A SEMINAR

ON

COOPERATIVE SEMINAR (415)

TOPIC
ANALYSIS OF CREDIT FACILITIES TO SMALL SCALE FARMERS
IN BENDE LOCAL GOVERNMENT AREA OF ABIA STATE, NIGERIA

PRESENTED BY GROUP TWO (2)

FCAI/CEM/HND/2023/356 UDE GIFT ONYINYECHI
FCAI/CEM/HND/2023/357 IDAM NNANNA OKO
FCAI/CEM/HND/2023/358 ATUEGBU GIFT ONYINYECHI
FCAI/CEM/HND/2023/359 ALBERT UGONNA
FCAI/CEM/HND/2023/360 CHUKWU PHILOMENA ROBERT
FCAI/CEM/HND/2023/361 NWALI BLESSING MARY
FCAI/CEM/HND/2023/362 NJOKU OLUCHI MIRACLE

SUBMITTED TO

DEPARTMENT OF COOPERATIVE ECONOMICS AND MANAGEMENT,

FEDERAL COLLEGE OF AGRICULTURE ISHIAGU, EBONYI STATE

IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF

HIGHER NATIONAL DIPLOMA IN COOPERATIVE ECONOMICS AND
MANAGEMENT, SCHOOL OF APPLIED AGRICULTURE AND MANAGEMENT
TECHNOLOGY, FEDERAL COLLEGE OF AGRICULTURE, ISHIAGU EBONYI
STATE.

SUPERVISED BY
DR. A. N ELUWA

APRIL, 2024

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 TABLE OF CONTENT

Cover page 1
Table of content 2
Section one 3
INTRODUCTION 1
1.1 Background of the Study 1
1.2 Statement of Problem 5
1.3 research Question 6
1.4 Objectives of the Study 6
1.5 Significance of the Study 6
1.6 Definition of Terms 6
SECTION TWO 8
REVIEW OF RELATED LITERATURE 8
2.1 Conceptual Literature 8
2.2 Overview of Credit Scheme to Farmers in Nigeria 8
2.2.1 The Nigerian Agricultural and Cooperative Bank (NACB) 9
2.2.2 Agricultural Credit Guarantee Scheme Fund (ACGSF) 10
2.2.3 The Nigerian Incentive-based Risk-sharing System for Agricultural Lending (NIRSAL)
11
SECTION THREE 14
METHODOLOGY 14
3.1 Research Design 14
3.2 Sources of Data 14
3.3 Area of Study 14
SECTION FOUR 16
DISCUSSION, CONCLUSION AND RECOMMENDATION 16
4.1 Discussion 16
4.2 Conclusion 18
4.3 Recommendations 18
REFRENCES 20

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 SECTION ONE

INTRODUCTION

1.1 Background of the Study

The Nigerian agricultural sector is an important part of the Nigerian economy. The sector is

made up of mainly smallholder farmers who operate at subsistence level with land holding

average of less than 5 hectares (Asogwa, Abu and Ocheche, 2014). These smallholder

farmers produce over 90% of available food in the country and 70% of the labour force rely

on the sector. Agriculture has a key role to play in the economic development of Nigeria, as it

is a leading sector in any meaningful economic development being carried out by any nation

such as ours (Orebiyi, Henri-Ukoha, Ben-Chendo, Tasie and Ekine, 2012). 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.

The importance of credit in agricultural enterprise production and development can be

appraised from the level of problems emanating from the lack of it. Every modern business is

operated on own capital or borrowed capital, similarly farming also requires capital. The need

for farm credit in increasing production and effective utilization of farm resources is quite

clear and Agricultural credit is an important financial support that a small farmer can get in

order to bridge the gap between the income and expenditure in the field. In order to tackle the

problem of availability of agricultural credit for smallholder farmers, the Nigerian

government resorted to establishing specialized credit institutions such as Nigerian

Agricultural and Cooperative Bank (NACB), Nigerian Agricultural and Rural Development

3
Bank (NARDB), Agricultural Credit Guarantee Scheme (ACGS) etc. for agricultural

purposes (Arimi, 2014).

Credit is an important instrument for improving the welfare of the poor directly through

consumption 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 smallscale farmers and the poor from doing so.

It is undisputable that small-scale farmers have always had a problem of access to credit

facilities and 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 (Asogwa

et al., 2014).

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

4
the steps taken by the Federal Government of Nigeria to assist farmers to boost agricultural

production in the country.

