ABSTRACT
This research was conducted with the aim of pointing out the problems that
prevent farmers from having access to credit in Yola south. The research also gives
an analysis of the socio-economic characteristics of farmers in the study area and
their access to credit. Furthermore, the research also identifies the main sources of
credit to farmers in the study area and the benefits derived from the credit obtained.
During this research, three communities were purposively selected in Yola south;
Wuro-chekke, Bole and Mbamba. These communities house the majority of farmers
in the study area and 20 farmers were randomly selected from each of the community
thereby making a total of 60 farmers. Questionnaires were administered to the 60
farmers selected and the data obtained was analyzed using statistics such as mean,
frequency and percentages in Microsoft excel. The results in the study showed that
factors such as lack of collateral, religious beliefs and long application procedures
are the main factors that prevent farmers from having access to credit. The results
also showed that farming in the study area is dominated by male farmers of who are
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small scale farmers as well. The results of the study showed that farmers in the study
area have access to credit but at a very low level and the main source of credit in the
study area is the microfinance bank. Furthermore, the research of the study also
showed that the credits obtained by the farmers are utilized and some benefits (such
as increase in productivity and income) were derived. Findings in the study also
showed that farmers in the study lack access to extension agents and most of them
are members of the cooperative society which helps its members in obtaining credit.
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TABLE OF CONTENTS
Title page ……………………………………………………………………………………….. i
Certification…………………………………………………………………………………… ii
Readers’ approval………………………………………………………………………….. iii
Dedication ……………………………………………………………………………………. iv
Acknowledgement…………………………………………………………………………… v
Abstract ………………………………………………………………………………………. vii
Table of contents …………………………………………………………………………… ix
List of table …………………………………………………………………………………… xi
1.0 Introduction ……………………………………………………………………………… 1
1.1 Definitions of terms …………………………………………………………. 1
1.2 Agriculture and Nigerian economy ……………………………………. 3
1.3 Credit and its role in agriculture ……………………………………….. 5
1.4 Sources of agricultural credit …………………………………………….. 6
1.5 Benefits of agricultural credit …………………………………………… 8
1.6 Constraints of agricultural credit accessibility ……………………. 9
1.7 Agricultural loan application processes in standard microfinance bank
Nigeria …………………………………………………………………………. 10
1.8 Summary of the review………………………………………………….. 11
1.9 Specific Aims, current study, or objectives ……………………….. 11
2.0 Material and methods ………………………………………………………………. 13
2.1 Introduction ………………………………………………………………….. 13
2.2 Study area …………………………………………………………………….. 13
2.3 Sampling technique ……………………………………………………….. 14
2.4 Study area visitation and pilot test ……………………………………. 15
2.5 Data collection ………………………………………………………………. 15
2.6 Analytical technique ………………………………………………………. 15
2.7 Limitations …………………………………………………………………… 15
3.0 Results …………………………………………………………………………………… 17
4.0 Discussion ……………………………………………………………………………… 23
4.1 Analysis of respondents demographic information …………….. 23
4.2 Farmers access to credit ………………………………………………….. 25
4.3 Sources of credit obtained by farmers ………………………………. 27
4.4 Credit utilization and benefits derived………………………………. 27
4.5 Problems encountered during loan application ………………….. 28
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4.6 The role of extension agents and farmers cooperative societies ..
……………………………………………………………………………………. 28
5.0 Conclusion …………………………………………………………………………….. 30
5.1 Recommendation …………………………………………………………… 31
5.2 Future study ………………………………………………………………….. 31
References ………………………………………………………………………… 32
Appendix ………………………………………………………………………….. 34
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LIST OF TABLES
Table 1.1 shows Demographic information of Respondents ………………. 15
Table 2.1Shows respondents access to credit …………………………………… 16
Table 2.2 shows respondents’ level of access to credit ………………………. 16
Table 2.3 shows the respondents who applied for loan and those who never apply…..
