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The Role of the Central Bank of Nigeria in the Development of Agricultural Finance: Challenges and Prospects

The Role of the Central Bank of Nigeria in the Development of Agricultural Finance: Challenges and Prospects

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The Role of the Central Bank of Nigeria in the Development of Agricultural Finance: Challenges and Prospects



Agriculture is defined as “the cultivation of land for the production of food for man, animal feed, and fibre or raw material for industrial companies.” It also covers crop processing and marketing.

In other words, it encompasses all activities associated with the primary and regulated production of plants and animals, such as fisheries, forestry, farming, cattle, poultry, and small-scale industries associated with agricultural product processing.

Despite concerted efforts to industrialise, the agricultural sector remains the backbone of the Nigerian economy. Agriculture is the primary source of income for more than 70% of the world’s population. It is recognised as a necessary condition for economic development.

With such a heavy reliance on agriculture for food, raw materials for industries, and so on, one would anticipate production to rise; yet, this is not the case. Agriculture has suffered from a lack of investment since the beginning of the oil boom in 1970. In fact, Nigeria is suffering a fall in agricultural productivity in general, which is causing the government tremendous anxiety.

Agriculture provided 61.5% of total output during the 1960s. It fell by a dismal 2.3% in the 1970s. This drop can be traced to oil’s dominance of the nation’s export since 1970, when it accounted for 57.6% of total export income and rapidly increased, reaching an overwhelming proportion of 98% in 1981.

As a result, agriculture has been completely neglected in terms of both GDP and export revenues, which has been the primary cause dictating the need to reawaken our agricultural products.

The necessity for this reactivity and commitment to revitalise this sector has resulted in increased financial allocation to it in recent years. It increased from 6% in the 1970s to 22% in 1984.

This rise serves as an incentive and motivation for farmers, but these farmers are subject to a variety of concerns, including disease and pest attacks, fire destruction, industrial pollution, mechanical breakdown, and other issues. Farmers want assistance in resolving or minimising these issues.

Finance has been one of the most major issues in agricultural output expansion. This was due to the neglect of the agricultural sector following the oil boom of the 1970s, when the oil sector became a major source of foreign exchange earnings for Nigerians. This lead to the agricultural sector receiving inadequate investment in comparison to before the boom.

In addition, the creation of industries in urban regions under the 1990-94 National Development Plan to boast industrialisation lured the rural populous, who comprised the farming population, to urban centres in quest of white-collar work. The point has been reached where the average Nigerian is now malnourished.

According to P.N.C. Akimbo in 1990, “the average Nigerian consumed some 20.23 calories per day and 56.46 grammes of protein per day, compared to the food and agricultural organization’s (FAO)minimum of 21.91 calories and 53.8 grammes of protein.” The ordinary Nigerian was and continues to be among the world’s poorest fed.

As a result of these circumstances, successive Nigerian governments expressed concern about the declining state of agricultural production through policies and programmes aimed at revamping agricultural production in an attempt to encourage increased food production.

“The federal government in 1993 tried the National Accelerated Food Production Programme (NAFPP) during the regime of General Yakulu Gowon; under the leadership of General Obasanjo, the Operation Feed the Naija was launched.”

Neither of these policies reversed the agricultural downturn or had any long-term impact on food output. This is because “little or no meaningful effort has been made to change the underdeveloped status of rural dwellers, despite the fact that these people constitute approximately 95 percent of the total population engaged in agriculture in Nigeria.”

It has been claimed that insufficient funding of agricultural projects and programmes has contributed significantly to the government’s low agricultural production in Nigeria, and the government and other financial institutions are the major sources of finance for agriculture through policies and programmes.

Then, what role and impact has the Central Bank of Nigeria (CBN) as the bank at the apex of Nigeria’s banking system, (Bank of last resort, bank to the government, and banker to other banks)” played in reinforcing government policies or revitalising the economy’s agricultural sector?

