palm

produce) type of farming are 5 out of the 200 respondents representing 2.5%

while 100 representing 50% are engaged in food crops, 60 respondents or

35% are involved in livestock production. 25 or 12.5% ,f the respondents

are engaged in poultry farming.

TABLE 4.2

SIZE OF FARM

ORGANISATIO N

TYPES

Less than 1 hectares

I & 3 hectares

Between 3 & 5 hectares

Above 5 hectares

TOTAL

SMALL SCALE

No Y o

MEDII JM SCALE

The above table shows that small scale fanners cul t iv~te an average

of about 3 hectares of land whereas, medium scale farmers. C'ultivate about

5 hectares of land. This is supported by the fact that 153 out of 280

rcspondcnts cngagcd in palm produce fiirnming and rvod cropping

representing 53.6% cultivate between 1 and 3 hectares of land whereas only

20 or 7.10% of the respondents cultivate abovc 5 hectares of la ld.

On f~rrther enquiry, it was discovered that small sc: le farmers were

able to cultivate as much as 3 - 5 hectares of land beca jse of the rural

nature or location of their business.

The same table goes further to show that 85.7% or 90 ,-espondents out

of the 105 mediuni scale fanners engaged in food and palm produce

cultivate well above 5 hectares of land in rural areas. Only 15 respondents

or 14.3% cultivate between 3 and 5 hectares of land. It is int~:resting to note

at this point tliat none of the medium scale fmmers cu1tiv.t~ less than 3

hectares of land.

TABLE 4.3

ACQUISITION OF LAND

METHOD

By inheritance 200 71.4

By Purchase

Table 4.3 shows tliat 200 or 71.4% of the 280 small zcale f'arrners

engaged in food and cash cropping (palm produce) inherited t l~e lands they

cultivate whereas only 80 or 28.6% actually bought their own fi MI lands.

'TOTAL 280 I

On the other hand of the 105 medium scale farmers engaged in food

and cash cropping (palm produce) 40 or 38% inherited their farm land

whereas 65 representing 62% purchased their own pieces of farmland.

TABLE 4.4

MONEY FOR PURCHASE

SOURCES OF FUND

Personal Savings

Borrowing from friends

Borrowing fiom

commercial Banks

Borrowing from thrift

Societies

TOTAL

ORGANISATIOI'

SMALL SCALE / bl SCALE

Froiii table 4.4, it could be seen that majority of th{: small scale

Agriculturist preferred other sources of finance than the 30 rc sporldents or

37.5% of the respondents who purchased their land actua ly borrowed

money fro~n thrift societies like Isusu Clubs whereas only 20 c r 25% of the

respondents borrowed from commercial banks is coinpared with those that

44

sourced money from other sources, it will be seen t h ~ t other sources

accounted Tor 60 or 75% of he respondents.

Also when you look at the figures for medium scale f rnners, it will be

observed that though cotntnercial banks have a high mark of 46.2% or 30

respondents, this figure becomes insignificant when you sggi-egate other

sources of credit for mcdium scale farmers. On the aFgregate, others

purchased their farm Iand.

TARLE 4.5

ESTIMATED AMOUNT OF CAPITAL

ORGANISATIOh

Less than %10,000 1 150 37.5

AMOUNT INVESTED

Between $41 1,000-50,000 1 180 45

SMALL SCALE

Between N50,OOO- 100,000 1 50 12.5

Above $41 00,000 5

MEDIUR I SCALE

TOTAL

The above table shows that out of the 400 respondents, 230 or 82.5%

invested less than $450,000 in their business operation. It go:s fiirther to

show that 50 respondents or 12.5% invested between 9 50,000 and

400

45

&4100,000 whereas only 20 or 5% of the total respondents in this class of

fanners actuaIly invested above ~100 ,000 .

Comparatively, all the medium scale faimers inter.( iewed invested

more than +4100,000 as was shown in the table. The differelm of course, is

attributable to the type and size of their business operations.