…………………………………………………………………………………………………… 17
Table 2.4 shows the reasons for not applying for loan by respondents who never
apply …………………………………………………………………………………………… 17
Table 2.5 shows respondents who applied for loan and obtained and those who
applied but did not obtain ………………………………………………………………. 17
Table 2.6 shows the amount of money received as credit by respondents that
obtained credit ……………………………………………………………………………… 18
Table 3.1 shows the sources of loan obtained by respondents …………….. 18
Table 4.1 shows respondents who misappropriated their credit and those did not,
with reasons given by those who misappropriated their credit …………….. 18
Table 4.2 shows the Benefits derived from the credit obtained …………… 19
Table 5.1 shows Problems encountered during loan applications ……….. 19
Table 6.1shows respondents access to extension agents …………………….. 19
Table 6.2 shows respondents awareness to loan ……………………………….. 19
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Table 6.3 shows respondents utilization of credit with or without the help of
extension agents ………………………………………………………………………………. 20
Table 6.4 shows respondents membership to the cooperative societies …… 20
Table 6.5 shows Cooperative society’s help in getting loan to their
members………… 20
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1.0 Introduction
For many years, different studies have been conducted on the problems of
agricultural credit in Nigeria. The studies were conducted both in the Northern and
Southern parts of the country and the results were almost similar to one another.
From the results, it is observed that most farmers who apply for credit to finance
their agriculture experience problems such as lack of collateral, high interest rate,
lack of awareness by extension farmers, long procedures and insufficient funds to
give all farmers that requested loans; Are the main factors that lead to having
problems with agricultural credit (N. 2012). Other studies conducted have also
shown that educational level and locations of banks where the loans are applied for
are also among the factors that contribute to farmers not having accesses to loans in
the rural areas of Nigeria (Foin 2007).
1.1 Definition of terms
Agriculture can be defined as the science, art and occupation of
cultivating soil, rearing animals and producing crops. It is also known that
agriculture is the basis of civilization; it is through agriculture that human population
settled and increased in number, instead of moving from one place to another. There
are different types of agriculture which includes the subsistence and industrial
agriculture. The subsistence agriculture is a type of agriculture which is practiced by
farmers for the survival of their families. In this type of agriculture, farmers cultivate
small agricultural produce in small land that is just enough for the families to eat and
small cash crops. This type of agriculture is practiced by families and all the labors
are done using human and animal power with hand and simple machine. Most of the
farmers practicing this type of agriculture have livestock such as cattle and goats.
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The residue of the crops is used in feed the animals. The waste generated by the
animals is also used as fertilizers in the farms. Industrial agriculture is another type
of agriculture in which very large quantities of crops and livestock are produce for
commercial purposes. In this type of agriculture large machines and chemicals are
used in order to produce higher crop yield to sale.
Credit can be defined as the ability for an individual or group of people
to obtain or receive goods or money for present use and repay back (Foin 2007).
Credit can be obtained from different sources and when paying back there is certain
amount that most be added as interest to the money depending on the amount of
money obtained. The interest amount can also varies depending on the time given to
pay back the money; failure to do that can also lead to increase in the percentage of
the interest rate of the loan obtained.
Agricultural financing can be defined as the use of money or goods
obtained for financing agriculture (Foin 2007). Using the money one has or the credit
obtained, there are many factors of production that a farmer needs to purchase; these
include lands, machines, fertilizer and chemicals. The use of money to purchase
these factors will help in increasing the production of the farmer and making work
easier for him with the help of the machines he purchased in the farm.
Credit constraint – This can be defined as a situation where by a credit
lender is unsatisfied with the credit he/ she demanded.
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1.2 Agriculture and Nigerian Economy.
Before the discovery of petroleum in the Niger delta region of Nigeria,
Agriculture sectors are one of the sectors that are contributing most to the
development of Nigerian economy (Zivkovic, Omorogiuwa and Ademoh 2014).
