Supporting smallholder farmers to play a greater role in food production and natural resource stewardship has been identified as one of the quickest ways to lift Nigerians out of poverty. Funding has been seen as a major problem militating against achieving this goal. It is argued that adequate credit facility could play an important role in enhancing agricultural productivity through the acquisition of latest technology, employment of skill manpower, promotion of agricultural research and commercial farming. In an attempt to mitigate the funding problem of the agricultural sector, the Federal Government of Nigeria has instituted several agricultural financing schemes. One of such schemes is the Agricultural Credit Guarantee Scheme Fund (ACGSF) which was established by the federal government in 1977 with the aim of enhancing commercial banks’ loans to the agricultural sector in Nigeria with focus on agro-allied and agricultural production in order to mitigate the risk associated with lending to the sector. The scheme is expected to stimulate agricultural production for both domestic consumption and export purposes but not much has been researched in this regard. This study strives to fill this important knowledge gap by examining the impact of Agricultural Credit Guarantee Scheme Fund (ACGSF) on total agricultural productivity in Nigeria, as well as on the four major subsectors (crop, livestock, forestry and fishery) of the agricultural sector in Nigeria.
The ex-post facto research design was adopted for the study and annualized data for a 34-year period, 1978-2011, were obtained from the Central Bank of Nigeria Statistical Bulletin. The multiple regression technique was used to estimate the five hypotheses formulated for the study. Aggregate agricultural production, crop, livestock, forestry and fishery productions were adopted as the dependent variables, while the independent variable was Agricultural Credit Guarantee Scheme Fund including some other relevant variables. The study also controlled for government expenditure in agriculture, foreign exchange rate and inflation rate. Results indicate that the Agricultural Credit Guarantee Scheme Fund (ACGSF) has a non-significant positive effect on aggregate agricultural output but significant positive impact on both crop and fishery subsector outputs. Nevertheless, the effects of the scheme on livestock output was non-significant and negative, while that of the forestry output was non-significant and positive. Thus, it is evident that the ACGSF plays a fundamental role in stimulating agricultural production in Nigeria. As a strategy to realize the optimal potential of farmers in enhancing agricultural performance, it is recommended that the Nigerian government continues the use of the credit finance from the ACGSF as an inducement to encourage farmers to put in their best efforts in agricultural production. The study has contributed to knowledge by using modified versions of earlier works to produce relevant results.
1.1 Background of the Study
Agriculture represents one of the most important sectors of the Nigerian economy. It is particularly important with regards to its employment generation and contribution to gross domestic product (GDP) and export revenue earnings. Regardless of its rich agricultural resource endowment, however, the agricultural sector in Nigeria has recorded very low growth rate. Less than 50% of the country’s cultivable agricultural land is under cultivation. In addition to this, smallholder and traditional farmers who use undeveloped production techniques, with resultant low yields, cultivate most of this land (Manyong, et. al., 2005). The smallholder farmers are limited by various constraints among which access to credit according to Olomola (1990) is a major militating factor, against agricultural production and development in Nigeria. Problems associated with obtaining credit have been corroborated by different authors (Nto and Mbanasor, 2008; Olaitan, 2005; Okorie, 1998; Henri-Ukoha, et.al., 2011).
Credit delivery to the agricultural sector has been recognized as a major input in the growth of the sector in Nigeria. The decline in the contribution of the sector to the Nigerian economy has been blamed on the lack of a formal national credit policy and paucity of credit institutions, which can be beneficial to farmers and small and new business operators engaged in agriculture and agro-allied businesses (Rahji, et. al., 2010).
In Nigeria, credit has been recognized as an essential tool for promoting Small and Medium Enterprises (SMEs). About 70 percent of the population is engaged in the informal sector or in agricultural production. The federal and state governments in Nigeria have recognized that for sustainable growth and development, the financial empowerment of the rural areas is vital, being the repository of the predominantly poor in the society and particularly the small and medium enterprises (SMEs). If this growth strategy is adopted and the latent entrepreneurial capabilities of this large segment of the people is sufficiently stimulated and sustained then positive multipliers will be felt throughout the economy (Olaitan, 2006; Olowu, 2011).
