This study was carried out to examine the impact of banking sector on Agricultural sector in the Nigeria. The aim is to determine the relationship between banking sector and Agricultural sector in the Nigeria economy. The statistical tool of analysis is the error correction model (ECM). However, the variables were subjected to the unit root test to ensure stationary. The three variables were tested using Error correction model and all the bull Hypothesis were rejected. One percent increase in commercial Bank loan will lead to crop production has a positive relationship. An increase in interest rate by commercial Bank will decrease. Crop production by 1391.037 point. This show that interest rate of commercial Bank to crop production has a negative relationship. A one percent increase in government spending leads to 18.6% production. This shows that government spending to crop production has a positive relationship.Base on the findings, we recommended that the commercial Bank should decrease the level of interest rate, in other to encourage farmers to get loan from them. Furthermore the Agricultural credit, guarantee scheme should improve on their conductions for credit guarantee in order to make Agricultural financing attractive to commercial banks.
- Background of the study
According to CBN (2000), Nigeria is endowed with huge expanse of fertile land, rivers, streams, lakes, forests and grasslands, she has a large active population that can sustain highly productive and profitable agricultural sector which can ensure self-sufficiency in food and raw materials for the industrial sector and as well provide gainful employment for the teeming population. this will generate foreign exchange for the growth and development of the economy. Ironically, the reverse is the case. Several factors account for the poor performance of the agricultural sector in Nigeria; these include virtual neglect of the sector, poor access to modern inputs and technology, and lack of optimum credit supply, (Enyim, Ewno and Okoro, 2013). Aside the problem of poor access to modern technology, the major bane of agricultural development in Nigeria is low investment finance. (Salami and Arawomo, 2013).
Udih (2014) indicated that bank credit is expected to impact positively on the investible sectors of the economy through improved agricultural production of goods and services. He opined that sufficient financing of agricultural projects will not only promote food security, but also enhance the entrepreneurship performance of our young investors. Concluding that, this is borne out of the expectation that a good match between adequate bank credit and agricultural entrepreneurship will ensure massive agricultural productivity.
Qureshi, Akhtar and Shan (2011), argued that Banks credit has the capacity to remove the financial constraints faced by farmers, as it provides incentives to enable farmers to switch quickly to new technologies which can enhance the achievement of rapid productivity and growth. Ijere (2010) viewed banks’ credit as a catalyst that can activates the engine of growth enabling it to mobilize its inherent potentials and to advance in the planned or expected direction. In support of the same view, Umoh (2003) maintained that banks’ credit constitutes the power or key to unlock latent talents, abilities, visions and opportunities, which in turn act as the mover of economic development. Banks’ credit has a significant contribution to economic development by enhancing production and productivity and thus higher income and better quality of life to the people. Well (2012).
The role of agriculture in transforming both the social and economic frame work of an economy cannot be over emphasized. Anyanwu (2010) posits that “agriculture has been the main source of gainful employment from which Nigeria nation can feed its population, providing the nation’s industries with local raw materials and as a reliable source of government revenue.
In agriculture, fund is needed to enable the farmer purchase more land, buy inputs at the appropriate time and to pay for hired labor or farm machinery. Unfortunately, credit is not easily available for most of the farmers because of collateral and other documentation that are usually required by the commercial banks and other credit institutions. This makes it difficult for most of the farmers in Nigeria to access the required capital for investment in large scale agriculture, hence the low agricultural productivity.
Nigeria is endowed with huge expanse of fertile arable and grazing land, as well as a large active population that can sustain a high productive and profitable agricultural sector. Adubi (2009) admits that this enormous resource base if well managed could support a vibrant agricultural sector capable of ensuring self-sufficiency in food and raw materials for the industrial sector as well as, providing gainful employment for the teeming population and generating foreign exchange through exports.
In spite of these endowments, the sector has continued to record a declining agricultural productivity. The capacity of the sector to fulfill its traditional role in the Nigerian economy has been constrained by various social-economic and structural problems.
These include unavailability of credits to local farmers, discovery of oil, high interest rates on loans to farmers, rural- urban migration and ineffective institutions charged with policy implementations.
In order to make agricultural sector more vibrant the federal government put in place certain policies and programmes of various time with a view of improving accessibility, availability of credit and reduce some of the major problems confronting agriculture.
Some of these programmes and policies by government to ginger up the activities of agricultural project include:
- Agricultural Credit Guarantee Scheme Fund.
- Nigeria Agricultural Co-operative and Rural Development Bank (NACRD).
- The Rural Banking Scheme.
- Operation Feed the Nation (OFN).
- Green Revolution (GR).
