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INVESTIGATING THE PROBLEMS OF AGRICULTURAL CREDIT IN ADAMAWA STATE (CASE STUDY; YOLA SOUTH)

Dept: ENVIRONMENTAL SCIENCE File: Word(doc) Chapters: 1-5 Views: 2

Abstract

This research was conducted with the aim of pointing out the problems that prevent farmers from having access to credit in Yola south. The research also gives an analysis of the socio-economic characteristics of farmers in the study area and their access to credit. Furthermore, the research also identifies the main sources of credit to farmers in the study area and the benefits derived from the credit obtained. During this research, three communities were purposively selected in Yola south; Wuro-chekke, Bole and Mbamba. These communities house the majority of farmers in the study area and 20 farmers were randomly selected from each of the community thereby making a total of 60 farmers. Questionnaires were administered to the 60 farmers selected and the data obtained was analyzed using statistics such as mean, frequency and percentages in Microsoft excel. The results in the study showed that factors such as lack of collateral, religious beliefs and long application procedure
1.0 Introduction

For many years, different studies have been conducted on the problems of

agricultural credit in Nigeria. The studies were conducted both in the Northern and

Southern parts of the country and the results were almost similar to one another.

From the results, it is observed that most farmers who apply for credit to finance

their agriculture experience problems such as lack of collateral, high interest rate,

lack of awareness by extension farmers, long procedures and insufficient funds to

give all farmers that requested loans; Are the main factors that lead to having

problems with agricultural credit (N. 2012). Other studies conducted have also

shown that educational level and locations of banks where the loans are applied for

are also among the factors that contribute to farmers not having accesses to loans in

the rural areas of Nigeria (Foin 2007).

1.1 Definition of terms

Agriculture can be defined as the science, art and occupation of

cultivating soil, rearing animals and producing crops. It is also known that

agriculture is the basis of civilization; it is through agriculture that human population

settled and increased in number, instead of moving from one place to another. There

are different types of agriculture which includes the subsistence and industrial

agriculture. The subsistence agriculture is a type of agriculture which is practiced by

farmers for the survival of their families. In this type of agriculture, farmers cultivate

small agricultural produce in small land that is just enough for the families to eat and

small cash crops. This type of agriculture is practiced by families and all the labors

are done using human and animal power with hand and simple machine. Most of the

farmers practicing this type of agriculture have livestock such as cattle and goats.

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The residue of the crops is used in feed the animals. The waste generated by the

animals is also used as fertilizers in the farms. Industrial agriculture is another type

of agriculture in which very large quantities of crops and livestock are produce for

commercial purposes. In this type of agriculture large machines and chemicals are

used in order to produce higher crop yield to sale.

Credit can be defined as the ability for an individual or group of people

to obtain or receive goods or money for present use and repay back (Foin 2007).

Credit can be obtained from different sources and when paying back there is certain

amount that most be added as interest to the money depending on the amount of

money obtained. The interest amount can also varies depending on the time given to

pay back the money; failure to do that can also lead to increase in the percentage of

the interest rate of the loan obtained.

Agricultural financing can be defined as the use of money or goods

obtained for financing agriculture (Foin 2007). Using the money one has or the credit

obtained, there are many factors of production that a farmer needs to purchase; these

include lands, machines, fertilizer and chemicals. The use of money to purchase

these factors will help in increasing the production of the farmer and making work

easier for him with the help of the machines he purchased in the farm.

Credit constraint – This can be defined as a situation where by a credit

lender is unsatisfied with the credit he/ she demanded.

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1.2 Agriculture and Nigerian Economy.

Before the discovery of petroleum in the Niger delta region of Nigeria,

Agriculture sectors are one of the sectors that are contributing most to the

development of Nigerian economy (Zivkovic, Omorogiuwa and Ademoh 2014).

Nigeria is divided into south and north, the northern part of the country is the region

where about 70% of the populations are farmers. The country is also known for its

abundance of fertile soil and climate for agriculture, which when used properly can

place the country among the league of high economically developed nations in the

world (Zivkovic, Omorogiuwa and Ademoh 2014). With the availability of both the

lands and fertile soil in the country, Nigeria’s government has failed to use all the

natural resources they have in abundance on the agricultural sector but focused more

on the petroleum in the southern parts of the country. It is estimated that the

population of Nigeria is about 100 million; over 61.2 percent of this population is

living in poverty with less than one dollar per day (Opinion Polls Socio-economic

Polls, 2013). Nigerian economy could have been better than what is today if the

agricultural sector had been given more attention by the government. This is because

the agricultural sector is the only solution to the situation Nigerian are today, it is the

only sector that can provide for all the unemployed and the poor citizens living in the

rural areas with a less than dollar per day (Zivkovic, Omorogiuwa and Ademoh

2014). Most of the problems faced by Nigerians in agricultural sector are the lack of

machines, good roads, and credits to increase productivity.

