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