Agricultural credit in Nigeria : a case study in the Cross River state

Abstract

The study is an attempt to analyse the impact of agricultural credit programmes on the development of the subsector of food production. A review of the performance of the agricultural sector and the economy as a whole had given some indication as to what importance should be accorded to food production in the process of agricultural development. Among the problems were the existence of food shortages, sharply increasing food import bills, and above all, the unlikelihood of sustaining an increasing population (the growth rate averaged at 2.9% per annum) without increased food production. The study aimed to analyse the lending policies and operating procedures of credit institutions, in order: to highlight the inherent problems in the systems; to examine the demand for credit as well as factors and problems associated with the supply of credit; and to develop suggestions for a new rural credit administration with a greater potential for success. The rural money market was found to be essentially dualistic, comprising the formal and informal sectors. The analysis of lending policies revealed that all formal institutions were rigid in their requirements for collateral, and these were viewed as serious handicaps by local farmers. Institutions, such as the Nigerian Agricultural and Cooperative Bank and the Agricultural Loans Boards, were found to place limits on credit and size of farmland respectively. There was bias in the subsector distribution of credit, this was found to favour livestock enterprises, mainly poultry. The Nigeria Agricultural and Cooperative Bank was found to be extending its activities outside its primary functions, and this was seen as detrimental to the success of the credit programme. Lending rates were found to be uniform, but quite low, for all institutions, since these were fixed by the Central Bank. Lending to individuals attracted 7% interest, whilst for those institutions that borrowed to relend, it was fixed at 6%. Consequently, the commercial banks were reluctant in extending loans to farmers. In the informal sector, Osusu clubs, Friends and Relatives, Traders and Middlemen, and Moneylenders featured prominently in the extension of rural credit, but the magnitude of their contributions could not be established because of lack of data on their activities. The characteristics of respondents were examined, particularly as it was obvious that 107 (53%) of the total number of respondents did not borrow money during the period considered. The major problem with non-borrowers was their size of farm holdings, which were found to be small compared with those of borrowers. In addition, these farms were made up of several scattered parcels, some of which did not constitute an economic unit. In both farm and non-farm characteristics, there were significant differences between institutional borrowers. The distribution of loans was found to disadvantage the small farm holdings, with a higher proportion of loans being channelled to medium and large farm size holdings. The same pattern was applicable for overdue loans outstanding. In contrast to the conception that most rural demand for agricultural credit is for family consumption, the study indicated that this was a generalised misconception, which failed to portray the normal trends in borrowing and use of credit. In terms of volume, commercial banks were found to play an important role in rural credit, but their activities benefitted only very few farmers. The role of cooperative societies in terms of volume and spread of credit was insignificant, and the informal sector accounted for 2 Q % of total borrowers. Education, farmland and stated credit needs of the individuals were found to influence the supply of credit significantly. Farmers were generally aware of the on-going credit programmes, mainly through their fellow farmers and agricultural extension agents. Nevertheless, the problems of smallholder improvement were not found to be rooted in lack of credit, there are structural and infrastructural problems which must be tackled before significant progress can be achieved in credit delivery. These were problems of land fragmentation posed by the existing land tenure system (which the current land law has not succeeded in removing), inadequate irrigation facilities, insufficient marketing outlets, and inadequate price support for farm produce. The conclusion of the study is that, in the absence of government intervention in these areas, credit delivery will make only a modest impact on smallholder development.