MICRO FINANCE BANKING AS A STRATEGY FOR SMALL SCALE
AGRICULTURAL DEVELOPMENT IN NIGERIA
TABLE OF CONTENTS
- - - - - - - - - 1
of the study - - - - - - - - 1
of the Problem - - - - - - - 4
Questions - - - - - - - - 4
of the Study - - - - - - - 5
of the Study - - - - - - - 5
of the Study - - - - - - - 5
of the Study - - - - - - - 6
of the Study - - - - - - - - 6
2.0 Introduction- - - - - - - - - - 7
Historical Background of the Study- - - - - - 7
and Small Scale Agriculture: An Overview - - - 9
of Micro-Financing and Small-Scale Agricultural Development 11
Strategy for Microfinance Banking - - - - - 12
for the Establishment of Microfinance Banks for
Scale Agricultural Development - - - - - 14
for the Supervision of microfinance Banks - - 15
And Agricultural Development in Nigeria - - - 17
Roles of Microfinance in Agricultural Development - - - 17
Institutions that Advance Loans to Agriculture - - 18
Militating Against Small-Scale Farmers in Getting Microfinance
Loans - - - - - - - - - - 20
Policy to the Agricultural Sector - - - - 21
of Government in the Promotion of Agriculture in Nigeria - 22
of Agriculture to Economic Development - - - 25
Impacts Of Micro Finance Banks On Small Scale Agriculture - 29
Banks in Nigeria and their Financial
Positions - - 29
Scale Agricultural Activities in Nigeria - - - - 33
Small Scale Rice Production In Nigeria - - - - - 33
Small Scale Cassava Production In Nigeria - - - - - 34
c Small Scale Yam Production in Nigeria - - - - 38
of Microfinance Credit to Small Scale Farmers - - 39
2.3.5 Impacts of Microfinance Credits to Small
Scale Agricultural Production
(Rice, Yam, & Cassava) - - - - - - - 43
Introduction - - - - - - - - - 45
Of Data - - - - - - - - 45
Methods Of Data Collections - - - - - - 45
Method Used In Analysis - - - - - - - 45
Research Problems and
Limitations - - - - - 46
Analysis - - - - - - - - 47
Presentation - - - - - - - - 47
Specification - - - - - - - - 48
Estimation - - - - - - - - 49
Evaluation - - - - - - - - 49
of Result - - - - - - - 51
1.1 Background to the Study
revitalization of the agricultural sector has been the cornerstone of the
government development policy. This is aimed at moving the country quickly to
self-sufficiency in food production of agricultural raw materials for domestic
agro-based industries. The need to increase agricultural productivity is
implicit in the fact that It remains the leading non-oil sector of Nigerians
population. The main objective of the agricultural policy as laid down by
“Agricultural Policy for Nigerian”- 1988, are Attainment of self Sufficient in
basic foods commodities, increase production and processing of export crops,
modernization of agricultural production, processing, storage and distribution
through improved technology, increase rural population and lastly improved
protection of agricultural lands.
most developing countries, agriculture is both the main traditional pursuit and
the key to sustained growth of the modern economy. Stagnation in agriculture is
the Principal explanation for poor economic performance while rising
agricultural productivity has been the most important concomitant of successful
independence, the agricultural sector accounted for 53% of GDP by 1980. This
has however gone down to 36%. The aggregate index of agricultural production
with 1984 as the as the base year rose by 5% in 1993 compared to 66% and 59% in
1992 and 1991 respectively (Abdullahi,1991). Agriculture constitutes the
dominant sector of populations who are small farm producers and reside in the
rural areas. It is observed that over 80% of the rural population in Nigeria
are small holders farmers. (Mellor, J. W., 1996).
a matter of history, up to early 1970s, agriculture dominated Nigeria’s
economy, but since then oil has held the principal position and Nigeria started
to experience growth without development. As a result, agriculture has
suffered, and increasingly, has occupied a back seat in our drive towards
economic take-off. Stagnation on agriculture became more apparent during the
1970s and agricultural services to the economy started to decline at an
increasing rate and thus, the Nigerian agriculture is now characterized by low
income, low levels of capacity to satisfy the food and fibre needs of the
country, primitive techniques of production. According to Ogunfiditimi (1996)
it is in fact now a proto-type of peasant Agriculture, which is caught in a
vicious circle of poverty, that is, low income, leading to poor savings and
little investment in yield-increasing technology. Because technology is poor,
both output and income are low.