TABLE 4.6

SOURCE OF CAPITAL INVESTED

SOURCES

Personal Saving

Borrowing from friends

Borrowing from

commercial banks

Borrowing from thrift

socictics

TOTAL

SMALL SCALE

No YO

MEDIUF I SCALE

Table 4.6 reveals that only 80 respondents out of the 4C 0 small scale

farming interviewed borrowed from the commercial banks whr reas as niuch

REASON SMALL SCALE

CHOICE

46

as 140 and 1 10 representing 35% and 27.5% rcspcctivel J borrowed from

friends and thrift societies like the Isusu cl~lb and co-operat ve societies only

70 or 17.5% of the respondents invested their personal savi~~gs .

On the other hand, 80 respondents or 40% of th: medi~un scale

farn~ers interviewed borrowed their capital from the banks whereas 40 and

60 or 20% and 30% of the respondents sourced their capital tl~rouglz

borrowing from friends and thrift societies respectively. CnIy 10% of the

respondents invested personal savings.

TABLE 4.7

CHOICE OF CAPITAL

-

Low interest rate 200 50

I---

No collateral deinanded 40 10

ORGANISATION - / Long repayment period I 160 40

TOTAL 400

NIEDIUT T SCALE

No Y o

Table 4.7 shows that majority of the smallholder fai-n ers preferred

their source of credit because of low interest rate. This is sup ~orted by the

fact that 200 or 50% of the respondents in this class preferred their choice

because of low interest rate. Also worthy of note is the fa :t that 160 or 40%

of the respondents preferred their choicc because o ' long period of

rcpaytncnt granted them. Only 40 or 10% of the rcspondt.111 prulkrrcd tlicir.

choice because no collateral was demanded.

Conversely, analysis of medium scale farmers in tlli: table shows that

as much as 120 or 60% of the respondents preferred their :hoke as a result

of low interest rate whereas 60 respondents or 30% opter for their choice

because of long repayments period. Only 10% of the res ~ondcnts choose

their source of credit because no collateral was demanded.

TABLE 4.8

The above table shows that the 400 respondents interviewed, 220 or

RESPONSES

YES

NO

TOTAL

55% of the small scale fanners have at one time or the other a1 plied fos loan

ORGANISA'I'JOP' 7

SMALL SCALE

No "0

220 25

180 45

400

45

from the comnm-cia1 banks wl~ereas 180 or 45% have nc t seen the need to

avail themselves of opportunities offered by the comn1erci:~l banks.

The table also shows that all 200 respondents in the medium scale

class liave at various time applied for co~nmcrcial banks lo; 11s.

The reason for this may not be far-fetched because )f the magnitude

of capital required and the level of technology neede i to effectively

compete in this class of agricultural activities.

TABLE 4.9

ANY SECURITY DEMAND FROM YOU"

RESPONSES

' N O

SMALL SCALE

No %

MEDIUI 4 SCALE

Table 4.9 shows that all the respondents in both classe: (small scale

and medium scale) who have applied for loan from the comrarcial banks

were asked to pledge one form of security or the other.

, TABLE 4.10

NATURE: OF SECURITY DEMANDED

NATURE OF

SECURIrTY

/ Farm produce I -

SMALL SCALE

No %,

Fixed Assets

The above table shows that 200 or 90% of small sca e respondents

who applied for loan from the cominercinl bank ware nskcd to

pledgelmo~tgage fixed assets as security for the loan wheress only 40 or

20% were asked to provided suitable guarantors. It is intercs ing to note at

this juncture that none of the respondents in both classes ~ i e r e asked to

mortgage his farm produce as security for the loan.

220 90

TABLE 4.1 1

DID YOU GET THE LOAN?

RESPONSES

YES

TOTAL

SMALL SCALE

No 'Yo

MEDI JM SCALE

No (%

70 34

The above table shows that majority of small scale ap ~licants of loan

were denied such facilities because they could not mcc t thc sccul-ity

requirements of the cormnercial banks. This majority is re~resented by a

whopping 9196, only 20 respondents or 90 were granted such xcurity.