Because the Nigerian economy is underdeveloped, the central bank of Nigeria is involved in the promotion of rapid economic development of other sectors, particularly agriculture, through its development roles, as opposed to developed economies where the role of the central bank is limited to financial system development.

Dr. Belshaw wrote in his book “Agricultural credit in economically underdeveloped countries” that “in respect of agricultural credit, a central Bank has an important role to play by assisting in the establishment, strengthening, and promotion of commercial banking facilities and agricultural credit institutions.”


Professor G. Nwankwo also stated that “it was not considered or thought to be an appropriate function that a central Bank also has to the task of developing the financial system if none existed and of organising and mobilising resources for development.”

To that goal, the Nigerian Central Bank launched a number of projects and policies to address the country’s low economic development and agricultural output. Among these policies are the following:

i. Credit to the marketing board for the purchase of some agricultural products for export. Since May 1968, when the federal government dissolved the commercial financial system, this has been the sole duty of the Central Bank of Nigeria.

ii. The Nigeria Agricultural Bank (NAB) was established in 1976 to boost agricultural production and storage facilities, as well as to promote agricultural product commercialization by generous credits to farmers on softer conditions.

The bank began with a capital of #6 million, which was expanded to #250 million in 1991, with the CBN providing 40% and the Federal Government contributing 60%. Banks’ functions include making loans to small and medium-sized farms.

iii. The CBM also employed another vehicle to finance agricultural: credit rules contained in its monetary and fiscal policy circulars, which mandated commercial banks to provide agriculture priority treatment.

iv. The federal government and the Central Bank of Nigeria established the Agricultural Credit Guarantee Scheme Fund (ACGSF) in 1977. The Act provides for #100 million to be subscribed by the federal government and the CBN at a ratio of 60% or #60 million to the federal government and 40% or #40 million to the CBN.

This is to compensate the grantee for commercial bank loan defaults made to farmers for agricultural uses up to 75% of the default. The CBN was also named the fund’s managing agency.


Despite the different plans and initiatives laid out annually for Nigeria’s economic development with an emphasis on agriculture, agricultural production has remained relatively low and has recently been declining.

Finance has been identified as the most significant impediment to the normal Nigerian farmer, along with a lack of modern farming equipment, inputs, basic infrastructure and storage facilities,

and a marketing and distribution system. The federal government of Nigeria then mandated the central bank of Nigeria, the apex bank, to find a solution to these difficulties.

As a result, the Nigerian Central Bank, through its agencies, provides agricultural finance. However, the following issues arose.


– Inadequate public education


– Poor management


– Technological limitations


– Inadequate land tenure system


– Environmental restrictions


– Above and beyond any financial limits.

Identifying financial constraints as the most significant impediment to increasing agricultural productivity. In 1981, the federal government raised agricultural spending by 12.7 percent, compared to 6.5 percent in the 1970s.

Agriculture received a total of #8 million under the five-year National Development Plan 1981-1985. Still, not much progress has been made in food production.

To that purpose, the federal government, through the CBN policies and programmes, aims to provide appropriate financing to boost agricultural productivity, because a nation that cannot feed itself is said to be economically underdeveloped.



The primary goal of this research is to determine and evaluate the effectiveness of the Nigerian Central Bank and its agencies in agricultural finance and development.

This entails:

i. To identify the policies of the Central Bank of Nigeria in connection to Nigeria agriculture.


ii. To assess the impact of various policies used to improve agricultural production and agricultural funding on the achievement of agricultural goals and objectives.


iii. Identifying and proposing solutions to challenges linked with the execution of these policies in order to boost agricultural production.



Unless the source of a problem is identified, every attempt to solve it is likely to be futile. However, once the root reasons of an issue are identified, a remedy is not difficult to find.

This research on the impact of Central Bank of Nigeria policies on Nigeria agriculture would be extremely useful to policy and credit policymakers in determining the effectiveness of these policies on agriculture in particular and the economy in general.

