THE ROLE OF COMMERCIAL BANKS IN AGRICULTURAL GROWTH AND DEVELOPMENT IN NIGERIA

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THE ROLE OF COMMERCIAL BANKS IN AGRICULTURAL GROWTH AND DEVELOPMENT IN NIGERIA

ABSTRACT

The study examines the role of commercial banks in Agricultural development in Nigeria, spanning from 1986-2010. The methodology used is ordinary least squares (OLS), using P.C give 8.00 package. The findings from the study support the view that commercial bank loans are not getting to red farmers. The commercial banks loan to Agricultural sector is positive and significant at 5% level, contributing 67.65 percent variations in Real Agricultural output in Nigeria. Real interest rate and real exchange rate are both positive, but not significant at 5% percent level. The positive real interest rate shows that Investments in Agricultural sector in Nigeria has a very high rate of return. The findings suggest that real interest and exchange rates should be properly managed and periodically received so as to promote the growth of the Agricultural sector.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The term “Agriculture” is derived from the latin word “Ager” meaning field and culture. From a literary point of view, agriculture means field cultivation. Today, the term is now broadly constructed to include production, research and training in the field of crops, forestry livestock e.t.c. Agriculture is concerned with the cultivation of land to produce crops and rearing of animals of direct value to man. It is also concerned with the processing distribution and marketing of agricultural product.

Agriculture involves the cultivation of land, raising and rearing of animals and raw materials for industries. It involves cropping livestock, forestry, and fishing, processing and marketing of these agricultural products. Food is man’s most important basic need before those of clothing and shelter. It is provision therefore, has been the major concern of man from the past years since it is both an essential condition and sinequanon to life. Agriculture being the provider of food can then be concluded as the life wire of any nation and thus be concluded as the life wire of any nation and thus its importance cannot be over emphasized.

When Nigeria gained their political Independence in 1960, agriculture was dominant sector of the economy. It contributed over 65% of the country’s Gross Domestic Product (GDP) and provided the bulk of the foreign exchange earnings through the foreign exports of the cash crops. The sector catered adequately for nearly all food requirement and raw materials for industry in the country. Agriculture performs a number of functions in an economy.

The Nigeria agriculture sector is still manifesting physical symptoms of peasant agriculture. It is dominated by small scale farmers who are responsible for about 95% of total production i.e the bulk of the source of our food. The livestock is in the hands of nomadic herdsmen; poultry is still essentially the backyard type; though a few commercial units are here and there. The fishing sector is also predominantly artisanal, very few motorized canoes are in use not to talk of fishing crawlers.

The growth of the agricultural sector to a great extent, is a catalyst a support for the economic growth of developing countries. In emphasizing the importance of agriculture generally, Gunnair Myrdal notes that it is in agricultural sector that the battle for long term economic development will be won or lost.

1.2 STATEMENT OF THE PROBLEM

Nigerian agriculture is confronted with many problems which ranged from low yield to low productivity and inadequate facilities among others. Oyatooye (1981) was on the same path when he noted that the problem of agriculture in Nigeria can be discussed under four headings.

i. Technology

ii. Marketing

iii. Finance and Government

Such problems include problems of providing adequate extension services, agricultural inputs, storage facilities, agricultural credit, marketing information and efficient marketing arrangement, infrastructures such as feeder roads efficient power supply and institutional reforms where necessary. William (1981) pointed out that, the major problems facing Nigeria today are the needs to transform her agricultural industry from one traditional input with low productivity to one which enables her to meet the rising expectations of her people and to correct the social and economic imbalance created by lopsided development between her rural and urban areas which have encouraged the youths and others to migrate from rural areas.

His statement is a valid one as when it was made from, we have seen the Nigerian economy is characterized by a high degree of rural to urban drift in search of greener pastures leaving the farm land to old aged men who are unable to provide all the food requirements of the growing population. This is responsible of the growing population. This is responsible for the high cost of food as there is pressure on the little produced.

Adekanye’s assertion (1988) when he stated that: it is a common knowledge that present farmers and artisans who the back of the rural population do not get adequate and timely loans from financial institutions and they have no collateral and equally they do not get supplies of raw materials of standard quality even at the market place as they come under the ditches of rich farmers and sellers in the urban areas. The need for setting up of rural based commercial banks is very urgent

1.3 OBJECTIVES OF THE STUDY

The main objective of this study is to assess the role of the commercial banks in agricultural development in Nigeria from 1986-2009. Specifically the study tends to be achieving the following objectives.

i. To access the scope and achievements as well as highlight new role of Nigerian Commercial Banks to Agriculture.

ii. Identify the inherent problems of agricultural financing which have hindered the smooth flow of credit from banks to agriculture.

iii. To offer solutions to identified problems.

1.4 HYPOTHESIS OF THE STUDY

H0: Banking Industry has not played an important role in agricultural development in Nigeria.

H1: Banking Industry has played an important role in agricultural development in Nigeria.

1.5 SIGNIFICANCE OF THE STUDY

This study is useful in many ways. Firstly, Nigerian farmers can know the type of credit or assistance offered by Nigerian Banking Industry and the benefit from them. Secondly, it will help to update knowledge on how the banks especially commercial banks in Nigeria, thus making it useful for other researchers, schools and readers. Thirdly, it will enable the Nigerian government to take advantage of the suggestions and more result oriented policy towards boosting agricultural production in Nigeria. Finally, the salient findings of this study will also make the farmers to be more result oriented in agriculture.

1.6 SCOPE AND LIMITATION OF THE STUDY

This study covers the period between 1986-2009; it will be an oversight to think that study such as this will be accomplished without impediments and constraints. Much as it seems incontrovertible that odds will be imminent there are some glaring inexorable cases. Some respondents to interviews are always simplified and simplify in relating information to researchers. Again, to think of development only in terms of increasing agricultural output is an under statement. There is also the clamored non-existence of relevant and indispensable literature as versatile as possible. The limitation put together explains why the research is scaled down from 1986 to 2009. The study only centers on the role of commercial Banking in agricultural development and factors surrounding their credit decisions to agricultural sector. Thus, it only assessed the performance of the banks in executing the role of financing agriculture. Since it was not possible to get the whole information needed in this study, the study is limited to the Nigerian Economy. The study is equally limited by time and limited sources of data. There are time constraints in the process of carrying out research due to in accuracy of data. It is sometime possible to underestimate or over estimate.

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