Nigeria is divided into south and north, the northern part of the country is the region
where about 70% of the populations are farmers. The country is also known for its
abundance of fertile soil and climate for agriculture, which when used properly can
place the country among the league of high economically developed nations in the
world (Zivkovic, Omorogiuwa and Ademoh 2014). With the availability of both the
lands and fertile soil in the country, Nigeria’s government has failed to use all the
natural resources they have in abundance on the agricultural sector but focused more
on the petroleum in the southern parts of the country. It is estimated that the
population of Nigeria is about 100 million; over 61.2 percent of this population is
living in poverty with less than one dollar per day (Opinion Polls Socio-economic
Polls, 2013). Nigerian economy could have been better than what is today if the
agricultural sector had been given more attention by the government. This is because
the agricultural sector is the only solution to the situation Nigerian are today, it is the
only sector that can provide for all the unemployed and the poor citizens living in the
rural areas with a less than dollar per day (Zivkovic, Omorogiuwa and Ademoh
2014). Most of the problems faced by Nigerians in agricultural sector are the lack of
machines, good roads, and credits to increase productivity.
Before, when Agriculture was the sector that contributed more to the
Nigerian economy and the government has given more attention to the sector, the
country are known as the exporter of crops such as groundnut, cocoa, seed cotton and
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palm oil (Zivkovic, Omorogiuwa and Ademoh 2014)l. The country exported all the
cash crops globally through market boards that are in charge of all the exports and
selling domestically which the money and revenue are then is used in funding the
needs of the states. The market boards were restructure in 1954 when the country
assume federal status, three boards were setup with each one responsible for
handling and exporting one type of crop in the three regional part of the country. The
three regional parts of the country are Northern, western and eastern. Under the
supervision of Nigerian produce marketing company the boards continued to operate
in different part of Nigeria. Agriculture continued to provide the country with foreign
earnings and employment until in 1970’s when it was overrun by the oil boom
(Zivkovic, Omorogiuwa and Ademoh 2014).
The 1970’s oil boom and creation of more state in Nigeria led to making the
Nigerian produce Market Company the nationwide commodity boards. In 1977 the
price of crude oil fell by four percent leading to economic decline and decrease in
both the state and federal revenue (Zivkovic, Omorogiuwa and Ademoh 2014).
The boards became financially inactive and farmers were unable to get
investment funds for their farms to produced crops that will be exported by the
boards. With other problems such as the replacement of the boards responsible for
exporting cash crops with the Nigerian exports promotion which has no connection
with council of Nigerian farmers, agricultural sectors in Nigeria continue to
struggling. The movement of farmers from rural areas where much of the agricultural
products are produce in search a work led to a decrease in the quantity of products
exported in the country. In The 1960s the agricultural contribution to gross national
income was 60 percent, which declines to 49 percent in 1970s and 1980’s 22.2
5
percent (Agriculture, 2014). This continues to decline till now and the only way to
make agriculture the way its contributes to our economy as in the 1960’s is giving
much attention to the sector and by giving farmers in both the rural and urban areas
the funds and machines they needed for production (Zivkovic, Omorogiuwa and
Ademoh 2014).
1.3 Credit and its roles in agriculture.
As defined earlier in the definitions of terms section, credit can be
defined as the ability of an individual or group of people to obtain goods or services
with the promise of paying back in the future (C., O and G 2014). From this
definition, we can understand that farmers who are living especially in the rural areas
needs credit to support their agriculture. In the” agriculture and Nigerian economy
sector” we explained that about 70% of Nigerian population are living in poverty
with less than one dollar a day and most of these people are from the rural areas of
the country. Credit, in terms of agriculture development, is very important
instrument, because it is only through credit that farmers living in the rural areas can
have the money to buy seeds, lands and implements needed in their farms.
Credit/ loan plays very important role in the development of agriculture
not only in Africa but also in the world. Giving out loans to farmers by both the
government and other private enterprises help in developing the agricultural sector
thereby contributing more to the economic growth of the country. These loans can be
in form of cash, farm machines, fertilizers and pesticides. Providing loan to farmers
in any form can increase their productivity, credit is essential in the improvement and
growth of both the economic and agricultural sector (C., O and G 2014).