On the other hand, out of the 200 medium scale applic: tions received

by these banks, only 70 or 35% of the respondents became b:neficiaries of

such loans whereas the majority represented by 65 were denied such

facilities.

TABLE 4.12

IS COLLATERAL REQUTREMENT STRIN( XNT?

Table 4.12 shows that 2 15 small scale respondents re1 resenting 98%

of the total respondents agreed that the collateral requir:ments of the

REi,SP07 3ES

I I -

commercial banks are too stringent and above the reach 1)f small scale

SMALL SCALE

No %

215 9 8

F

farmers where as only 5 respondents or 2% in this class be1 eve otherwise

MEDII-M SCALE

No

190 YES

because in their opinion, the bank has to protect itself e lough against

defaulters.

11

The table also highlighted that 190 m e d i ~ m scalc respondents

5 2

220

interviewed or 95% also spoke with one voice against thc stringent

10 95 I I

collateral requirements of banks. However, 10 or 5% of the .espondent in

this category also do not believe with tho majority illat the security

demanded is too stringent and above their reach.

TABLE 4.13

SECURITY FOR BANK LOAN

CHOTCE c ) SECURITY

Farm land

Farm produce

Guarantors

Fixcd Asscts

TOTAL

- SMALL SCALE

No '%,

MEDIUD I SCALE

No '%,

The 4.13 shows that 74% or 160 respondents in the small-scale

category will prefer to pledge farmland as security to obtain b ~ n k loan. 40

respondents or 19% of the respondents will prefer the use of fa rm produce

as security for loan whereas only 7% or 15 respondents will bt: willillg to

provide suitable guarantors as security for the loan applied or fi: ed asset as

security for loan.

Comparativety, 63% or 120 respondents in the med u m scale category

will prefer to mortgage their fannland as security for bark loan. 30 and 40

respondents representing 16% and 21% respectively v ill be willing to

pledge farm produce and guarantors as security for t , ~ e credit sought.

Intcrcstingly, nonc of' thc medium scale farms intcrviewt d voluntcercd to

pledge fixed assets as security for the loan.

TABLE 4.14

IS REPAYMENT AGREEMENT FAIR EN01 JGH?

RESPONSES

YES

NO

TOTAL 1 20

SMALL SCALE

No O h

MEDIL M SCALE

The above table shows that out of the 20 small scale far ners that have

benefited from commercial banks loans, 15 representing 75% believed that

the loan repayment package was fair enough whereas only 25% tho~lght

otherwise.

011 the other hand, out of the 70 respondents in he medium scale

category who have been beneficiaries of bank credit, 65 -epresenting 93%

of the respondents agreed that the repayment package vas fair enough.

However 7% of the respondents believe otherwise.

TABLE 4.15

HONOUR OF REPAYMENT AGREEMEI'TT

RESPONSES SMALL SCALE

- YES 12 8 0

TOTAL 0

MEDIUI 4 SCALE

The above table shows that out of the 15 respondel ts that have

benefited from commercial bank loans, 12 representing 30% of the

respondents adhered strictly to the terms of repayment w1m:reas only 3

respondents or 20% defaulted in repaying the loans as and whei due.

On the other hand, out of the 65 m e d i ~ m scale respo~tdeits that have

benefited from commercial bank loans, 64 or 98% adhcred to the terms of

55

repayn~ent and as such paid off their debts as and when due whereas only

2% defaulted in this category.

TABLE 4.16

WHY UNFAIR CONDITION FOR REPAYI\ lENT

CONDITION FOR

REPAYMENT

Shot? repayment period

High interest rate

Any othcr rcason (spccify)

TOTAL

SMALL SCALE

No %

MEDIL M SCALE

Table 4.16 shows that out of the 5 small scale resy ondents wllo

consented that the repayment package was not fair enoug I, 4 or 80%

blamed the poor condition of repayment to a very high interest rate charged

for the loans whereas only 20% blamed it on short repayment p1:riod.