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1.2 Statement of Problem

The farmers operate mainly in the rural areas and use traditional methods due to low output,

low income low, capacity to save and lack of collateral for accessing credit which result to

low investment. Due to the subsistence nature of the smallholder’s farming activities coupled

with low inputs, extension of credit to them would improve their productivity thereby

enhancing returns on investment. 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. Credit provides a smoother flow of money in

times when there are constrictions of cash flows that would otherwise cause disruptions in

production and consumption (Ssonko and Nakayaga, 2014). 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 (Amanze and Eze, 2010). This could be adduced to lack of

information and collateral securities among farmers.

Furthermore, despite these credit schemes that were introduced by the Government, the

supply of credit to the agricultural sector did not meet the demand (Owusu-Antwi and Antwi,

2010), such that a large number of farmers were left out. The provision of agricultural credit

for agribusiness enterprises is hardly enough, without the efficient utilization of such credit in

order to increase productivity. Repayment rate is low as borrowers erroneously believe that

credit from government is not supposed to be repaid.

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

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farmers to acquire loans. This seminar paper shall undertake the analysis of credit facilities to

small scale farmers in Abia State, Nigeria.

1.3 research Question

i. what are the socio-economic characteristics of farmers in the study area?

ii. what are the sources of credit to farmers?

iii. what are the amount of credit demanded by the farmers?

1.4 Objectives of the Study

The broad objective of this seminar paper is to undertake an analysis of credit facilities to

small scale farmers in Bende Local Government Area of Abia State while the specific

objectives are to:

i. describe the socio-economic characteristics of farmers in the study area

ii. identify the sources of credit to farmers in the study area

iii. ascertain the amount of credit demanded by the farmers .

1.5 Significance of the Study

This study will help in determining the accessibility of credit to this farmers which is crucial

for their agricultural activities. Studying credit facilities can help in assessing the

effectiveness of existing government programs aimed at supporting small scale farmers.

1.6 Definition of Terms

Credit: it is a relationship between a borrower and a lender

Loan: the sum of money borrowed and it is expected to be paid back with interest

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Credit facility: it is an agreement between a lender and a borrower that allows for greater

flexibility than traditional loan.

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 SECTION TWO

REVIEW OF RELATED LITERATURE

2.1 Conceptual Literature

Agricultural productivity in Nigeria was defined by Ugbomeh, Achoja, Ideh and Ofuoku

(2008) as the rate of index of value of agricultural produce to the value of input employed in

production. The essential inputs are land, labour, capital, water and management of all inputs

listed above, land holds a unique place in the developing countries where the economics are

still in the infant stages. Capital formation is always low since savings is a function of

income. He mentioned further that production technique is characterized by small holder’s

using manual technology, and inconsistency in the government agricultural policies account

for poor production in Nigeria.

Agricultural credit facilities for many developing countries of the world, Nigeria inclusive is

not enough and the few facilities are not made available to farmers and this has led to the

decline of Nigerian economy sector of Agriculture (Amanze and Eze, 2010). The decline has

for a long time been blamed on unavailability to access credit by small scale farmers in rural

areas. If a small scale farmer is to grow to become a medium and eventually a large scale

farmer, he must have among other incentives an assured supply of credit either in medium or

long-term.

2.2 Overview of Credit Scheme to Farmers in Nigeria

Agricultural development is a process that involves adoption by farmers (particularly small

farmers) of new and better practices (Okoye, Onyeweaku, and Ukoha 2010). This is due to

the fact that most of the new practices and technologies have to be purchased but few farmers

have the financial resources to finance it. Before the introduction of credit schemes to farmers

in Nigeria, commercial banks were often skeptical to give credit to farmers. This is because
9
small scale farmers lack acceptable collateral security whereas bankers are interested in

collateral securities which are highly liquid and which possess “money value” certainty.

It was in recognition of this fact that the federal government at various periods put in place

credit policies and established credit institutions and schemes that could facilitate the flow of

agricultural credit to farmers (Adegeye and Dittoh, 1985).

2.2.1 The Nigerian Agricultural and Cooperative Bank (NACB)

NACB (now known as the Nigerian Agricultural Co-operative and Rural Development Bank)

was established in November, 1972 to grant loans for sources has neither supplied the amount

of credit needed, nor has it provided credit on the term required by farmers to modernize their

farming method. According to CBN (2005), other farm credit schemes included:

1. The establishment of rural branches of commercial banks throughout the country following

a mandatory Federal Government policy Directive in 1976.