The difficulties and causes of implementation failures would also be addressed as a result of the recommendations and proposals. Because the policies affect many financial and other credit institutions, the research would be extremely beneficial to these institutions.

For example, it would aid in assessing the performance and causes of default in credit extension under the Agricultural Credit Guarantee Scheme Fund (ACGSF), the Nigerian Agricultural Co-operative Bank (NACB) Credit and loan system. When completed, the research will be useful to the following:


-Agriculturists and farmers


-The Federal Government of Nigeria’s central bank.


-The whole economy


-Finally, this paper will add to the current literature and references on the Central Bank of Nigeria’s agricultural financing policy, monetary economics, and finance in general.



The central bank of Nigeria, of course, is a key source of some very important data on the work, but due to its own regulations, the major information areas are not accessible to the public. In this regard, the research has chosen the key functions of the central bank required for the study and has finically studied and evaluated the consequences of these policies on agriculture.

It is also important to note that the scope of this activity is mainly limited to agricultural financing projects that are directly overseen and controlled by the Nigerian Central Bank.




The Central Bank of Nigeria (CBN) has had a significant impact on agricultural financing in Nigeria through its policies and operations.


The Central Bank of Nigeria (CBN) has had no impact on agriculture funding in Nigeria through its policies and projects.


The Central Bank of Nigeria (CBN) has examined several initiatives introduced to improve agricultural productivity through its policies and programmes.


The Central Bank of Nigeria (CBN) has taken no notable steps to enhance agricultural production through its policies and activities.



For a better understanding of the investigation, it is vital to introduce operational definitions of some concepts that will be often utilised in this study. These are the terms in question.

Development is defined as the process of persistent growth in both per capita and total income, accompanied by structural changes in the social, economic, and political environments.

Economic growth refers to the gradual expansion in the productive capacity of the economy that results in rising levels of national income.

Economic development can be defined as “the upward movement of the entire social system or it may be interpreted as the attainment of a number of modernization ideas such as increased productivity, social and economic equality.”

Modern knowledge, improved institutions and attitudes, and historically coordinated policy initiatives that can remove a slew of unwanted elements in the social system that have sustained a state of underdevelopment.”

Financial institutions are commercial or public institutions that channel loanable funds from savers to borrowers. Commercial banks and development banks are two examples.

Policy: This is a cause of action pursued by the government in order to achieve certain development. It is also a supply of raw materials for the teaming industries, a product on which contemporary man has almost become overly reliant.”

These are being butterflied. Enikanselu (1985) stated thus” agriculture besides providing food for the people contributes positively to capital accumulation for the purpose of financing the industrial sector”.

He argued that agriculture’s function in a nation’s economic development comprises providing an initial stage of development, purchasing power for the economy’s industrialization by delivering the essential raw materials for industries.

Uka (1986) asserts in his own opinion on the relevance of agriculture to the Nigerian economy that “Food is a basic necessity of life; and a virile economy can be founded only on a firm foundation of food production.”

Furthermore, relying on external sources of food supply has serious implications for instability because it links a country’s independence to international politics.

Egba (1978) stated that “since 1969, when the first circular was issued to banks, the CBN has consistently given preferential treatment to agriculture, which was included in the broad sector referred to as production.” This preferential treatment applies to both the number of loans granted to the sector and the interest rate on such loans.

Agriculture is the most important source of work, income, and food for the Nigerian people. Agriculture’s importance as a supplier of raw materials for essential industries as well as a major foreign exchange earner. As a result of its recognition of the multiple contributions, the government has prioritised agricultural output.

A well-developed agricultural industry could contribute to the development of the Nigerian economy, according to Olayade (1986), “the agricultural sector employs approximately 67% of the active population in the country.” As a result, it is abundantly obvious that until recently, this industry was the backbone of our economy.

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