Before, when Agriculture was the sector that contributed more to the

Nigerian economy and the government has given more attention to the sector, the

country are known as the exporter of crops such as groundnut, cocoa, seed cotton and

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palm oil (Zivkovic, Omorogiuwa and Ademoh 2014)l. The country exported all the

cash crops globally through market boards that are in charge of all the exports and

selling domestically which the money and revenue are then is used in funding the

needs of the states. The market boards were restructure in 1954 when the country

assume federal status, three boards were setup with each one responsible for

handling and exporting one type of crop in the three regional part of the country. The

three regional parts of the country are Northern, western and eastern. Under the

supervision of Nigerian produce marketing company the boards continued to operate

in different part of Nigeria. Agriculture continued to provide the country with foreign

earnings and employment until in 1970’s when it was overrun by the oil boom

(Zivkovic, Omorogiuwa and Ademoh 2014).

The 1970’s oil boom and creation of more state in Nigeria led to making the

Nigerian produce Market Company the nationwide commodity boards. In 1977 the

price of crude oil fell by four percent leading to economic decline and decrease in

both the state and federal revenue (Zivkovic, Omorogiuwa and Ademoh 2014).

The boards became financially inactive and farmers were unable to get

investment funds for their farms to produced crops that will be exported by the

boards. With other problems such as the replacement of the boards responsible for

exporting cash crops with the Nigerian exports promotion which has no connection

with council of Nigerian farmers, agricultural sectors in Nigeria continue to

struggling. The movement of farmers from rural areas where much of the agricultural

products are produce in search a work led to a decrease in the quantity of products

exported in the country. In The 1960s the agricultural contribution to gross national

income was 60 percent, which declines to 49 percent in 1970s and 1980’s 22.2

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percent (Agriculture, 2014). This continues to decline till now and the only way to

make agriculture the way its contributes to our economy as in the 1960’s is giving

much attention to the sector and by giving farmers in both the rural and urban areas

the funds and machines they needed for production (Zivkovic, Omorogiuwa and

Ademoh 2014).

1.3 Credit and its roles in agriculture.

As defined earlier in the definitions of terms section, credit can be

defined as the ability of an individual or group of people to obtain goods or services

with the promise of paying back in the future (C., O and G 2014). From this

definition, we can understand that farmers who are living especially in the rural areas

needs credit to support their agriculture. In the” agriculture and Nigerian economy

sector” we explained that about 70% of Nigerian population are living in poverty

with less than one dollar a day and most of these people are from the rural areas of

the country. Credit, in terms of agriculture development, is very important

instrument, because it is only through credit that farmers living in the rural areas can

have the money to buy seeds, lands and implements needed in their farms.

Credit/ loan plays very important role in the development of agriculture

not only in Africa but also in the world. Giving out loans to farmers by both the

government and other private enterprises help in developing the agricultural sector

thereby contributing more to the economic growth of the country. These loans can be

in form of cash, farm machines, fertilizers and pesticides. Providing loan to farmers

in any form can increase their productivity, credit is essential in the improvement and

growth of both the economic and agricultural sector (C., O and G 2014).

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For farmers, credit serves as the factor that eliminates the block which

prevents them from improvement. For example, there are many young men who have

the energy and skills to work in the farm but lack the resources for efficient

production. Giving loans can help these young men produce more in their farms and

create more jobs especially to the youths living at home without any work to do.

Therefore credit in agriculture still remains among the forces that are needed for

further improvement in Nigerian agricultural sector. (C., O and G 2014)

1.4 Sources of agricultural credit.

In order to have a developed agricultural sector that will contribute more

to our country’s economy in Africa, we need to have improved marketing, provide

new sources of employment and make credits available to our farmers (C., O and G

2014). According to (C., O and G 2014) farmers in Africa are financed through the

following ways which include commercial banks, cooperation and companies, state

financing agencies, external loans from agricultural banks and direct loans from the

state and federal government. According to (C., O and G 2014) the most available

source of obtaining loans by peasant farmers are the money lenders and

intermediaries who purchase their final products after harvesting. Among all the

sources of loans listed above, the informal sources of obtaining loans provide the

largest portion of the loans to the farmers in Africa. The two major source of credit

i.e. (formal and informal) are also known as institutional and non institutional source.