2. The creation of the River Basin Authorities in 1979 throughout the country.

3. The establishment of both enhanced and state-wide Agricultural Development Projects

throughout the country between 1972 and 1980 to facilitate among other things the provision

of agricultural credit to farmers.

4. The development of state ministry operated and other Government sponsored Agricultural

credit programmes in the second half of the 1970’s.

5. The development of technical support and agro service establishments that would facilitate

the supply of credit to farmers throughout the country between 1976 and 1980.

However, the persistent failure of the above institutions and conventional banks to

adequately finance agricultural activities in the mid 1970’s was a clear evidence that the

10
country was in need of further financial and institutions reforms that would revitalize the

agricultural sector by encouraging the flow of institutional credit into it.

Also, the unpredictable and risky nature of agricultural production, the importance of

agriculture to our national economy, the urge to provide additional incentives to further

enhance the development of agriculture to solve the problem of food insecurity, and the

increasing demand by lending institutions for appropriate risk aversion measures in

agricultural lending provided justifications for the establishment of the Nigeria in 1977

(Ohajianya and Onyeweaku, 2003).

2.2.2 Agricultural Credit Guarantee Scheme Fund (ACGSF)

The agricultural credit guarantee scheme fund was established by the Federal military

Government Decrees 2007 1977, but began proper operation on 3rd of April, 1978. It was

amended on 13th June, 1988. The main objective was to boost agricultural production and

income of small-scale farmers, improve farmer’s welfare and standard of living and primarily

to create access to bank credit to farmers.

The decrees provided for a fund of ₦100 million subscribed to by the Federal Ministry (60%)

and Central Bank of Nigeria (40%). As at December 1982, ₦85.5 million was paid up as

maximum liability of the fund 75% subject to ₦50,000 and ₦1 million for a loan to

individual and co-operative society respectively. All these are aimed at solving the problem

of inadequate funding of farm operate by banks and to cushion these financial institutions

against the effects of high risks associated with investments in farm enterprises as well as to

raise the productivity and earnings from farm investments so that the incidence of loan

repayment default among the farmers will be minimized (Godfrey and Bare, 2010).

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2.2.3 The Nigerian Incentive-based Risk-sharing System for Agricultural Lending

(NIRSAL)

The Nigeria Incentive-Based Risk-Sharing system for Agricultural Lending (NIRSAL) a new

innovative mechanism targeted at de-risking lending to the agricultural sector is designed to

provide the singular transformational and one bullet solution to break the seeming jinx in

Nigeria Agricultural Lending and Development. The Central Bank of Nigeria (CBN) in

August 2010, engaged the Alliance for Green Revolution in Africa (AGRA) to develop the

NIRSAL. NIRSAL is an approach that tackles both the agricultural value chains and

agricultural financing value chain. The goal of NIRSAL is to trigger an agricultural

industrialization process through increased production and processing of the greater part of

what is produced to boost economic across the value chain.

Role of the Scheme

Various studies have shown that credit plays an important role in enhancing agricultural

productivity of the farmer (Mbah, 2009). The state of financing agricultural development in

Enugu, State Nigeria. Proceedings of the 43rd annual conference of the Agricultural Society

of Nigeria, held at Abuja (Godfrey and Bare, 2010). The general purpose of the Nigerian

Agricultural Credit Guarantee Scheme fund is to encourage banks to lend to those engaged in

agricultural production and agro-processing activities. Thus, the specific objectives of the

Scheme is the stimulation of total agricultural production for both domestic consumption and

export, and the encouragement of financial Institutions to participate in increasing the

productive capacity of agriculture through a capital lending programme.

The scheme is expected to provide guarantee on loans granted by financial institutions to

farmers for agricultural production and agro-allied processing. The fund’s liability is limited

12
to 75% of the amount in default net of any amount realized by the lending bank from the sale

of the security pledged by the borrower.

The agricultural activities that can be guaranteed under the scheme include the;

a) Establishment and/or management of plantation for the production of rubber, oil palm,

cocoa, cotton, coffee, tea and other cash crops.

b) Cultivation and production of cereals, tubers and root cash crops, fruits of all kinds, beans,

groundnuts, peanuts, beniseed, vegetables, pineapples, bananas and plantains.

c) Animal husbandry that covers poultry, piggery, rabbitry, snail farming, rearing of small

ruminants like goats, sheep and large ruminants like rattle.