The table further reveals that in the medium scale categ xy, much of

the blame was on short repayment period sathcr than high interest rate

charged, 80% of the respondents believe that they were not g ven enotlgh

time to trade with the loans whereas only 20% blamed it on high interest

ratc.

TABLE 4.17

DIS-HONOURING OF REPAYMENT ACRE 7RIENT

RESPONSES FOR

DEFAULT

Poor ha~vest period

Short repayment period

High interest rate

Any other reason either

(specify)

TOTAL

ORGANISATIO V

SMALL SCALE

No Yo

3 100

Nil

Nil

MEDIl SCALE

The above table shows that all the 3 respondents in tht: small scale

category that defaulted in loan repayment blamed it on the loor harvest

experienced during the period.

ANYBANK PROFESSIONAL ADVICE ON DEFAULT

TABLE 4.18

RESPONSES l.----- SMALL SCALE

No %

The above table shows that in both categories of rarmer; interviewed,

all the respondents that have benefited from commercial bal k loans were

not offered any kind of professional advice on ways of avoidkg or reducing

the risk of default i n loan repayment.

hIED

No

TOTAL '3 3

4.2 DATA ANALYSJS

STATISTICAL TEST OF HYPOTHESIS

HYPOTHESIS 1

Ho: Commercial Bank credit has no significant influence on the provision of

finance to small and medium scale farmers in Nkan .I West Local

Government Area.

Hi: Commercial Bank credit has a significant influence on tl e provision of

finance to small and medium scale farmers in Nkanu West Local

Government Area.

Test Techniques: Chi-square (x2)

Fornmla: x2 (R - 1) (C-1) = Z (Fo - F J ~

F,

Fo - Observed frequency in each cell

F, - Theoretical frequency in each cell

R - No of rows in the contingency table

C - No of columns in the contingency table.

The theoretical frequencies will be obtained using the followil~g fornxlla:

Where:

nr - Total number of rows

IIC - Total number of column

11 - Sample size.

Decision Rule:

Reject the null hypothesis if calculated value of the cl-i-square is more

than the critical value of the chi-square distribution with the appropriate

number of degrees of freedom.

TABLE 4 (19)

INFLUENCE OF CREDIT

ORGANISATION I

SOURCE OF

FUND

- -

Commercial

Banks

Other Sources

MEDIUM SCALE

Calculation of theoretical frequencies

Table 4 (20)

The critical value of the chi-square at 0.05 level of significance and I

degree of freedom is 3.84 1.

DECISION:

Since the calculated value of the chi-square (x' = 27.28) is greeter

than the critical value of chi-square distributed (x2 3.81 1) at 0.05 level of

significance and at 1 degree of freedom, wc therefo -e reject the null

hypothesis which states that commercial banks credit '\as no significant

influence OII the provision of finance to sinall and medium scalc farmers and

accept that alternative hypothesis which states that comnx.rcia1 banks credit

11as n significant influencc on t l~c provision of financc to cmall and mcdium

scale farmers in Nkanu West Local Government Area.

HYPOTHESIS TWO

HI, : Stringent collateral requirements has no, significant influence 011 the

provision of credit to small and medium scale fame1 ; i n Nltanu West

Local Government Area.

HI : Stringent collateral requirements has a, significant influence on the

provision of credit to small and medium scalc farmers i n Nltanu Wcst

Local .Government Area.

Test Techniques: Chi-square (x2)

Formula: x2 (R - 1) (C-I) = Z (Fo - F,)'

h

Where:

I;(, -

Ft -

R -

C -

Obscrvcd Et-cqucncy iu cacli ccll

Theoretical frequency in each cell

No of rows in the contingency table

No of columns in the contingency table.

Decision Rule:

Reject the null hypothesis if calculated value of tile chi-square is

greater than the critical value of the chi-square distril-mtion with the

appropriate numbcr of degrccs of freedom and level of signi1icancc.