The Federal Government of Nigeria has severally instituted various agricultural financing policies through schemes, programmes and institutions, aimed at improving agricultural production capabilities, positively channel the potential of SMEs to alleviate the standard of living and place the sector in the forefront of Government’s development strategy. Eze (2010) opined that the objective of these policies in Nigeria is to establish an effective system of sustainable agricultural financing schemes, programmes and institutions that could provide micro and macro credit facilities for the micro, small, medium and large scale producers, processors and marketers.
The CBN on its part has shown robust interest in the development of the nation’s agricultural sector which is dominated by smallholder farmers who share the funding problems that the sector is confronted with.
Limited access to credit facilities has been incriminated as hindering growth and productivity of the agricultural sector (Ammani, et. al., 2010). Credit allows farmers and others involved in agro-allied businesses to utilize to their benefit inputs and factors of production by granting them additional access to resources through the removal of financial constraints. The provision of credit will reduce the costs of capital intensive technology and assets relative to family labour. Thus, instead of growing low yielding local crops, for example, access to credit may allow an increased use of improved seeds and fertilizers leading to higher crop output per unit of labour and land (Ammani, et. al., 2010). Iqbal et. al. (2003) are of the opinion that boosting credit distribution could lead to efficient resource allocation, increased food production and farmers’ income because as the demand for credit increases, farmers output and well being are also enhanced.
Several intervention programmes have been put in place to alleviate the complaints of SMEs in the past, yet the problem still persists. There were also a myriad of foreign funds that came in from the World Bank, International Monetary Fund (IMF), International Finance Corporation (IFC), etc. In a bid to accomplish these schemes, programmes, and institutions, the government over the years has made budgetary allocations to agriculture which when compared with the total budget; fell short of meeting policy intentions. Some of these efforts have failed to actualize their intended objectives as rural poverty seems to be on the increase and a large portion of the population is engaged in agricultural activities. Olowu (2011) notes that the problem of access to finance for agriculture is not solely as a result of non availability of finance but could as well be caused by the reluctance of credit providers to give out loans without a certainty of recovering them. Banks are not to be blamed solely for this as they are profit oriented organizations and on the other hand, farmers should not be made to bear the whole brunt of this due to their inability to secure bank loans without adequate collateral. In order to alleviate this predicament, the federal government instituted the Agricultural Credit Guarantee Scheme Fund (ACGSF). The government acts as an intermediary through the scheme and also as a guarantor for agricultural loans in order to alleviate the risk involved in agricultural financing.
Diverse studies have shown that credit plays an important role in enhancing agricultural productivity of the farmer (Okorji and Mejeha, 1993; Nweze, 1991; Mafimisebi, et. al., 2008; Nwosu, et. al., 2010) and shortage of primary production credit has been identified as one of the major causes for declining Agricultural production. The ACGSF is one of the existing agricultural finance schemes in Nigeria which has been operating as a specialized development finance scheme since 1978 to date. The main purpose of the Nigerian Agricultural Credit Guarantee Scheme Fund is to encourage banks to lend to those engaged in agricultural production and agro-processing activities. Consequently, the primary aim of the scheme is the motivation of total agricultural production for both domestic consumption and export; and the encouragement of financial institutions to contribute towards increasing the nation’s agricultural productive capacity through a capital lending programme. The scheme is expected among other functions to provide guarantee on loans granted by financial institutions to farmers for agricultural production and agro-allied processing. The cover pledges to pay to the banks, 75% of the amount in default net of any amount realized by the lending bank from the sale of the security pledged by the borrower (Nwosu, et. al., 2010).