The scope of C above was expanded in the amendment decree of 1988 to include fish culture,

fish captures and storage. The scheme guarantees loans to farmers from lending institutions

up to the tune of 5 million naira for individual farmers and, 10 million Naira for group/co-

operative farmers (CBN 2005).

Problem of the Scheme

In the course of the fund’s operations, a number of problems have been identified as

militating against its smooth performance. According to Okoye et al., (2010), some of the

problems are:

a) Increasing incidence of loan default: The rate of loan repayment by AGGs beneficiaries is

very low. Reasons adduced to this are natural disasters, poor farm management, low product

prices, loan diversion, deliberate refusal to pay and the inability of farmers to assess loan

requirement properly leading to farmer’s receipt of inadequate or excessive loans.

b) Bank related problems: Participatory banks in the ACGs do not cooperate fully in lending

to farmers. Because of the high cost of processing loans relative to the actual loans and the

13
high default rate of the farmers, many banks prefer to pay penalty than to risk lending their

funds to agriculture.

Also, banks fault the farmers for submitting incomplete application forms. In some cases

where loans are approved, it rises too late for it to fulfil the purpose for which it was

intended. Another problem that militates against the smooth operation of the scheme is on

“personal guarantee” as a security that may be offered to a bank for the purpose of loan.

“Personal guarantee” as a condition was not explained in the decree. This therefore, makes it

almost nothing as its interpretation rests on the bank officials.

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 SECTION THREE

METHODOLOGY

3.1 Research Design

The research design engaged for this seminar study is the descriptive survey and evaluation

design. It outlined the procedure adopted and engaged in the study. Small scale farmers most

especially in the rural areas have limited education, as a result of simple and precise questions

which can easily be comprehended were asked to determine the impact of credit facilities on

their farming operation.

3.2 Sources of Data

This study acquired information through the review of primary and secondary data. There

was a random administration of oral interview made up of both closed and open ended

questions central to achieving already predetermined objectives. Further data was obtained

from related literatures on the subject matter.

3.3 Area of Study

The study was carried out in Bende local government area of Abia state, south eastern

Nigeria. It is located in the northern part of Abia state and lies between the latitudes of 4̊ 40´

and 6̊ 14´ north and longitudes 7̊ 10´ and 8̊ East. The major occupation of the people is

farming. They produce crops such as rice, yam, maize cassava and vegetables. The study

comprised of all smaller holder farmers in Bende local government area of Abia state. A

multi- stage sampling procedure was employed to select a sample size needed for this study.

In the first stage, two (2) communities were selected from Bende local government area by

simple random sampling, the second stage involved a selection of five (5) villages from each

of the two communities making ten (10) villages. While in the last stage, two (2) credit users

15
were selected from each village based on the list obtained from credit institutions, giving a

sample size of twenty (20) farmers. The data for this study were obtained through oral

interview and personal observation.

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 SECTION FOUR

DISCUSSION, CONCLUSION AND RECOMMENDATION

4.1 Discussion

This study analyzed the use of credit facility to small scale farmers in Nigeria using Bende

Local Government Area of Abia State as a major area of study. The study shows explicitly

how credit facilities are crucial in the operation of small scale farmers.

The socio-economic characteristics revealed that majority of the farmers were middle aged

which showed that these categories of farmers could be considered to be the economically

active population, as the age of the farmers dictates and affects the amount of credit he or she

will source at a particular interest rate. This finding agrees with Adejare and Arimi (2013)

who found that old people tend to be risk averse than young people. In addition, the survey

revealed that the majority of agricultural labour force in Nigeria falls between 35 to 50 years,

while majority were women which means that more females are involved in the farming

activity than men which agrees with the findings of Arimi (2014). Though, the presence of

higher number of women can be a disadvantage since men have more opportunity to obtain

credit than their female counterparts due to the issue of collateral required by most of the

financial institutions. It was also revealed that most of the farmers in the area were married.

This shows that the contribution of the farmers in the study area towards agricultural

development should be favourable as a reasonable number of them were married This finding

is supported by the findings of Okoye et al. (2010) who reported that married people are

responsible individuals whose views are highly respected within rural communities in Africa.

The survey result on educational status evidently indicated that most of the respondents lack

formal education. By implication, it would be difficult for them to obtain credit from

financial institutions as this requires formalities such as filling forms as well as being rational

17
enough to select the financial institution that offers the best interest rate at a given time. The

level of education, if high, makes one more enlightened and promotes the ability to evaluate

new techniques. Furthermore, the farmers had an average farming experience of 12.5 years.