6
For farmers, credit serves as the factor that eliminates the block which
prevents them from improvement. For example, there are many young men who have
the energy and skills to work in the farm but lack the resources for efficient
production. Giving loans can help these young men produce more in their farms and
create more jobs especially to the youths living at home without any work to do.
Therefore credit in agriculture still remains among the forces that are needed for
further improvement in Nigerian agricultural sector. (C., O and G 2014)
1.4 Sources of agricultural credit.
In order to have a developed agricultural sector that will contribute more
to our country’s economy in Africa, we need to have improved marketing, provide
new sources of employment and make credits available to our farmers (C., O and G
2014). According to (C., O and G 2014) farmers in Africa are financed through the
following ways which include commercial banks, cooperation and companies, state
financing agencies, external loans from agricultural banks and direct loans from the
state and federal government. According to (C., O and G 2014) the most available
source of obtaining loans by peasant farmers are the money lenders and
intermediaries who purchase their final products after harvesting. Among all the
sources of loans listed above, the informal sources of obtaining loans provide the
largest portion of the loans to the farmers in Africa. The two major source of credit
i.e. (formal and informal) are also known as institutional and non institutional source.
The institutional sources (formal) are loans obtained from commercial banks,
cooperative banks and government. The formal source of credit can meet all
requirements of farmers but requires a long procedures, conditions and collateral
(Saleem n.d.). The informal source is neither procedural nor time consuming but
7
does not meet the farmer’s requirement for agricultural production. A study
conducted by (C., O and G 2014) on peasant farmers in Benue state Nigeria observed
that the informal source of credit is mostly from friends, families, products buyers,
traders and money lenders, is the most prevalent source of loan among peasant
farmers in the area. This is because the informal source is the only source they are
familiar with and the loans were given directly without waste of time like that of the
formal sources (C., O and G 2014). However the researchers observed that the
informal sources charge high interest
In Nigeria, there are four banks which are committed to provide farmers
with loans either directly or indirectly. These banks have been operating for many
years in different parts of Nigeria in order for farmers to have access to loans and
increase their productivity. These banks are as follows:
a. Central bank of Nigeria- The central Bank of Nigeria( CBN) plays a very
important role in providing funds for agricultural credit, it is also the apex
of Nigerian Banking system
b. Commercial Banks- These are many commercial banks in Nigeria and
they are known as the suppliers of the largest portion of agricultural credit
for short time purposes in the country.
c. Development Bank- Banks that are required to play a very important role
in development and financing of agro- allied industries for long time.
d. Merchant Bank- these banks provides farmers across Nigeria with long,
medium and short time credits.
Others institutional banks committed to provide agricultural credit to
farmers in Nigeria include: microfinance banks, state and federal agencies,
8
cooperatives, agricultural insurance company, finance and private investment
companies, Nigerian agricultural cooperative and rural development bank
(NACRDB) which is also a development bank.
1.5 Benefits of agricultural credit
There are many studies conducted by researchers to know the benefits
farmers have been deriving on the agricultural loans and credit they obtained. Most
of the researchers observed that there is a difference in the income of a farmer before
and after collecting the loan. A research conducted by (Gana, et al. 2009) on
“agricultural credit utilization among small scale farmers in Bidda Niger state,
Nigeria” observed that most of the Respondents (farmers) said that before they
obtain loans their incomes are very low, but after utilizing the loan their income
increased. A study conducted by (Mbata 1991)also observed all the farmers under his
study responded that they applied fertilizers and chemicals (herbicides and
pesticides) on their farms and it is finance using the credit obtained from the
financial institutions. One problem noted by (Mbata 1991) on his study is that, only
47% of the farmers applied the fertilizers and chemical on the recommended level.
This indicates that lack of extension agent is among the main reasons why farmers
were unable to use inputs on recommended level (Mbata 1991). Farmers who were
able to obtain credit utilize what they have in buying farm inputs like fertilizer,
pesticides, farm machine and equipment which will be used in farm production.