This study therefore, focuses on the importance of determining the extent to which the ACGSF has impacted credit delivery to the small and medium enterprises in Nigeria’s agricultural sector which employs the largest number of workers and generates a significant share of GDP in the country. It is also intended that the study will throw more light on the effects of the ACGSF on agricultural production output and seek ways by which the operation of the scheme in enhancing access to finance will create an opportunity to increase the level of entrepreneurial capabilities of the agricultural sector in Nigeria.
1.2 Statement of the Problem
One of the major challenges facing many developing economies in Africa is devising appropriate development strategies that will address the financial service requirements of small and medium entrepreneurs who constitute about 70 percent of the populace. The Nigerian government views this segment of the population as very important for the realization of its development efforts and over the years has come up with various policies aimed at achieving this objective (Olaitan, 2006). Some of these include; a commercial bill financing scheme, regional commodity boards, an export and financing and rediscount facility, the Nigerian Agricultural Cooperative and Rural Development Bank, Community Banks, Peoples Bank, The Agricultural Credit Guarantee Scheme Fund (ACGSF) amongst others.
Nigeria’s agriculture is faced with a major problem of inadequate funding by the government budget and the private sector, and about 65% of Nigeria’s economically active population lack access to formal financial services (CBN, 2007). This has led to various efforts by government at all levels to address the issue. There is need to put in place an effective financing approach in the agricultural sector which can help achieve increased productivity, growth and sustainability. Adequate credit delivery to the agricultural sector of a developing economy like Nigeria could have positive effects on the Gross Domestic Product (GDP) growth, and as well improve the economy.
The ACGSF is aimed at solving one of the most important challenges facing the sector, i.e. increasing the level of bank credit to the SMEs in the agricultural sector. It is vital to mention that since the inception of the scheme, the objectives on which it was founded seemed hardly to be realized. Previous studies conducted indicate that the Nigerian farmers who are mostly SMEs have not fared better in the area of access to agricultural credit. This could be as a result of decline in agricultural production as well as other sectors of the economy. In addition to this, the agricultural system in Nigeria is still largely of the traditional and primitive type which could result from lack of funds to procure modern farm technological inputs.
Olowu (2011) notes that, several financial institutions exist in Nigeria which can adequately provide the financial needs of farmers. More so, the risk perception faced by banks to lend to farmers who cannot provide adequate security in form of collateral for such loans has been eliminated by the credit guarantees of ACGSF. However, studies by Olomola (1989), Ojo (1998), Manyong, et. al., Olaitan (2006) and Olowu (2011) concurred that inadequate finance still remains a major problem of agriculture in Nigeria both by private and government financial institutions. The above pertinent situation calls for the need for an enquiry into the functions of the ACGSF in providing finance to SMEs in Nigeria’s agricultural sector with a view to increasing productivity, the nation’s Gross Domestic Product, GDP and ultimately delivering its intended objectives.
An evaluation of the impact of ACGSF in financing agricultural production is very essential in emphasizing the need for continuous credit finance policies in agricultural sector. Against this background, one begins to wonder, has the credit finance provided by the ACGSF been effective in enhancing agricultural productivity of the Nigerian farmers and/ or what level of impact has the ACGSF made on the nation’s Gross Domestic Production (GDP)? All these form the problem of this study.
1.3 Objectives of the Study
For the purpose of this study, emphasis was laid on only one aspect of the Nigerian government’s lending programme, which is the Agricultural Credit Guarantee Scheme Fund, (ACGSF). The objective is to evaluate the impact of ACGSF credit finance on agricultural production in Nigeria. The specific objectives of the study are therefore;
i. To determine the impact of credit from Agricultural Credit Guarantee Scheme on agricultural production in Nigeria.
ii. To evaluate the extent to which ACGSF has impacted the output of the crop subsector of the agricultural sector in Nigeria.
iii. To evaluate the extent to which ACGSF has impacted the output of the livestock subsector of the agricultural sector in Nigeria.
iv. To evaluate the extent to which ACGSF has impacted the output of the forestry subsector of the agricultural sector in Nigeria.
v. To evaluate the extent to which ACGSF has impacted the output of the fishery subsector of the agricultural sector in Nigeria.
vi. To articulate the policy implications of findings and to recommend possible intervention that could help in improving the scheme’s effectiveness.