The earlier stated programmes and policies that were created to grant loan facilities in Nigeria for agricultural purpose did not fare well. This is because majority of the loans were given based on political considerations rather economic considerations. Khan (2010) argue that, for agricultural finance to be effective it must be applied at the appropriate time, amount and represent all categories of growth. Financing among other things stimulate agricultural growth and improve welfare by increasing the farmers purchasing power so that they can do well and adopt modern agricultural technologies to boost economic development of the nation. Diague and Zeller (2001)
The paper will evaluate the contributions of banks in financing agricultural productivity in Nigeria.
1.2 Statement of problem
Presently in Nigeria with her vast expanse of rich soil, a sizable number of her citizens suffer from hunger and starvation as a result of neglect of agriculture. Few agro-industries around depend greatly on importation of necessary raw materials in their production and many of the Nigerian youths roam about unemployed. It is of note that various policies have been made by the government to solve these problems in which the banks have been targeted to provide the pivotal roles in the area of funding through provision of credits.
Statistics has shown that the Nigerian agricultural sector received increased credit form the commercial banks up to about N7 million in 1970 representing 1.99 per cent of the N37.4 million credits in 1975 representing 2.6 per cent of the total credit by the commercial banks. In 1980, the amount of credit offered by the commercial banks to the agricultural sector rose to N462.2 million, representing 7.28 per cent of the entire credit and in 1985, total commercial banks credit to agriculture rose further to N1310.2 million and constituted 10.77 per cent of the overall credit by the commercial banks. By 1990, total credit to agriculture rose to N4221.4 million and represented 16.24 per cent of the overall credit in the economy and rose further to N25,278.7 million in 1995, which also accounted for about 17.49 per cent of the entire credit budgeted to the economy.
However, beginning from 2000, the share of credit to agriculture through increasing in absolute terms, has started to decline relatively. By 2000, total credit to agriculture was N41028.9 million in 2005, constituting 2.46 per cent of the total credit and in 2010, total commercial banks credit to agriculture had risen to N128, 406.0 million thereby accounting for only 1.67 per cent of the total commercial banks credit to the economy (CBN, 2011). By 2012, total credit to agricultural sector has risen to N316,364 million, representing 3.9 per cent of commercial bank total credit . Agricultural credit rose again from N343,696.80 million in 2013 to N478,911.78 million in 2014, representing 3.7 per cent of commercial banks total credit,(CBN,2005). The preceding analysis, it can be observed that though total credit to agriculture has been increasing in absolute terms but when measured in term of percentage share in total credit to the economy, it is found that the credit to agriculture constitutes an insignificant proportion of the total credit.
This represents a sign of neglect of the sector. However, adequate credit availability is critical to the enhancement of production in the agricultural sector in the economy and this has been a top priority for the Federal Government of Nigeria, thus, commercial banks have been directed to devout a major part of their funding to finance this sector. Despite this huge investment in the agricultural sector by the government in the form of provision of the needed finance for farmers, the dwindling fortune of the sector seems to persists, prompting the question as to the role of the financial system in providing credit to agricultural sector in Nigeria. Other numerous problems hindering agricultural financing in Nigeria include: diversion of loans meant for agricultural projects into frivolous activities which may not engender growth. High interest rate charged on loans acquired by farmers, inability of farmers to provide collateral securities for loans; political interference on loan procurement by political big whips and in fact lack of “strong political will” by the government of the day to solve protracted agricultural problem facing modern farming in Nigeria.
1.3 Research questions
This research therefore seeks answer to the following questions.
- What are the effects of bank loans on crop production in Nigeria?
- What is the influence of interest rate of bank loans on crop production in Nigeria?
- What is the effects of government spending on crop production in Nigeria?
1.4 Objectives of the Study
- To evaluate the impact of bank loan on crop production in Nigeria.
- To determine the influence of interest rate of bank loan on crop production in Nigeria.
- To assess the effect of government spending on crop production in Nigeria.
In this study the following hypothesis will be formulated and tested to form the basis of the research questions.
H0 Bank loan does not have a positive impact on crop production in Nigeria.
H0 Interest rate of bank loan does not have a positive influence on crop production in Nigeria.
H0Government spending on the agricultural sector has no effect on
agricultural productivity in Nigeria.
1.6 Significance of the Study
At the end of this study, it is hope that it would be significant in the following areas.
This study would help the bank managers to evaluate the contributions of their banks towards agricultural productivity in Nigeria.
The study will be useful to government in decision making and thereby promote and encourage agricultural oriented programmes in the economy.
The study will also help farmers to known the various services in order to boost agricultural production.
It will equally serves as an important source of information and reference material to other researchers who may likely want to conduct a research on a similar topic.
1.7 Scope of the study
This study is delineated to the impact ofbank credit on agricultural output in Nigeria,investigating bank credit, bank lending rate andindustrial output and, their roles on agriculturaloutput in Nigeria. This study covered the period,1985 to 2015.
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