CHAPTER
ONE

INTRODUCTION

1.1     
Background
of the study

The
There is no contention to the fact that the purpose of any business-outfit is
not only to make profit but also to ensure that the business-out fit expands
through investment. However, because the benefits or returns from investments
are not known with certainty and hence are not guaranteed, every investment
proposal involves risk. Onwuchekwa (2009:p.22) conceptualized risk as the
probability or like hood that the actual return from holding an investment will
deviate from that which was expected. Thus, the unpredictability of an outcome
on investment suggests the need to properly analyze every investment proposal
before investment is made so that the expected risk and return could be
determined using appropriate skills and techniques.Agriculture is the oldest
industry known to mankind and it is the source of food and raw materials. It
could equally be referred to as the world’s primary industry (Lot 1985:1).

Oni
(2008:16) affirmed that in Nigeria, there are several sectors that contribute
to the total output of the economy. In practice these are grouped into four
major sectors namely agricultural, manufacturing oil, petroleum and service.Oni
however observed that the agricultural sector is considered to hold the key to
economic development of the country. According to the central Bank of Nigeria
report (1981-2003) agriculture remained the highest contributor to the Gross
Domestic Product (GDP) with an average of 39.8 percent over the period with
petroleum contributing 13 percent. This foregoing suggests that Nigeria
agriculture is pirotal to economic development and efforts should gear towards
using that to revive the economy and reduce significantly the level of property
in the country.
Inspite of the enormity of the contributions agriculture is making in the Nigeria
economy, the sector is unable to fulfill its most basic and traditional role of
being the source of food for the nation. However, several policies and
programmes have been designed by government to ensure that this all important
sector is brought to the economic front bunner in Nigeria.
Prominent among which is the establishment of development banks. Auforo
(2007:46) contended that the functions of the development banks include:
i. Provision of major source or channel for medium and longer term finance
through granting of direct loan and through equity participation in public and
private enterprise.

ii.
Provision of technical service to enterprise in various forms including
managerial guidance, feasibility studies of investment projects.
The agricultural and commerce bank fall within the framework and policy track
of the Nigeria government for establishing the development banks. Staking risk
involves tacts and skill by management of organizations. The understanding of
the end point of a particular business venture or stake suggests that
management should be up to the task of protecting the investment. Dinsale and
Murdie (197 II) observed that the major undertaker of the risk are the
insurance firms, losses that occur from flood, earthquake, nuclear explosions
and riot damages are uninsurable. Agricultural produce fall within this
category. Thus, undertaking to engage in financing a business by banks
presupposes enormous risk which is not taken by the insurance firms but by
management of the agricultural and commerce banks. It is therefore the thrust
of this studying to investigate the management of risk in agricultural
financing with particular reference to Agricultural and Commerce Bank Plc,
Enugu.

Statement
of the Problem

The
Nigeria Agricultural and Commerce Bank was established in 1973 and it derives
its capital from the Federal Government of Nigeria and the Central Bank if
Nigeria, the capital market and exchequer grants and loans (Unochukum 2009:7)
for Unochukwum, the bank provides finance for agriculture either at the
production level or for storage or marketing of agricultural products. In
realization of the fact that no organization would venture into any business
without providing safe landing incase of any eventuality the credit guarantee
scheme for the agricultural sector referred to as Agricultural Credit Guarantee
Scheme (ACGS) was established in Nigeria in 1977 (Mohammed 2007). According to
him, the scheme was designed to provide guarantee in respect of loans granted
by banks for agricultural purposes with the aim of increasing credit to the
sector. Mohammed further noted that before loans are given out under the
scheme, there are some basic principles of tending expected of the banks to
observe. Such principles among others include the source of repayment, the
profitability of the transaction and the security offered. Inspite of these
provision, Agu (1983) observed that the inadequate and frequent death of loans
for financing agriculture has been a major impediment to agricultural
development in most developing countries, including Nigeria.
Since agricultural loss is classified as catastrophic loss; it suggests that it
cannot be insured. (Disindale in Obayi 2009) The managerial competence of the
bank executives in managing the risk involved in undertaking to grant bank loan
becomes very pertinent. Thus given the fact that Nigeria is making frantic
efforts to ensure that agriculture comes to lime light in the over all economic
indices in Nigeria through credit facilities by banks and other financial
institutions, it becomes very important to examine the management of risk in
agricultural financing using the Agricultural and Commerce Bank Plc, Enugu as a
case study. This indeed is what this study is posed to achieve.