1.4 Research Questions
In pursuance of the objectives of the study, the researcher was guided by the following questions:
i. To what extent has Agricultural Credit Guarantee Scheme Fund impacted on agricultural production in the Nigeria?
ii. How far has ACGSF impacted the output of the Crop sub-sector of the Nigerian agricultural sector?
iii. How far has ACGSF impacted the output of the Livestock sub-sector of the Nigerian agricultural sector?
iv. How far has ACGSF impacted the output of the Forestry sub-sector of the Nigerian agricultural sector?
v. How far has ACGSF impacted the output of the Fishery sub-sector of the Nigerian agricultural sector?
1.5 Research Hypotheses
To achieve the above objectives, the following hypotheses are postulated and will be tested for their validity.
i. Credit provided under the Agricultural Credit Guarantee Scheme Fund, (ACGSF) does not have a significant positive impact on agricultural production in Nigeria.
ii. Agricultural Credit Guarantee Scheme Fund, (ACGSF) loans do not have a significant positive effect on the output of the crop subsector of the agricultural sector in Nigeria.
iii. Agricultural Credit Guarantee Scheme Fund, (ACGSF) loans do not have a significant positive effect on output of the livestock subsector of the agricultural sector in Nigeria.
iv. Agricultural Credit Guarantee Scheme Fund, (ACGSF) loans do not have a significant positive effect on the output of the forestry subsector of the agricultural sector in Nigeria.
v. Agricultural Credit Guarantee Scheme Fund, (ACGSF) loans do not have a significant positive effect on the output of the fishery subsector of the agricultural sector in Nigeria.
1.6 Scope of the Study
The cardinal objectives of agricultural credit policy in Nigeria is to make adequate investment funds available to the agricultural sector at the right time, place and of such rates as to make the returns more attractive than before (Federal Ministry of Agriculture, Water Resources and Rural Development, 1989:41).
In view of the wide and complex nature of agricultural financing and performance in Nigeria, the study concentrated more on the institutional arrangements in the provision of agricultural loans. This study is intended to review the operations of the Agricultural Credit Guarantee Scheme Fund with emphasis on its role on agricultural production for the period 1978-2011. The base year 1978 was chosen because it marks the inception of the scheme. For the purpose of this study, other financing schemes that have been introduced by the Nigerian government was not analysed.
1.7 Significance of the Study
The significance of this study can be viewed from two major standpoints.
This kind of study will assist in broadening understanding of the following or the scope of knowledge of the following beneficiaries:
i. To farmers, small and new business operators engaged in agriculture and agro-allied businesses, it will help enlighten them on the operations of ACGSF in Nigeria. They will be exposed to the various opportunities provided by the scheme through credit delivery and the guarantee of the loans.
ii. Also to farmers, it will help in highlighting the problems they are faced with in Nigeria’s agricultural sector in accessing credit from the ACGSF and assist in proffering solutions to them.
iii. To the policy makers and regulators in the industry, it will assist them to restructure and overhaul the operations of the scheme. With proper knowledge of the operations of the scheme, difficulties associated with it can be appropriately addressed.
iv. To economic watchers and the interested public, it will provide some insight and create awareness on the operations of ACGSF.
In the academic arena, this study will prove to be significant in the following ways:
i. It will contribute to the enrichment of the literature on Agricultural Credit Guarantee Scheme Fund.
ii. It will throw more light on operations of Agricultural Credit Guarantee Scheme Fund and create new avenues for the review of existing guidelines governing the operations of the scheme.
iii. It will recommend ways (of interest to academics) based on empirical evidence of boosting agricultural production in Nigeria.
iv. The study will serve as a body of reserved knowledge to be referred to by researchers..