TABLE 4 (21)

INFLUENCE OF COLLATERAL

TOTAL 220

ORGANIS ATION

MEDIUM SCALE TOT. i L

I

Calc~rlation of tlieoretical frecluencies

Table 4 (22)

The critical value of the chi-square at 0.05 level of significance and 1

deg-ce of freedom is 3.84 1.

DECISION

Since the computed x2valiie of 2.268 is less than the sritical x2 V B I L I ~

of 3.841 of the chi-square distributed, we therefore ibcccpt the 111111

hypothesis which states that stringent collateral sequir:n~ents has no

significant influence on the provision of credit to small an 1 medium scale

farmers and we reject the alternative hypothesis which statcs that stringent

collateral requirements has a significant influence on the provision of credit

to small and medium scale farrners in Nkanu West Local Go] ernment Area.

HYPOTHESIS THREE

Ho: Small and medium scale farmers in Nkanu West Loc 11 Government

Area do not have a high rate of loan repayment default.

HI: S~nall and medium scale fartners in Nkanu West 1,oc:l Government

Area have a high rate of loan repayment default.

Test Techniques: Chi-square (x2)

Formula: x2 (R - 1) (C- 1) = C (FO - F J ~

F,

Where:

Fo - Observed frequency in each cell

Ft - Theoretical frequency in each cell

R - No of rows in the contingency table

C - No of columns in the continge~icy table.

The theoretical frequencies will be obtained using the follom ing forn~ula:

Ft = nR x nc

nr - Total number of rows

nc - Total number o f col~rrnns

n - Sample size.

Decision Rule:

Reject the null hypothesis if computed value of the ch$-square x2 is

greater than the critical value of the chi-square X' distributed with the

appropriate number of degrees of freedom and level of significance.

TABLE 4 (23)

RESPONSES

YES

TOTAL

ORGAMSATlON

SMALL SCALE MEDIUM SCALE

Calculation of theoretical frequencies

TOT 41,

76

Table 4 (20)

The critical value for the chi-square at 0.05 level of significance and 1

degree of fi-eedom is 3.841.

DECISION:

Since the calculated value of chi-square ( x2 = 12.248) is gl-eatcl- thao

the critical value of chi-square X' distributed (x2 3-84]) at 0.05 lcvel of

significance and at 1 degree of freedom, we therefore rtject the null

hypothesis which states that small and medium scale farmers Nkanu West

Local Government Area do not have a high rate of loan repannnent default

and accept the alternative hypothesis which states that small and mediu111

scale farmers in Nkanu West Local Government Area have high rate of

loan repayment default.

4.3 INTERPRETATION, MEANING AND DISCOC ERY

HYPOTHESIS 1

The result of hypothesis testing showed that the :alculated X' of

27.28 is grcater than the critical x2 of 3.841.

I-Ience the alternative hypothesis which states that commercial banks

credit has a significant influence on the provision of f i n a ~ w . to small and

medium scale farmers is accepted and the null hypotliesis \.]hi& states that

commercial banlts credit has no significant influence on the provision of

credit to small and medium scale farmers is rejected.

This study set-out to examine the role commercial l-mlts and other

non-financial sources of finance open to srnall and medium scalc farmers so

as to determine the influence of commercial bank credit on t i e provision of

finance to snlall and medium scale farmers. From the above ii~terpretation of

the result, it means that comniercial banks credit has a signifca~lt influence

on the provision of finance to small and medium scale far1 lers in Nkanu

West Local Government Area.

Tt was discover that commercial banlts credit is a significant source of

finance to farmers, as a result of this, small and medium scale farmers

should embrace this, sources to enable them finance thrir operations

adequately.

HYPOTHESIS 2

7'hc calculated x2 value of 2.268 is less than the crit cat x2 value for

3.841.

