IMPACT OF COMMERCIAL BANK CREDIT ON AGRICULTURAL DEVELOPMENT
1.1. INTRODUCTION TO THE IMPACT OF COMMERCIAL BANK CREDIT ON AGRICULTURAL DEVELOPMENT
Akinsami o. (1993) page 2 defines agriculture as “the cultivation of load for the purpose of producing food for main feed for animals and fibre or raw materials for industries; it is also the preparation of plant and animal products for preservation and disposal by marketing.”
Agriculture is the oldest occupation, and it provides the majority of the world's food. Food is the most important of all human needs. It is said that without nourishment, no one can exist.
This is due to the advantages of agriculture. In the 1960s, agriculture provided around 65% of the gross domestic product (GDP), providing the country with foreign cash for the funding of capital projects.
The Nigerian government has established a number of policies and financial institutions to improve the flow of funding to agricultural investment. Concessionary interest rates on agricultural loans and agricultural-related investments are among the programmes.
Rural banking schemes and agricultural financial organisations include the Nigeria Bank for Commerce and Industries, the Nigeria Industrial Development Bank, the Food and Rural Infrastructure Directive, and others.
Despite these funding strategies, agriculture's contribution to national growth in Nigeria has been disappointing due to financial institutions' continued disinterest in lending to agricultural businesses.
Agriculture, which used to dominate other sectors in terms of its contribution to gross domestic product (GDP) in the 1960s, is now Nigeria's least important contributor to economic development.
Nigeria's economy is agrarian, and the country is endowed with natural resources for farming and other agricultural operations. Productivity in this industry is particularly poor due to the nature or technique of production, that is, the employment of traditional methods such as hoes and cutlasses.
Agriculture is believed to be the backbone of the economy because it employs 30% of the workforce, supplies goods and exports items for foreign exchange, but with the advent of the mineral boom, particularly the oil boom, agriculture lost its dominant role in the economy.
To address agricultural issues, the government established agricultural credit institutions such as the Nigerian Agricultural and Co-operative Bank Limited, Anambra Co-operative and financing Agency Limited, and supervised agricultural credit scheme to finance agriculture in the state.
The government, in its committed effort to ensure agricultural development, requires banks to grant grace periods in these loans. According to the Central Bank of Nigeria (CBN) credit policy guidelines circular 24, 1990, the grace period on bank loans to the following categories of agriculture are as follows:
1. The grace period for small-scale peasant farmers farming staplers and seasonal cash crops such as gains, cotton, and groundnuts shall be one year.
2. The grace period is seven years for medium and large size mechanised farming involving considerable outlays.
3. The grace period for loans to farmers investing in new plantations of cash crops with particularly long gestation periods, such as oil palm, rubber, and cocoa plantations, must be seven years.
Farmers receive these perks in order to boost agricultural production and repay loans on time.
Despite government policy guidelines that favour agriculture as a “preferred sector,” the bank has been steadfast in adhering to the standards.
So getting finance has been one of the most challenging things for farmers. This is due to the year banks have on farmers being unable to repay the loan.
Farmers were sometimes unable to repay loans offered to them due to problems with the development of local agriculture. Farmers used to confront land tenure issues, such as insufficient land for capital holders to invest in since land is gained through inheritance.
Other issues that make banks hesitant to finance agriculture include substandard tools, climate change, draughts, pests, floods, and erosion.