Research
Objective

The
research objectives for the study include:
(i) To examine the involvement of the agriculture and commerce banks in the
investment made by farmers.

(ii)
To investigate the extent to which government provides funds to stablise
agriculture and commerce banks in case of eventuality.
(iii) To investigate the factors responsible for poor lending of money by
agriculture and commerce banks to farmers.
(iv) To explore factors that would enhance positive lending behavior of
agriculture and commerce banks.

Significance
of the Study

The
study when completed will unvent the problem associated with granting not only
loans but other credit facilities to famers in Nigeria.
It would equally spell out the involvements made with the facility granted did
meet the target expectation.
The study would equally provide a guide on how best government would be
involved in granting loan and other credits to those involved in agriculture.
The study will generate data on how to collaborate with the development banks
in order to achieve result particularly those in the agricultural sector whose
trades are regarded as non-insurable ventures.

Research
Questions

For
the purpose of this study the following research questions are posed.
(i) What is the involvement of the agricultural and commerce Bank in investment
made by farmers?

(ii)
Does the government provide enough fund to stabilize agricultural and commerce
banks in case of eventuality?

(iii)
What are the factors responsible for poor lending rate by the agriculture and
commerce banks?

(iv)
What are the factors that would enhance positive lending behaviour by the
agriculture and commerce banks.

Scope/Delimitation
of the Study

The
scope of the study covers management of risk in agricultural financing in
Nigeria. The study is limited to the management of risk in agricultural
financing. It discussed the managerial competence of agricultural and commerce
bank executives in ensuring that the risk factors in agricultural reduced. But
there were other constrain which limited the scope of the study:

(a)Availability
of research material: The
research material available to the researcher is insufficient, thereby limiting
the study.      

(b)Time: The time frame allocated to the study does
not enhance wider coverage as the researcher has to combine other academic
activities and examinations with the study.      

(c)Finance: The finance available for the research work
does not allow for wider coverage as resources are very limited as the
researcher has other academic bills to cover.

Definition
of Terms

The
following terms have been defined within the context of their usage in the
study.

Agriculture:
This refers to the cultivation of crops and rearing of animals for the benefit
of mankind.

Catastrophic Loss:
This refers to the type of loss emanating from natural disaster like erosion,
earthquake occurring on agricultural produce.
Development: It is the growth and
positive change in an organization which occurs as a result of the introduction
of one or more variables.
Developing Countries: These are
countries characterized by the production of raw materials, very high rate of
unemployment and general poverty.
Financing: This refers to the
process of bringing out money and other forms of credit in order to carry out
certain project or programmes.
Insurance: This refers to the act of
undertaking to indemnity the insured or the policy holder against the occurance
of insured risks.
Insurable Risk: This is the types of
risk that is undertaking to cover by the insurance policy and regulation.

Loan: This refers to the
amount of money and or other forms of credit granted by a bank to the
customers. Most times such facility attracts interest to the lender.

Management:
This is the process of controlling organizing, supervising, planning and
directing human and material resources to achieve the organizational goal.

Risk: This refers to the
probability that the return made on an investment may deviate.

ORGANIZATION OF THE STUDY

This
research work is organized in five chapters, for easy understanding, as
follows. Chapter one is concern with the introduction, which consist of the
(background of the study), statement of the problem, objectives of the study,
research questions, research hypotheses, significance of the study, scope of
the study etc. Chapter two being the review of the related literature presents
the theoretical framework, conceptual framework and other areas concerning the
subject matter.     Chapter three is a research
methodology covers deals on the research design and methods adopted in the
study. Chapter four concentrate on the data collection and analysis and
presentation of finding.  Chapter five
gives summary, conclusion, and recommendations made of the study.

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