The Impact of Agricultural Credit Guarantee Scheme Fund on Agricultural Sector Development in Nigeria

Thesis Overview

<p> 1.0&nbsp;<b>INTRODUCTION</b></p><p>Agriculture is seen as crucial to economic development through strengthened economic framework, creation of employment, enhancement of farmers’ living standard, provision of raw materials to manufacturers, revenue vehicle for government and contribution to gross domestic production of the country (Adegoye and Ditta, 1985; Anyanwu,1997; Anyanwu, Oyefusi, Oaikhenan and Dimowo, 1997). Since agriculture is capital intensive, credit to agricultural sector is pivotal in adoption of new improve method of farming, and in transition from subsistence level to commercial and highly mechanized agriculture (Olomola, 2007). In Nigeria, 33 per cent of land area which represents 30.7 million hectares (76 million acres) is utilized for cultivation of agricultural products, and this accounts for employment of over 70 % of the labour force in the sector. The agricultural sector reported second highest contribution of 24.18 per cent to Nigeria’s GDP in 2015 following oil and gas sector that accounts for the highest contribution to the GDP. Table 1.1 captures the trend of agriculture’s contribution to Nigerian GDP measured at Current Basic Prices (=N=Million) 2016 and first quarter of 2017. <br></p><p> Table 1.1&nbsp;</p><p><b><u></u></b><u><b>Agriculture               GDP (=N=Million</b></u><u><b>) 2016    2017</b></u>&nbsp;</p><p>        <u><b>Ist Qtr    2nd Qtr    3rd Qtr     4th Qtr      Total     Ist Qtr&nbsp;</b></u></p><p><u><b>1. Crop     3,583,980.7  4,017,083.56  5,801,028.13  5,480,989.64  18,883,081.50  3,969,515.26&nbsp;</b></u></p><p><u><b>2. Livestock    464,969.11  &nbsp; 437,827.87    433,401.39   539,584.99   1,875,783.36   487,870.92&nbsp;</b></u></p><p><u><b>3. Forestry   &nbsp; &nbsp;53,486.95   59,790.68    54,677.39    68,299.96    236,254.98    58,244.18</b></u></p><p><u><b>4. Fishing    165,454.83  &nbsp; &nbsp;115,157.00   109,355.82   138,425.01  &nbsp; &nbsp; &nbsp;528,392.66   170,591.17</b></u></p><p> The Agricultural credit guarantee scheme fund (ACGSF) is one of the multifarious schemes initiated by the Federal Government of Nigeria to finance agriculture through provision of incentives for deposit money banks (DMBs) to extend credit facilities to Nigerian farmers. This scheme founded by decree no 20 of 1977 and inaugurated its operations in April 1978 with initial 100 million naira share capital was subscribed by the Central Bank of Nigeria and the federal government of Nigeria (40 per cent and 60 per cent respectively). This capitalization was subsequently shored up to N1 billion in 1999, and further up to N 6 billion in 2006 (CBN, 2007), which is the present amount of fund available for the purpose of guarantee. Under the scheme, the gross credit extension to Nigerian farmers is guaranteed up to 75% of realisable net default value. &nbsp;</p><p>1.1&nbsp;<b>PROBLEM&nbsp;OF THE STUDY&nbsp;</b>&nbsp;</p><p>The scheme resulted from the need to upscale the traditional and subsistence method of farming practices engaged by farmers in Nigeria since farmers required huge capital to purchase agricultural equipment and input. Again, the limited access to credit also contributed to retarded growth and efficiency of the sector, and the poor adaptation to modern agricultural techniques. (IFPRI, 2004; Paarlberg, 2002; Olukunle, 2013). All this have evidently limited this sector in contributing to the growth and development of the Nigerian economy, and hence the need to finance agricultural activities to eliminate these hindrances. Feder, Just, and Zilberman. (1985) believed that enough credit is needed to strengthen the use of capital intensive technology in agriculture which is more cost effective. According to them, access to credit may result in an increased utilization of improved seedlings and other agricultural inputs which will in turn translate to higher yield. Aliyu (2012) reported also that credit extension are arranged both formal and unconventional financial institutions. He observe that the unconventional providers of credit had extended more credit facilities as a result of poor source funding, and most participants are unable to meet credit covenants and conditions precedent required by formal institutions notably that of collateral for loans. This is a basic requirement for credit transaction with conventional financial institutions leaving the farmers with practically only the choice of getting credit from the informal institutions with unfavourable terms of credit and right conditions. To mitigate the above constrain of sourcing credit, the federal government brought about this scheme with the major objective of increasing formal credit to the agricultural sector through granting of undertaking in respect of bank providing credit for agricultural purposes as listed in the guard line of the scheme. It is against this background that we seek to study the impact of the funding guaranteed by the scheme on the agricultural development in Nigeria.<br></p><p><br></p>