Hence the null hypothesis which states that strillgent collateral

requirement has no significant influence on the provision o ' credit to small

and rnedi~lm scale farmers was accepted and the alterna:ivc hypothesis

which states that stringent collateral requirements has a signi icant influence

on the provision of credit to small and medium scale farmers is rejected.

This study set out to investigate the effect of strinqcnt collateral

requirements by commercial banks on the disbursemen of loans to

deserving small and medium scaIe fanners so as to enable more farmers

benefit from commercial banks credit.

HYPOTHESIS 3

The calculated value of chi-square (x2 = 12.248) is g~catcr than the

critical value of the chi-square X' distributed (x2 = 3 -841).

Hence from the above interpretation it means that sinall and medium

scale farmers in Nlcanu West have a high rate of loan repaylll3nt default. It

was discovered that farmers understudy operate their farn~illg venturc in

high risk area of investment and as a result, they default in the repayment of

loan will be reduced if the farmers shift their fanning busincss to area of

investmcnt with low risk venture.

This discovery was also not supported by Ijere (1 33 t : 26) when 11c

criticized the security and lending requirements of commercial and

development banks as it affects small and medium scale f- rmers.

CONCLUSION

Rnsccl on thc findings of this I-cscarch study, h c ~-csc;~rchcl. thct-chi-c

conclude that if co~nrnercial banks, govcrnment and otl-er, formal and

informal lending agencies co-operate together, small and mcdiurn scale

farmers will benefit more from these sources, this will improve the social

economic condition of these class of farmers and equally clmtributc to the

economy of this country.

Also, the benefit derived by these farmers from credit facilities will

motivate new farmers into the system and thereby bocst agricultul+al

productivities in the country, this will reduce over dependmcy on oil as

mcans of carning foreign exchange.

With the re-capitalization of the banking industry which now brought

about strong asset base of most banks, we now have mega 'mnks that can

afford to provide loans to farmers without stringent measures such as

collaternls and lending rates. The banks can now comfol-tably prol~ide crcdit

facilities to farmers because of their stability.

Also the Area-bank index should be increased as wlut is currently

experie~lced in Nkanu West today is not adequate. As of toda.4 it is only the

Union Bank that is operating in the entire local government. There should

be competition to avoid monopoly.

A ~ ~ C I I I I O ~ L I , 1 . ( 1 ' I S $ ) , "Assisting I hc Small ~ . ~ I I I I L Y S " I h i v 'I'ilncs. ' I 'ucsda~

Mar-ch I?.

A I I . I ( I O S ; ), "l3aul\s I<olc 111 !<irr-aI Ik~~c*lnp~ncnt. ' S atcsln:~~~. .Jr~fy 13.

Aivo>cl~i, 0 ( 19:; I ). LLl'~-oblc~i~s 01' A~rict~ltirr-c 1 1 1 Nigeria" I :lpcr lkli\~crcc! A L

A Seminar O~-p,l,arii/ccl 1 3 ~ ('cnlral I3anlc 01' \)i:cl-ia. April 17-

3 0

N~VCI-c . A. ( I 0Ys5 ) -Y i~xppI i~~p W i ~ h lsood I'~-o(li~ction" SL 11d:1\ S ~ ~ ~ C S I I I ~ I I ,

. l 3 l \ ~ l ; \ l - ~ 0.

Ogbonna, M. '4. ( 1 073), '"ll~c I'~.csc~it 1. i~ianci~lg ()I' Agricultr 11-c In So~~rh-l:ast

. c~ I S t I I i I I a I I ~ i i 2 I'hc

\ i11ivc1 si~! ()I ' Nt;:c\ria, I ~ L ~ ~ I LI:II-y

( ) l ;~ l~~ .c \ \ aju, A 0. ( 198 1 ), "I~i~liwcial Aid I ; I . O I ~ I C'o~lln~crcini I3anlis I o Small

A I I ~ Mcdi i~n~ Scale I I I I I Ns~11;l. ;I I , . (; .A" 1\11

1 l l ~ l ~ ~ ~ [ ~ l i s l ~ c ~ l ~ l i ~ s ~ ~ i ~ ~ ~ ~ t ~ o i ~ - ~ l ~ ~ i \ ~ c ~ - ~ i t ~ 01' Ni[:< ria E s \ I ~ ~ : I .