part of government strategy to attain increased productivity in the
agricultural sector, several policies, activities and projects were being
formulated. These include developing rural infrastructure, supply of
fertilizers, seeds and other inputs, improving agricultural extension services,
and provision of credits aimed at encouraging small scale agriculture.
predominant of small scale agriculture is a resource based agriculture and is
basically subsistence. The farm size ranges from 0.10 hectares to 5.99 hectares
and often is scattered holdings per household, production inputs consist mainly
of land and family labour. Capital investment is negligible, inputs like
fertilizers and chemicals are seldom used and levels of production technology
are low. Soil fertility is maintained by bush fallowing, the production is much
less market oriented. Several policies to enhance small scale agriculture are
been taken by various governments, however, the corresponding impact on
production has not been realized, as policies are seldom fully implemented and
fraught with frequent changes. This is due to a variety of reasons changes.
This is due to a variety of reasons such as shortage and improper disbursement
of funds, lack of executive capacity and manpower management problems and
inadequate plan preparations.
to Soludo (2006), sustained small scale agriculture cannot be achieved without
putting in place well focused programmes to reduce the problem militating small
scale agriculture (farmers) by increasing their access to factors of production
especially credit. The latent capacity of the rural small scale farmers would
be significantly enhanced though the provision of micro financial services.
Microfinance is about proving financial services to the poor who are
traditionally not served by the conventional institutions. He believes that
microfinance can be distinguished from other formal financial product though
the smallness of loans advanced, the absence of assets based collateral and the
simplicity of operations which is at the level of the common man.
practice of microfinance in Nigeria is culturally rooted and dates back several
centuries. The traditional microfinance institutions provide access to credit
for the rural and urban low income earners. They are mainly of the informal
Self-Help Groups (SHGs) or Rotating Saving and Credit Association (ROSCA).
Others include saving collectors and co-operative societies which have limited
outreach due to inadequate loan-able funds.
order to enhance the flow of financial services to Nigerian rural areas,
government has in the past initiated a series of publicly financed micro/rural
credit programmes and policies targeted at the poor. Notable among such
programmes were the Rural Banking Programme, sectorial allocation of Credit on
concessionary interest rate and the Agricultural Credit Guarantee Scheme
(ACGS). Other Institutional arrangements were the establishment of the Nigerian
Agricultural and Cooperative Bank (NARCB), the National Directorate of Employment
(NDE), the Nigerian Agricultural Insurance Corporation (NAIC), the Peoples Bank
of Nigeria (PBN) the Community Bank (CB), the Family Economic Advancement
Programme (FEP) and later merged the NACB with PBN and FEAP in 2000 to form the
Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) to
enhance the provision of Credit to the agricultural sector.
(2002) observed that most of the micro-credit scheme suffer set backs because
they were founded on erroneous assumptions believing that the poor constitute
the same group and tends to employ the same solution towards eradicating the
problem of poverty. Researches shown or revealed that the poor should be
involved in solving the problem of poverty since they are aware of their own
this background and the problems of inadequate credit and finance, there is a
need to device a strategy whereby credit will get to the farmers living in the
rural areas as at when due, as to increase the contribution of the sector to
our national development. Agriculture is seen and thus believed to be major
sector towards growth and development in most countries like Nigeria, and as
long as it remain so, the future of this sector in performing its roles becomes
1.2 Statement of the Problem
practice of microfinance in Nigeria, is culturally rooted and dates back many
years to the poor performances of the agricultural sector in the country’s
economic developments which can be attributed to the traditional way of farming
on the part of the small scale farmers.
are many factors which hindered sustained development of small scale
agriculture. One of such factor is low technological level, which comprises of
small land holding and the use of traditional tools like hoes, and cutlasses.
Other factors include non-wide spread use of fertilizers, and improper use of
storage facilities. To raise agricultural the agricultural sector must have its
production raised via the adoption of new technology and improvement in its
on the above, the Federal Government have realized that raising Small Scale
farmers output and income is very essential, if continued, economic development
and political stability is to be attained. The present system by which small scale
farmers depends on non-institutional finance sources (friends, relatives and
money lenders) as a source of loans is been divided with paucity of data.
However, it is often assumed that capital from the source is generally low and
inadequate relative to the need of agriculture in general.
sponsored agricultural credit scheme and the establishment of microfinance
Banks have been some of the major programme among others designed to facilitate
easy flow of credits would enable the farmers to procure the major input for a
result oriented agricultural production.
