ABSTRACT
This study examined
access to agro-credit by farmers in Kaduna state. This study employed survey
research methodology which covered the three agricultural zones in the study
area. To achieve the objective of the study, five research questions guided the
study and one hypothesis was formulated. Hypothesis was tested using Chow test
model. The data generated were analyzed using multiple regression and 4-point
likert scale rating. A reliability coefficient of 0.78 was obtained using
Cronbach Alpha to establish internal consistency. It was shown that, majority
of the respondents (40%) were aged between 31 and 40 years, 32.5% where aged
between 41 and 50 years and 18.33% were between 21 and 30 years. About 41.20%
of the respondents had no formal education, 34.2% attended primary education,
16.7% obtained secondary certificate while 7.5% attended tertiary institution.
About 48.3% of the respondents had farming experience of 20 years and above,
19.2% had farming experience of between 10 to 14 years and 17.5% had 15 to 19
years. Majority of the respondents (41.67%) sourced a total amount of between
N100,000 and N400,000 from either formal or informal sources, 25.83% sourced
less than or equal to N100,000. Others, 10.83%, 15% and 6.67% have obtained
credit to the tune of N400,001 – 700,000, N700,000 – N1,000,000 and more than
N1,000,000 respectively. Age, marital status, level of education, interest rate
and credit awareness were the major determinants of (p<0.05) credit sourced
by the farmers in the study area. Sixty-five percent and 52.5% of the farmers
obtained their credit from informal sources (personal savings and rotating
savings respectively) while 42.5% of them obtained theirs from formal sources.
Lack of trust to pay back the credit (2.89), inability to receive the amount
applied for (2.93), risk of repaying the credit because of crop failure (2.84),
difficulty before getting the credit (2.63) and problem of getting guarantors
(3.00) were the major problems under informal sources. For formal sources, time
spent on getting the credit (2.58), complicated procedures (2.71), high
interest rate (2.80), inadequate collateral security (3.00), repayment time is
short (2.55), illiteracy (2.98), lack of good information about agro-credit
(2.81) and lack of presence of banks in the rural areas (2.68) were the major
problems encountered by farmers.
TABLE
OF CONTENTS
Title page i Certification
ii
Dedication iii
Acknowledgement iv
Abstract
v
Table of
contents vi
List of tables vii
CHAPTER ONE:
INTRODUCTON
1.1 Background information
1
1.2 Statement of the problem
4
1.3 Objectives of the study
7
1.4 Research hypothesis
7
1.5 Justification of the study
8
CHAPTER TWO:
LITERATURE REVIEW
Socio-Economic
Characteristics of Farmers in Kaduna State 10
2.2 The concept of interest rate 11
2.3 Agricultural Credit
13
3.4 Sources of Credit Used by the
Farmers
13
2.5 Effects of Interest Rate on Sources and
Volume of Credit Received by Farmers
16
2.6 Problems Encountered in Obtaining Loans
from Formal and Informal Sources
18
2.7 Agricultural Sector Policies in
Nigeria 19
2.8 Theoretical Framework 21
2.9 Analytical Framework 24
2.9.1 Descriptive Statistics 24
2.9.2 Likert rating scale 24
2.9.3 Linear multiple regression model 25
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1 The Study Area
27
3.2 Sampling Procedure
28
3.3 Method of Data Collection 28
3.4 Data Analysis
28
3.4.1 Model Specification
29
3.4.2 Likert Scale Rating 29
3.4.3 Linear multiple regression model
29
CHAPTER FOUR: RESULTS
AND DISCUSSION
4.1. Socio-economic characteristics of the
farmers. 31
4.2: Sources of credit used and amount of credit
obtained by farmers
34
4.2.1: Sources of credit used by farmers 34
4.2.2. Amount of credit obtained by farmers 36
4.3. Factors affecting the volume of credit
sourced by farmers. 37
4.4 Problems encountered by farmers in
obtaining credit from formal and informal financial institutions. 40
4.4.1: Problems encountered by farmers through
formal financial sources 40
4.4.2: Problems encountered by farmers through
informal financial sources.
41
4.2: Test of hypothesis on the socio-economic attributes
on the volume of credit sourced
42
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary
Conclusion
44
Recommendations
45
REFERENCES
46
APPENDIX
53
LIST OF TABLES
Tables 4.1 Distribution of respondents according
to their socio-economic of the respondents
31
Tables 4.2 Distribution of respondents according
to the sources of credit used. 35
Table 4.3. Distribution of respondent according to
the amount of credit obtained. 36
Table 4.4 Determinants of credit volume sourced
by farmer 37
Table 4.5. Distribution of respondents according
to problems encountered in obtaining credit from formal sources.
40
Table 4.6: Distribution of respondents according
to the problems encountered in obtaining credit from informal sources 41
Table 4.7. Chow test result showing the
significant relationship between the socio-economic characteristics of the
farmers and the volume of credit sourced. 42
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND INFORMATION
With an estimated 140 million
inhabitants and a population growth rate of 2.5% annually, Nigeria is the most
populated country in sub-Saharan Africa and the 10th most populated country in
the World ( National Population Commission [NPC], 2006). Approximately, 49
percent of the population engages in agriculture as their major occupation. The
agricultural sector is the mainstay of the majority of Nigerian rural poor,
with over 70 percent of the active labour force in rural areas employed in
agriculture and the sector contributing over 23 percent of the GDP in 2006
(World Bank, 2007).