OlawLic~c, S. ( 0 1 ) L b l l c y I I I I N I ( S 1-01. I I ' I ~ c ~ c I I I 1 1 t ; IIIPICIIICIII:~~~OII"

- dcli\lcl.cL{ at ;I Scri~i~iar- O I I I ' I - o ~ c c I I'l:l~irlillp i\lld

l l l l c i i ~ ~ t i ~ ~ . Minisil-y 01 ~~~~~~~~~~~~~~c / \ 1 1 i i N ~ ~ L I I X ~

I < ~ " ; O L I I . C C S . I badarl

APPENDIX

RESEARCH QUESTIONAIRE FOR SMALL SCALE AND MEDlUM

SCALE FARMERS

1 am a postgraduate research student working on tile topic "credit

facilities and its impact on small and medium agriculture in a developing

economy". I sincerely solicit your assistance in completing this

questionnaire which will help me in collecting relevant infcrn~ation Tor the

survey. All information supplied will be treated in absolute confidence and

used only for the purpose of this study.

Thanks for your anticipated co-operation.

Yours faithfully,

AN1 UDOAGHA PG/MBA/03/38559 Management Department University of Nigeria.

.................................................... 1. Name of respondent

...................................................... 2. Address (Business).

3. What typc of farming activity arc yo^^ cngagcd in?

Cash Crops (Palm Produce) 1 Livestock 1 1 Food Crops

4. If your respond to question 3 is food or cash crop, what is the

estimated size of your farmland?

ii Less than 1 hectare T I Betwecn 3-5 hcctarc;

Between 3 hectare [I Above 5 hectares a 5. How did you acquire the land?

By inheritance By purchase

6. If you purchased the land, how did you obtain money for the

Personal Savings ~ I ~ o r r o w i n ~ from Comn~ercid Bank I/ Borrowing from friends orr row in^ from thrift sociel y E l

7. What is the estimated amounts of capital invcstcd in your

business?

Less than 811 0,000 1 1 Between W50,000- U100,(100 1 ]

Bctween $41 0,000 - 8150,000 Above $41 00,000 L--! 8. Where did the bulk of capital invested come from?

Personal Savings I] orr row in^ from Commercial 3ank (1 Borrowing from friends orrow row in^ from thrift socicty l----.l

9. Why did you prefer the choice above?

Low interest rate CII No collateral demanded I]

,

Long repayment period t--.J

10. I-lave your ever applied for loan from commercia! bank to finance

your business operation?

Y e s I]

1 1 . If the answer to question 10 is yes, did they dem ~ n d any form of

security from you.

yes NO TI 12. What is the nature of security demanded from you1?

Fixcd Assest

Farm Produce I

13. Did you ultimately get the loan?

Yes TI 14. Do you consider the collateral requirement by tlle commercial

banks as being too stringent?

Yes No I 15. If the response to question 14 is yes, what will you prefer to

pledge as sec~~r i ty for bank loans?

Farm land cI Guarantors r-1 Farm produce I fixed assets E 3 16.

Yes

If you have been a recipient of bank loan, do you covpidcr the loan

repayment agreement fair enough?

17. If your response to question 16 is Yes, did you honour the

repayments agreement?

I'cs I 18. If however, your response to question 16 is No, why do you

considcr the condition for- repayment as not bcing fair'?

S11ort repayment period

High interest rate

Any other reason specify I--l 19. As a recipient of bank loan that consider the repayment package

fair enough and yet defaulted in repayment, what were your

reasons for not honouring the repayment agreement'?

Poor harvest T I High interest rate E l Short repayment I I Any other specify 1 I

20. Did the bank offer you any kind of professional advicc on ways

and means of preventing defaulting in replacement?

Yes 1-1