ABSTRACT
The study attempted to examine the impact of deposit money bank credit or loans on agricultural sector performance in Nigeria between1982 -2016. The study examined the effect of deposit money bank credits on crop production in Nigeria, to find out the impact of deposit money bank credits on livestock production in Nigeria, to ascertain the extent to which deposit money bank credits has affected the overall agricultural sector in Nigeria. This research adopted the econometric method of ordinary least square (OLS) techniques of multiple regressions as the main analytic tool. This study obtained data from secondary sources mainly the Central Bank of Nigeria (CBN) statistical bulletin, National Bureau of statistics (NBS) the CBN’s annual reports and financial statement. From our findings the result revealed positive and insignificant impact of interest rate on agricultural output. The result also established a positive and significant relationship between bank loan advances and livestock, production. The general conclusion is that a deposit money bank credit is paramount in promoting agricultural sector.
TABLE OF CONTENTS
Title page………………………………………………….i
Certification……………………………………………….ii
Dedication…………………………………………………iii
Acknowledgement…………………………………………iv
Abstract…………………………………………………….v
Table of content……………………………………………vi
CHAPTER ONE INTRODUCTION…………………….1
- Background of study……………………………………1
- Statement of problem……………………………………3
- Objective of study………………………………………4
- Significant of the study…………………………………5
- Research hypothesis…………………………………….5
- Scope of the study………………………………………6
- Organization of the study……………………………….6
CHAPTER TWO:
- Theoretical literature…………………………………………….7
- The concept of bank credit…………………………………………9
- Bank credit and the Nigeria economy…………………………..10
- Agricultural credit and finance………………………………….11
- Types of agricultural credit programes in Nigeria………………14
- The agriculture credit guarantee scheme fund…………………..19
- Bank sector credit and agricultural output………………………25
- Empirical literature………………………………………………28
CHAPTER THREE
3.1 Research design……………………………………………………40
3.2 Method of data collection………………………………………….40
3.3 Technique of data analysis…………………………………………40
3.4 Models specifications………………………………………………41
CHAPTER FOUR
4.0 Presentation and analysis of research findings…………………….44
4.1 Analysis of unit root and co-integration results of model 1…………44
4.2 Evaluation based on economic criteria………………………………46
4.3 Evaluation based on statistical criteria……………………………….47
4.4 Evaluation based on econometric criteria…………………………………..48
CHAPTER FIVE
5.0 Summary, policy recommendation and conclusion………………….61
5.1 Summary……………………………………………………………..61
5.2 Policy recommendation…………………………………………….62
5.3 Conclusion…………………………………………………………..63
References………………………………………………………………..6
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Finance is the wheel on which every production activity anchors. The activities of the financial institution especially the banks, determine the economic progress and or retardation of a given nation. The banks are noted for playing the role of financial intermediation, which involves channeling funds from the surplus unit to the deficit unit of economy, thus transferring bank deposits into loans or credits.
The role of deposit money bank loans in economic growth and development can be recognized in the sense that various economic units use to meet their operational needs. For example, in the agricultural sector firm’s bank loans to purchase machinery and equipment buying seeds, fertilizers, erect various kinds of farm buildings (Adeniyi, 2006).
While highlighting the role of deposit money bank loans, Ademu (2006) explained that credit can be used to prevent an economic activity from total collapse in the event of natural disaster, such as flood, drought, disease, or fire. The banking sector is at the centre of making these credits available by mobilizing surplus funds from servers who have no immediate need of such fund and thus channel it in form of loans to investors who have brilliant ideas on how to create additional wealth in the economy but lack the necessary capital to execute their ideas.
According to the CBN (2007), credit or loans to the core private sector by the deposit money banks grew by 98.7%. Outstanding credit to agriculture, solid minerals, export, and manufacturing in 2007 stood at 3.1%, 10.2%, 1.4% and 10.1% respectively. Credit flows to the core private sector in 2007 amounted to N2, 289.2 billion. Adekanye (1986) noted that in making credit available to the productive sectors such as agriculture, manufacturing, real estate or housing etc, banks render a great deal of service as production will be increased, capital investment expended and higher standard of living realized.