This indicated active participation of the respondents in agricultural production in the area.

Arimi (2014) opined that higher number of years of experience in farming helps a farmer to

understand and tackle the complications of the enterprise.

The source of credit used by farmers in agricultural production in the study area revealed that

most farmers found it difficult to obtain agricultural credit. Various sources of credit by the

farmers in the study area were identified as majority of the farmers obtained credit from

Personal Savings and Credit Associations respectively. It is obvious that majority of the

farmers depend on informal creditors who charge exorbitant interest rate. This means that

they have not been able to exploit the low interest rate charged by the formal credit

institutions. Credit from the formal sector was far less than credit from the informal financial

sources which comprises loans from relatives, friends, rotational savings groups or credit

groups and one’s superior at work (boss) and other sources This agrees with the survey

carried by Arimi (2014) who observed that credit from formal financial institutions meet only

a small portion of the total credit demand of the agricultural sector. This could be that poor

farmers in the area lacked title deeds for pieces of land they own and as a result they do not

qualify for bank credit where collateral are mostly required.

Also, this study revealed the credence of credit facilities as essential in the operation of small

scale farmers in conformity with well researched journals, articles and texts. Study has shown

that most of these agricultural schemes have been poorly articulated and managed, leading to

further decline in farming operation of farmers.

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4.2 Conclusion

The result of the study shows that majority of the farmers are within the active productive age

which would enable them gain access to credit from lending institutions. The informal

sources of credit are the backbone of the farmers when compared to the financial institutions

due to ambiguous lending procedures and high interest rates. Credit facilities play a crucial

role in the operation of small scale farmers, this ensures that the derived output will be that

which sustains the growth and development of the economy. The agricultural development

policies will therefore be more ensured, if the investment on research and human

development are given a proper attention in form of improved educational standard of the

people to be able to design an appropriate research and in return formulate a sustainable

policy programme.

Increase in farming operations particularly that of small scale farmers is a related venture of

the government, the various financial institutions, private enterprise and group of individuals.

4.3 Recommendations

Based on the findings, it is obvious that credit facilities have significant impact on the

operations of small scale farmers in Nigeria. Therefore, the following recommendations are

proposed to improve the operation state of small scale farming in Nigeria:

a) Small scale farmers need to have feasible and accessible credit facilities. This will help

them out of capital inadequacy that is militating against their farming operation. To make

credit more available to farmers, the monetary and banking policies formulated by the Central

Bank of Nigeria must be suitable for agricultural development. The agricultural credit fund of

the Bank should be more operational and banks should be encouraged to drop the perception

of agricultural credit as a highly risky venture.

19
b) Farmers should be enlightened about the existence of formal agricultural credits and ways

to access them. This will enable them obtain the necessary financial assistance that will help

boost their agricultural investment, thereby, increasing their farm income.

c) Measures should be put in place to monitor, check and reduce the misappropriation of

agricultural credit by beneficiaries.

Finally, the problem of delay in disbursement of loans/credit to farmers should be properly

addressed, as this would help to improve their access to agricultural credit and thus, increase

20
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Amanze, B., and Eze, C.C. (2010). Factors influencing the use of fertilizer in arable crop
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in South-western, Nigeria. Journal of Agriculture and Rural Development in the
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Godfrey, D. and Bare, J. (2010). Economic Importance of Agriculture, Importance of

Agricultural for Poverty reduction. OECD Publications.

Mbah, S.O (2009). The state of financing agricultural development in Enugu, State Nigeria.
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Ohajianya, D.O. and Onyeweaku, C.E (2003). Demand for Community Bank credit by small
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Okoye,B.C, Onyeweaku, C.E and Ukoha O.O (2010). An ordered probit analysis of
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eastern Nigeria. Nigerian Agricultural Journal 41 (2).

Orebiyi, J.S., Henri-Ukoha, A., Ben-Chendo N.G., Tasie C.M and Ekine D.I.(2012).
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Nigeria. International Journal of Agricultural Economics, Management and
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Owusu-Antwi, G & Antwi, J. (2010). The Analysis of the Rural Credit Market in Ghana.
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Ssonko, G.W. and Nakayaga, M. (2014). Credit Demand amongst Farmers in Mukono
District, Uganda. Bostwana Journal of Economics. 8: 33-50.

Ugbomeh, G. M. M., Achoja, F. O., Ideh, V., and Ofuoku, A. U (2008) Determinants of loan
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