ABSTRACT

The objective of this study is to find out the impact of agricultural
financing on economic growth in Nigeria for the period 1981 to 2014.
The study used endogenous components of Agricultural Credit Guarantee
Scheme (ACGS) loans to Individual Farmers (LIF), loans to Informal Group
(LIG), loans to Co-operative (LCO), and loans to Company (LCY) as
explanatory variables to capture agricultural financing. Gross Domestic
Product (GDP) at constant prices was used to proxy economic growth. Data
for the study were obtained from the Central Bank of Nigeria (CBN)
statistical bulletin of various publications, and regression analysis
was carried out using IBM SPSS statistics. The t-test coefficients which
attests to the significance of each of the independent variables of the
study reveals that three of the parameters of the explanatory
variables; ACGS loans to Informal Groups (LIG), ACGS loans to
Cooperatives (LCO) and ACGS loans to Companies (LCY) counter apriori
expectation with negative signs respectively. This implies that they do
not have significant impact on economic growth (GDP). On the other hand,
the variable of ACGS loans to individual farmers (LIF) as revealed by
the regression result proved to have significant impact on economic
growth (GDP). This indication is as a result of the variable’s
conformity to the aprori expectation with positive sign in the analysis.
It was recommended that more loanable funds should be made available to
individual farmers (for commercial purposes), as ACGS loans to
individual farmers can be used to formulate policies that can impact
significantly on economic growth (GDP) in Nigeria. Further
recommendation made was that, all economic stakeholders, monetary and
regulatory authorities; both at the public and private sector of the
economy should combine efforts and formulate policies aimed at improving
financial inter-mediation, in the area of providing  adequate credit to
farmers in Nigeria. This will eventually lead to the achievement of a
favourable productive-based economy and viable growth of GDP in the
country. The study has contributed to the body of knowledge by providing
current information on agricultural financing vis-à-vis Agricultural
Credit Guarantee Scheme (ACGS), with an extensive period of 1981 to 2014
(34 years). This study thus has implications for global economy
particularly in the area of food production and living standard of
nations.

CHAPTER ONE

 INTRODUCTION

1.1     Background to the Study

Finance for agricultural development has an increasing role in
contemporary times. Finance affects economic growth, stagnation or even
decline in any economic system. However, a growing concern has developed
over time regarding the need for effective access to credit facilities
for farming purposes. The Nigerian government recognizes that finance is
an essential tool for promoting agricultural development because the
agriculture sector is one of its main sources of sustainability. Access
to finance for agriculture is an incentive for increasing the
agricultural sector’s performance; it stimulates productive growth, and
supports the survival of small and new enterprises. Access to finance
increases the average inputs of labour and capital which has positive
effects on production output. Irrespective of the benefits that can be
derived from financing agriculture, there is an inherent risk of loan
defaults amongst farmers, which discourages banks from lending to
farmers.

According to Beck and Demirguc-Kunt (2006), specific financing tools
can be useful in facilitating greater access to finance. The government
of Nigeria, being fully aware of the need for progressive policies, has
introduced various initiatives and policies dating back to the 1970s to
attract finance to enhance agriculture productions. Such policies have
mainly been in the form of specialized agriculture lending, the supply
of credit finance by the commercial banks in favour of the agriculture
sector and through various programmes. While some of these efforts have
failed, the operation of the remaining leaves one to wonder if they are
actually achieving their intended objectives as rural poverty is on the
increase and yet a large portion of the population is engaged in
agricultural activities.

The problem of access to finance for agriculture is not solely as a
result of non availability of finance but it is caused by the reluctance
of credit providers to give out loans without a certainty of recovering
the loan. However, the banks are not to be blamed as they are not
charity organizations who disburse money without recourse to repayment;
rather they are in business to make profit from their lending
operations. Unfortunately, the situation makes farmers a neglected group
in the economy because they are not able to provide the adequate
collateral needed to secure bank loans. Because of the challenges facing
farmers, which have adverse effects on agricultural production, the
government thought it fit to act as an intermediary through the
Agricultural Credit Guarantee Scheme (ACGS) whereby the government
stands as a guarantor for agricultural loans in order to mitigate the
risk involved in agricultural financing.

Agriculture contributes immensely to the Nigerian economy in many
ways, namely; in the provision of food for the increasing population;
supply of adequate raw materials to a growing industrial sector, a major
source of employment generation, foreign exchange earnings; and
provision of a market for the products of the industrial sector (Food
Agricultural Organization, 2006). The agrarian sector has a strong rural
base; hence, generation concern for agriculture and rural development.
Support for agriculture is widely driven by both government and the
public sector, which has established an institutional support in the
form of agricultural research, extension, commodity marketing, input
supply, and land use legislation to fast-track development of
agriculture and rural economic empowerment. Central Bank of Nigeria
(2010) asserts that over the years, the inability of this sector to
expand and as well contribute meaningfully to the growth of Nigerian
economy was due to inadequate financing to improve on the situation;
that is, facilitating agricultural credit). Also, the problem of
agricultural development in Nigeria indicates that efforts directed at
achieving expanded economic base in the rural farmers were frustrated by
the scarcity of, and restrictive access to loanable fund. One of the
reasons for the decline in the contribution of agriculture to the
economy is lack of formal credit policy and paucity of credit
institutions which can assist farmers

The role of financial capital as a factor of production to facilitate
economic growth and development as well as the need to appropriately
channel credit to rural areas for economic development of the poor rural
farmers cannot be over emphasized. Credit is viewed as more than just
another resource such as labour, land, equipment and raw materials
(Rhaji, 2008). According to Shepherd (2002), credit determines access to
all the resources on which farmers depend. Since banking cannot be
separated from economic development, the banks (especially Deposit Money
Banks) in the banking industry have been instrumental to various
development schemes of Nigeria over the years. However, their
performance in the facilitation of agricultural finance has not been
adequately felt in the Nigerian economy; especially in the rural areas
(farmers).

Also, in line with Nigeria’s quest for development; the erratic
nature of events within the banking industry vis-à-vis agricultural
financing is a cause for concern. This uncertain nature of access to
credit by farmers in the agricultural sector could result to total loss
of confidence in banks by citizens in the sector, as well as growth
impediment in the overall economy of Nigeria. Questions are been asked
concerning the role of agricultural financing, its contribution to the
attainment of agricultural growth and development. It is therefore
pertinent to empirically analyze agricultural financing and its economic
implication (impact) on Nigeria with the aim of identifying measures to
tackle the existing challenges and rebuild the lost glory of the
agricultural sector.

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