Agricultural credit access has important role it plays in the context of agricultural and rural development in Nigeria. Rahji and Adeoti (2010) noted that some 70% of the population lives in the rural areas with their main source of livelihood being agriculture. Therefore, credit constants to farm household impose high cost on the society in the areas pf rural unemployment, poverty, and distortion s of production activities. Swinnen and Gow (1999) pointed out that access to agricultural credit has been severally constrained the productivity of agriculture in the developing countries. This is because of the imperfect and costly information problems encountered in the financial markets.
Tawose (2012) observed that the rapid growth of industrial production has increased the demand for bank credit on the part of industrial firms. He noted that financial institutions such as bank of agriculture and merchant banks have increasingly been proving finances for industries, some of which are manage by rapidly growing number of indigenous entrepreneurs.
Indeed, under the credit guideline being prescribed by the CBN, the banks have been encouraged to reallocate credit or loans and re-channel it to the productive sector, thereby boosting their level of productivity and performance as well as increase the growth and development of the domestic economy. It is against this background that this study examines the impact of bank of agriculture loans on agricultural sector performance in Nigeria from the period of 1982 to 2016.
1.2 Statement of the Problem
As pointed out earlier, loans or credit facilities of bank of agriculture are the life blood of any given economy. This is because credits available to the productive sector like agriculture go a long way stimulating growth and boost the domestic economy. Where bank loans or credits are insufficient to cater for the needs of this sector, the domestic economy that is private sector led is doomed to failure.
In Nigeria, it will be recalled that bank of agriculture credit guidelines of the government through its agency, Central Bank of Nigeria (CBN), the productive sector especially agriculture have suffered lack of access to credits for production purposes. For example, Yunus (2011) observed that lack of access to bank credit on the part of the poor was the key constraints on their economic progress. Rahji and Adeoti (2010) also asserted that banks perceive agricultural credit as risky and seek to channel credit to less risky sectors. The bank credit constraints to farmers and other investors impose such problems as reduction in the level of output, reduction in national income, level of unemployment, poverty, income inequality etc.
Following these eminent problems associated with poor or inadequate deposit money bank loans or credit access to agricultural sector, this study seeks to address such questions as: what factors are responsible for credit access to the agricultural sector of the economy? What impact has it on the various economic problems of unemployment, poverty, low level of national income, lower output, and inequality? What are the responses to these problems in Nigeria?
1.3 Objective of the Study
The main objective of this study is to examine the impact of bank of agriculture credits on the agricultural sector performance in Nigeria. Specifically, this study seeks to achieve the following objectives:
- To examine the effect of bank of agriculture credits on crop production in Nigeria;
- To find out the impact of bank of agriculture credits on livestock production in Nigeria; and
- To discover the extent to which bank of agriculture credits has affected the overall agricultural sector in Nigeria.
1.4 Significance of the Study
Available literature revealed that the level of productivity is a direct function of capital and most of the loan to the productive sectors of the economy comes from the banks. There are insufficient studies carried out the deposit money bank loans on the agricultural sector of the development nations including Nigeria. The need to carry out this study becomes imperative as it bridges this apparent gap in the literature.
The finding of this study is of great importance to the industrialists, farmers, government and other researchers as it will establish the relationship existing between bank of agriculture loans and the agricultural sector performance in the country.
Finally, the study adds and contributes to the existing body of knowledge in economic literature.
1.5 Research Hypotheses
This study intends to test the following hypotheses:
HO1: There is no significant relationship between bank of agriculture loans and crop production in Nigeria
HO2: There is no significant relationship between bank of agriculture loans and livestock production in Nigeria
HO3: there is no significant relationship between bank of agriculture loans and overall agricultural sector production in Nigeria
1.6 Scope of the Study
This study seeks to examine the impact of deposit money bank loans on the agricultural sector of the economy. Also, the study covers how the deposit money bank loans or credits to the productive sector affect the overall performance of the Nigerian economy. The study spans between the periods of 1982 to 2016.
1.7 Organization of the Study
Organization is the structural pattern of the study. This is organized in five chapters. Chapter one considered the introduction which covers background of the study, statement of the problem, objectives of the study, significance, hypotheses and scope of study.
In chapter two, we considered the review of related literature on the issues of deposit money bank loans or credit and agricultural sector performance. Also, theoretical and empirical literatures were presented here.
Chapter three presented the method of study, which involves the research design, data required and sources, method of data collection, and technique of data analysis as well as models specifications.
Chapter four considered the presentation of data and analysis as well as the discussion of findings. Chapter five focused on the summary, conclusion and recommendations.
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