Agricultural credit plays a
critical role in agricultural development (Duong & Izumida, 2002). Farm
credit has for long been identified as a major input in the development of the
agricultural sector in Nigeria. The decline in the contribution of the sector
to the Nigeria economy has been attributed to the lack of a formal national
credit policy and paucity of credit institutions. The provision of credit or
loanable fund (capital) is viewed as more than just another resource such as
labour, land, equipment and raw materials (Rahji, 2010). It determines access
to all of the other resources which farmers require (Shephard, 1979).
Agricultural practice requires money for the purchase of various factors of
production including land. There are two main sources of agricultural
financing; formal and informal sources. According to Nchouji (2007), the formal
sources are organized and guided by law with effort on the part of the
government, examples are Bank of Agriculture (BOA), commercial banks,
supervised agricultural credit, cooperative societies and government agencies.
Informal sources include friends, relatives, money leaders, saving societies
and traditional groups. These sources are meant to facilitate and increase
agricultural production. Though farmers may patronize these sources, but the
implication involved is the provision of collaterals and other necessary
requirement before obtaining those credit facilities. Oladeebo (2003), reported
that years of farming experience with credit use and level of education were
the major factors that positively and significantly influenced the amount of
loan obtained by farmers.
Agricultural credit access has
particular salience in the context of agricultural and rural development in
Nigeria. Some 70% approximately of the population live in the rural areas with
their main source of livelihood being agriculture. Recent studies showed that
the growth rate of investment in the agricultural sector is less than that of
the other economic sector. Therefore, financing agriculture is one of the most
important factors to develop rural areas in developing countries (Kohansal and
Mansoori, 2009). Credit accessibility is important for improvement of quality
and quantity of farm products, so that it can increase farmer’s income and
reduce rural migration. Credit constraints to farm households thus impose high
cost on the society. This is in terms of rural unemployment, rural poverty, and
distortion of production and liquidation of assets. Governments in both
developed and developing countries attempt to overcome these problems by
subsidizing credit, setting up Agricultural Credit Guarantee Fund Schemes (e.g.
ACGFS in Nigeria, 1977) and specialized Agricultural Credit Bank (e. g NACB,
1973 now BOA, 2010) and stimulating institutional innovations in the financial
system (e.g. People’s Bank, Community Bank, Rural Banking Schemes, etc) (Rahji,
2010).
The Nigerian
agricultural sector is among the most heavily regulated sector of the Nigerian
economy. The special interest of government in the agricultural sector is due
to its relevance in the provision of raw materials for industries and most
importantly the provision of food for the teaming Nigerian population and also
serving as a source of foreign exchange for the economy (Adofu, Abula &
Audu, 2010). The Nigerian agricultural sector is not alone in government
intervention in terms of regulation, Akiri and Adofu (2007), opined that the
banking industry owing to the nature of the activities and functions it
performs in the economy, is also one of the widely and heavily regulated sector
in both developing and developed countries of the world.
Anyanwu, Oyefusi, Oaikhanan, and
Dimowo, (1997) opined that, commercial banks encourage savings. Since
investments are made out of savings, the establishment of commercial banks
especially in the rural areas makes savings possible hence economic development
is accelerated. The government most often may think it’s necessary to intervene
in the operation of the banking system with the intention of correcting the
short comings of the price fixing mechanism to ensure that what is commercially
rational for an individual bank is approximately rational for all (Adofu, et
al., 2010). Socially, interest rate charged by banks could be regulated to
encourage savings mobilization, ensure and foster adequate investment for rapid
growth and development, bearing in mind the view of Goldsmith (1969) that the
financial superstructure of an economy accelerates economic performance to the
extent that it facilitates the migration of funds to the best user i.e. to the
place in the economic system where the funds yield the highest social return.
According to Akiri and Adofu
(2007), the existence of externalities and imperfection in the financial
markets of most developing economies has often called for intervention by the
government through its appropriate agent (the Central Bank of Nigeria in the
case of Nigeria) to encourage investment and to re-channel credit to those
economic units with high social rate of returns but low commercial rate of
returns. Under the deregulated interest rate system, the market forces of
demand and supply play a very prominent role in the determination of interest
i.e. banks and their customers are free to negotiate to arrive at a suitable
interest rate on both deposit and loans. Kohansal and Mansoori, (2009), noted
that the main part of financial resources of agricultural bank come through
recovery of overdue granted credits while lending activity for banking system
is accompanied with some risks and problem. In the other hand, Awoke, (2004),
stated that inspite of the importance of loan in agricultural production, its
acquisition and repayment are fraught with a number of problems especially in
the small holder farming. Therefore, most of the problem arose from poor
management procedure, loan diversion and unwillingness to repay. Thus, lending
is a risky enterprise because repayment of loans can seldom be fully
guaranteed.