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.

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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.

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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

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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:

i. To analyze the impact of credit facilities to the operation of small scale

farmers in Nigeria.

ii. To identify and analyze the socio-economic characteristics that may

influence farmer’s decision about whether or not to use credit.

iii. To examine the probability that non-borrowers can borrow given that socio-

economic characteristics are increased.

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1.4 STATEMENT OF HYPOTHESIS

Given the nature of this research work there is need to formulate a reasonable

hypothesis:

H

0

: credit facilities are not significant in the operation of small scale farmers in

Nigeria.

H

1

: Credit facilities are significant in the operation of small scale farmers in

Nigeria.

1.5 SCOPE OF THE STUDY

The scope of this study shall cover the role of credit facilities to small scale

farmers in Bende 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.

1.6 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.

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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.

1.7 ORGANISATION OF STUDY

This study is divided into five chapters. Chapter one contains the introduction of

the study