1.3 Research Questions
this work was conceived based on the desire of researcher to bring light to the
micro financing activities of the microfinance banks particularly the credit aspect in order to study and also
ascertain its participatory role in the provision of credit facilities to small
scale agriculture through their microfinancing policies.
research questions to be addressed include:
What are the roles of microfinance
banks in small scale agricultural development in Nigeria?
What are the possible
measures or ways of enhancing small scale agriculture in Nigeria?
What are the problems
initiating against small scale agricultural development in Nigeria?
Should microfinance policy
be moderated or changed?
answers to these questions will help to bring out the basis of this research
1.4 Objectives of the Study
principal objectives of this research work is to critically examine and analyze
the impacts of microfinance in the Nigerian economy and how it can help to
improve the contributions of small scale agriculture towards the development of
especially, the study seeks to:
Analyse an examine the
concept of microfinance as viewed by the different schools of thoughts.
To assess the impacts of
microfinance on small scale agricultural development in the economy.
Review the past agricultural
policies and their effect on the development of the Nigerian economy.
To examine the contributions
of small scale agriculture to national development.
Offer meaningful suggestions
and policy recommendations about how to improve the small scale agriculture
towards our national development.
1.5 Hypothesis of the Study
study will be based on the following hypothesis:
H1: Direct small holder loan scheme has not significantly contributed
to the activities of small scale agricultural development in Nigeria.
H2: Direct small holder loan scheme has significantly positively
contributed to the activities of the small scale agricultural development in
1.6 Significance of the Study
study is concerned with a thorough examination of institutional practices of
agricultural financing in Nigeria with particular reference to Barnawa
Microfinance Bank direct small
holder loan scheme for small scale agriculture. At the present time when
Nigeria is striving for agricultural development to reduce her food deficit situation,
it is important for financial institutions to look for ways and means of
improving her loans schemes to farmers, especially the small scale farmers who
provide over 80 percent of Nigeria’s food requirements.
production on a sustainable and self reliant basis for countries of our
contemporary world is one of the most important goal and objective of the
governments. Food security is an indisposal component of the total security of
a modern nation. Throughout history, food has been used as an instrument of
domination and enslavement.
is directly or indirectly a major contributor to that food import bill. With
minerals and vitamins deficiency in our food intakes, and energy and protein
deficiency, we cannot but under perform and subsequently be economic and social
liability. Current realities dictates and demand that both agric-business and
small peasant farming must co-exist in Nigeria.
in Nigeria is caught in a low level equilibrium trap. The rate of return cannot
rise because of the nature of the technology in use such agriculture has been
described as efficient but poor. In order to break this vicious circle of
constraints, there is then the need to inject not only technology and
agriculture services but also capital into rural agriculture which is of great
concern to this study.
as Nigerian economy remains dangerously dependent on one sector (i.e. petroleum
sector) the need for diversification and attaining self-sufficiency in food
production is necessary. Thus, the tendency to justify the need for the much
prudential agricultural financing in Nigeria cannot be over emphasized.
1.7 Limitations of the Study
are certain limitations which are placed in this study. The research work is
faced with a lot of problems amongst others are the poor cooperation from
institutional sources, constitute a serious delay in the release of data necessary
for the work to be complete. There is also the problem of inadequate and
accurate data for in-depth assessment of the subject matter.
sources of data whether primary or secondary was used in this study were
assumed to be valid and reliable. The size of the small scale farmers in the
area of study were of the range of 0.10 to 5.99 hectares of farm land.
are certain considerations which delimit the scope of this study. First,
although there are many financial institutions which finance agriculture in
Nigeria, this study is only concerned with the area of Barnawa Microfinance
the findings will be based on Barnawa Microfinance Bank Limited. It is meant to
improve agricultural financing with particular reference to Barnawa
Microfinance Bank Ltd. Loans disbursement and recovery respectively to and from
the small scale farmers in the area and the country at large. Thirdly, this
study concentrates on the Barnawa Microfinance bank Limited “Direct Small
Holder Loan Scheme” (DSHLS).
of the microfinance programme had only scanty records to present which made it
difficult for the researcher to properly assess the success of the programme.
1.8 Scope of the study
main focus of this research work is to bring to light the activities of
microfinance banks and small scale agricultural development in Nigeria. The
study is more concern with the thorough examinations of institutional practices
of microfinance banks with particular reference to direct loan scheme for small
agricultural development in Nigeria from 1996-2005 which would be used to bring
out precise and concise conclusions and recommendations. The outcomes are meant
to improve agricultural financing with particular reference to BMFB Loans
disbursements and recovery respectively to and from the small scale farmers in
the area and the country at large.