The institutional sources (formal) are loans obtained from commercial banks,

cooperative banks and government. The formal source of credit can meet all

requirements of farmers but requires a long procedures, conditions and collateral

(Saleem n.d.). The informal source is neither procedural nor time consuming but

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does not meet the farmer’s requirement for agricultural production. A study

conducted by (C., O and G 2014) on peasant farmers in Benue state Nigeria observed

that the informal source of credit is mostly from friends, families, products buyers,

traders and money lenders, is the most prevalent source of loan among peasant

farmers in the area. This is because the informal source is the only source they are

familiar with and the loans were given directly without waste of time like that of the

formal sources (C., O and G 2014). However the researchers observed that the

informal sources charge high interest

In Nigeria, there are four banks which are committed to provide farmers

with loans either directly or indirectly. These banks have been operating for many

years in different parts of Nigeria in order for farmers to have access to loans and

increase their productivity. These banks are as follows:

a. Central bank of Nigeria- The central Bank of Nigeria( CBN) plays a very

important role in providing funds for agricultural credit, it is also the apex

of Nigerian Banking system

b. Commercial Banks- These are many commercial banks in Nigeria and

they are known as the suppliers of the largest portion of agricultural credit

for short time purposes in the country.

c. Development Bank- Banks that are required to play a very important role

in development and financing of agro- allied industries for long time.

d. Merchant Bank- these banks provides farmers across Nigeria with long,

medium and short time credits.

Others institutional banks committed to provide agricultural credit to

farmers in Nigeria include: microfinance banks, state and federal agencies,

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cooperatives, agricultural insurance company, finance and private investment

companies, Nigerian agricultural cooperative and rural development bank

(NACRDB) which is also a development bank.

1.5 Benefits of agricultural credit

There are many studies conducted by researchers to know the benefits

farmers have been deriving on the agricultural loans and credit they obtained. Most

of the researchers observed that there is a difference in the income of a farmer before

and after collecting the loan. A research conducted by (Gana, et al. 2009) on

“agricultural credit utilization among small scale farmers in Bidda Niger state,

Nigeria” observed that most of the Respondents (farmers) said that before they

obtain loans their incomes are very low, but after utilizing the loan their income

increased. A study conducted by (Mbata 1991)also observed all the farmers under his

study responded that they applied fertilizers and chemicals (herbicides and

pesticides) on their farms and it is finance using the credit obtained from the

financial institutions. One problem noted by (Mbata 1991) on his study is that, only

47% of the farmers applied the fertilizers and chemical on the recommended level.

This indicates that lack of extension agent is among the main reasons why farmers

were unable to use inputs on recommended level (Mbata 1991). Farmers who were

able to obtain credit utilize what they have in buying farm inputs like fertilizer,

pesticides, farm machine and equipment which will be used in farm production.

These inputs can only be properly used with the help of extension agent that will

recommend and show the farmers what to do with the resources purchased.

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1.6 Constraints of Agricultural Credit Accessibility

Farmers in different parts of Africa have problems with full access to

loans especially the one provided to them by the government. Although a farmer’s

need of credit can be different from one another, the main factor that indicates that

there is constraint is the gap between credit demanded and what is supplied (C., O

and G 2014). A research conducted by (C., O and G 2014) defined credit constraint

as the situation where by a farmer is unsatisfied with the credit he demanded or

desires, thus they classified farmers as credit constrained and unconstrained. In

Nigeria, agricultural credit constraints have an impact on the production efficiency

leading to low productivity by farmers in the country. The following are some of the

reasons why farmers are not have access to agricultural credit by (C., O and G 2014)

in their study, they are as follows:

a. A long, complicated and time consuming procedure is one of the main

reasons why farmers are having problems accessing to loans. This results in

taking long time before loans are approved and made available to farmers (C.,

O and G 2014).

b. High interest rate by the institutions and lack of collateral by farmers are also

a problem preventing farmers from obtaining loans to finance agriculture (C.,

O and G 2014).

c. Illiteracy and lack of farmer’s ability to provide the feasibility report for

project which the credit is required is also a problem leading to farmers not

the obtaining loans in different parts of Nigeria (C., O and G 2014).

d. Lack of awareness by extension agents that will encourage farmers in rural

areas to apply for loans.

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e. Inadequate funds by the institutions to give credit to all the farmers that apply

for the loans.

The above mentioned reasons and others are the main problems that

are preventing farmer in Nigeria not having access to credit especially the one

provided by the formal institutions.

1.7 Agricultural loan application processes in Microfinance Bank, Nigeria

The following are the processes of applying for Agricultural loan in Nigerian

microfinance banks which is aimed in supporting small business and farmers across

the country with credit.

1. The first step when applying for loan is for farmers to come in group, there

must be minimum of 5 and maximum of 10 people per group. All those in the

group must be farmers who are willing to apply for Agricultural loan.

2. The bank will train the group of people for 6 weeks; this is known as

financial awareness.

3. The farmers in the group will contribute one quarter of the money applied for;

this will serve as collateral and assure the bank that they can be able to pay

the money back when given to them.

4. An agent from the bank will go to each of the applicant’s farm to verify

whether if it is true that the money will be used for agricultural for purpose.

The agent will also assess whether if the money requested is over or not

enough for the farm. When the money is over, the bank will reduce the

amount of the money applied and if the money is not enough they will advice

the applicant to increase the amount requested if he wants.

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5. The loan will be given to them and will be paid back with 20% interest after

a period of 5 month plus 4 month grace period.