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AN
ANALYTICAL STUDY OF CREDIT FACILITIES TO SMALL SCALE FARMERS IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1.
BACKGROUND OF THE STUDY
Agriculture
according to Longman Dictionary of Contemporary English (New Edition) is the
science or practice of farming.
Agriculture
has a key role to play in the economic development of Nigeria, it is a leading
sector in any meaningful economic development being carried out by any nation
such as ours. Agriculture as its output tends to contribute significantly in
the areas like employment opportunities, provision of food to the increasing
population, contribution to GDP where the country is able to earn foreign
exchange, also the provision of raw materials to our local industries
particularly the agro-allied industries for further production.
An overview
of Nigerian agricultural sector during 1960’s revealed that agricultural sector
was the most important to the economy. In fact, the generation of this period
can still remember those days when the pyramid of groundnut was the pride to
the northern region and cocoa production areas of the west also boosted the
foreign earning from cocoa exports. Today, the nation is still not independent
in terms of agriculture providing food for its people to feed on.
Credit is an
important instrument for improving the welfare of the poor directly through
consumption smoothening that reduces their vulnerability to short-term income.
It also enhances productive capacity of the poor through financing investment
in their human and physical capital. The demand for credit for productive
investments usually comes from the poor who are less risk-averse and it enables
them to overcome liquidity constraints, making it possible to undertake
investments that can boost production, employment and income. Financial
intermediaries have not been able to accommodate small-scale farmers because it
is risky and a different task associated with high transaction costs. Lack of
information prevented large formal leaders who had capacity to serve the
small-scale farmers and the poor from doing so. It is undisputable that
small-scale farmers have always had a problem of access to credit facilities.
To improve the access, improvements need to be made in the provision of
financial services. In order to implore financial services, leaders need to
consider the preferences and socio-economic condition of clients. This contributes
to both regulatory process as well as product development – thus, an
understanding of characteristics influencing farmers’ decision to use
agricultural credit could assist policy formulation that could enhance welfare
of the poor or those excluded from access to credit facilities.
The poor
performance of Nigerian agriculture and its attendant effect prompted
government to seek and reverse the situation which was demonstrated in the
policies and practice such as National Accelerated food production programme
(NAFPP), Operation Feed the Nation (OFN), Green Revolution Programme (GRP),
Accelerated Crops Production Programme Scheme (ACPS) and international
organisation like the World Bank. This includes some of the steps taken by the
Federal Government of Nigeria to assist farmers to boost agricultural
production in the country.
1.2.
STATEMENT OF THE PROBLEM
In spite of
the remarkable contribution of the agricultural sector to the GDP, findings
over the years here shown that government subsidies directed at the
agricultural sector have drastically reduced and as such the dwindling fall in
agricultural productivities and by extension agricultural development. In
Nigeria, as in most developing countries, “lack of credit facilities has been
regarded as the major constraint farmers face when they try to improve economic
activities and/or living conditions” (Britain, 1986: Biswanger et al, 1993:
Agbor, 2004). Even when available, access to credit facilities is difficult to
access by farmers in the rural area despite the fact that it is an essential
input in production (FARM, 2006). This could be adduced to lack of information
and collateral securities among farmers.
Furthermore,
the behaviours of financial institutions set up to finance agriculture revealed
that funds necessary to induce agricultural productivity has not been geared
toward agricultural sector. Commercial banks in particular are skeptical
towards financing agricultural activities and in most cases do not offer
friendly interest rate to encourage farmers to acquire loans. This research
study shall examine the analysis of credit facilities to small scale farmers in
Nigeria.
1.3.
OBJECTIVES OF THE STUDY
The specific
objectives of the analysis of credit facilities to small scale farmers are:
To analyze
the impact of credit facilities to the operation of small scale farmers in
Nigeria.
To identify
and analyze the socio-economic characteristics that may influence farmer’s
decision about whether or not to use credit.
To examine
the probability that non-borrowers can borrow given that socio-economic
characteristics are increased.
1.4. RESEARCH
QUESTIONS
what is the
impact of credit facilities to the operation of small scale farmers in Nigeria?
what are the
socio-economic characteristics that may influence farmer’s decision about
whether or not to use credit?
what is the
probability that non-borrowers can borrow given that socio-economic
characteristics are increased.
1.5.
STATEMENT OF HYPOTHESIS
Given the
nature of this research work there is need to formulate a reasonable
hypothesis:
H0: credit
facilities are not significant in the operation of small scale farmers in
Nigeria.
H1: Credit
facilities are significant in the operation
of small scale
farmers in Nigeria.
1.6. SCOPE
OF THE STUDY
The scope of
this study shall cover the role of credit facilities to small scale farmers in
Ohaofia L.G.A in Abia state. This study shall encompass the nature, the
structure of availability of each facility as well as measurement of relative
accessibility to small scale farmers in Nigeria.
1.7.
JUSTIFICATION OF STUDY
The concern
of credit facilities as a factor input has been amplified by different experts
and government itself has the potentials of opening new doors of opportunities
in the development of small-scale farming in Nigeria.
There are
few studies on the subject of small scale farm credit and how their
socio-economic characteristics influence their decision about whether or not to
take credit. The development of the sector is not feasible if an avenue of
credit facilities is not provided. Therefore, this research work is directed at
providing insight into this less studied dimension in agriculture by eliciting
and analyzing small scale farmers’ socio-economic factors that affect their
decision about credit facilities, and also to evaluate the nature, structure
and pattern of credit facilities to small scale farmers in Nigeria.
1.8.
ORGANISATION OF STUDY
This study
is divided into five chapters. Chapter one contains the introduction of the
study, chapter two deals with the review of relevant literature and theoretical
framework, while chapter three presents the research methodology which embodies
specification of estimating techniques. Chapter four reveals the presentation
and discussion of results and findings, while summary of findings, conclusion
and recommendation are provided in chapter five.
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