These inputs can only be properly used with the help of extension agent that will
recommend and show the farmers what to do with the resources purchased.
9
1.6 Constraints of Agricultural Credit Accessibility
Farmers in different parts of Africa have problems with full access to
loans especially the one provided to them by the government. Although a farmer’s
need of credit can be different from one another, the main factor that indicates that
there is constraint is the gap between credit demanded and what is supplied (C., O
and G 2014). A research conducted by (C., O and G 2014) defined credit constraint
as the situation where by a farmer is unsatisfied with the credit he demanded or
desires, thus they classified farmers as credit constrained and unconstrained. In
Nigeria, agricultural credit constraints have an impact on the production efficiency
leading to low productivity by farmers in the country. The following are some of the
reasons why farmers are not have access to agricultural credit by (C., O and G 2014)
in their study, they are as follows:
a. A long, complicated and time consuming procedure is one of the main
reasons why farmers are having problems accessing to loans. This results in
taking long time before loans are approved and made available to farmers (C.,
O and G 2014).
b. High interest rate by the institutions and lack of collateral by farmers are also
a problem preventing farmers from obtaining loans to finance agriculture (C.,
O and G 2014).
c. Illiteracy and lack of farmer’s ability to provide the feasibility report for
project which the credit is required is also a problem leading to farmers not
the obtaining loans in different parts of Nigeria (C., O and G 2014).
d. Lack of awareness by extension agents that will encourage farmers in rural
areas to apply for loans.
10
e. Inadequate funds by the institutions to give credit to all the farmers that apply
for the loans.
The above mentioned reasons and others are the main problems that
are preventing farmer in Nigeria not having access to credit especially the one
provided by the formal institutions.
1.7 Agricultural loan application processes in Microfinance Bank, Nigeria
The following are the processes of applying for Agricultural loan in Nigerian
microfinance banks which is aimed in supporting small business and farmers across
the country with credit.
1. The first step when applying for loan is for farmers to come in group, there
must be minimum of 5 and maximum of 10 people per group. All those in the
group must be farmers who are willing to apply for Agricultural loan.
2. The bank will train the group of people for 6 weeks; this is known as
financial awareness.
3. The farmers in the group will contribute one quarter of the money applied for;
this will serve as collateral and assure the bank that they can be able to pay
the money back when given to them.
4. An agent from the bank will go to each of the applicant’s farm to verify
whether if it is true that the money will be used for agricultural for purpose.
The agent will also assess whether if the money requested is over or not
enough for the farm. When the money is over, the bank will reduce the
amount of the money applied and if the money is not enough they will advice
the applicant to increase the amount requested if he wants.
11
5. The loan will be given to them and will be paid back with 20% interest after
a period of 5 month plus 4 month grace period.
1.8 Summary of the review
With all the publications on the problem of farmers not having access to loans,
the problems still remain unsolved especially in African developing countries like
Nigeria Agricultural productivity and its contribution to economy continue to
decrease every day. Lastly, finding a solution to the problems farmers are facing
with agricultural credit still remains a challenge to many developing countries.
Resolving this issue will not only help in boosting the economies of these countries
but can also help in providing jobs opportunities for many people.
1.9 Specific Aims, Current Study, or Objectives
The main aim of my study is to investigate and point out the problems that
prevent farmers from having access to credit for agricultural financing in Yola local
government, Adamawa state. Some of the objectives of my research are as follows:
1. Analyze socioeconomic characteristics of farmers in Yola.
2. Determine farmer’s access to credit.
3. To identify the major source of credit to farmers
4. To find out how many loan were given to farmers and examine the benefits
derived from the loans obtained in the previous years , and
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5. To suggest ways of solving the problems and provide policy markers with
information which can serve as a guide when improving agricultural credit
schemes.
My hypothesis ( H1) for this study is that:
o Lack of collateral, Extension agents, low educational level,
Religion beliefs and long application procedures are the factors
responsible for preventing farmers from having access to loan.
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