THE ROLE OF BANK OF AGRICULTURE IN THE DEVELOPMENT OF THE NIGERIA ECONOMY - CHAPTER TWO

CHAPTER TWO

LITERATURE REVIEW AND THEORETICAL FRAMEWORK

2.1. Conceptual of Agricultural Financing in Nigeria

Agricultural financing has suffered a great set back in Nigeria. Perhaps this is due to the fact that agricultural lending is considered to be more risky, problematic and unprofitable relative to other sectors Enyim, Ewno and Okoro, (2013). To this end, the commercial banks which are the major conventional financial institutions have no interest in agricultural finance Obilor (2013). In the days of sectoral allocation, the agricultural sector was favoured and banks complied because of the penalties involved of which some of the banks even preferred to pay than to comply Gurdenson, (2003).

Thus, the Nigerian agricultural sector which is significantly made up of peasant farmers relies more on the informal sources of fund for credit supply. These include: cooperatives, community development associations, thrift associations, family, friends and money lenders Akinleye, Akanni and Oladoja, (2003). Nwankwo (2013) in his contribution asserted that the informal sources cannot meet the credit needs of the farmers adequately.

Consequently, in order to enhance credit flow to the sector, the government established the Bank of Agriculture (BOA) Nwankwo, (2013).

However, with the establishment of the BOA, the challenge of poor credit supply to the agricultural sector was yet unabated. This is indication amongst others that the budgetary allocation of  BOA was insufficient for the credit needs of the agricultural sector Akinleye, Akanni and Oladoja, (2003). According to Zakaree (2014), in an attempt to address this issue, the government established the Agricultural Credit Guarantee Scheme (ACGS) in 1977 to encourage commercial banks to increase credit supply to the agricultural sector by providing guarantees against inherent risk in agricultural lending.

Akinleye, Akanni and Oladoja (2013) asserted that despite several years of the establishment of the Agricultural Credit Guarantee Scheme (ACGS), the level of commercial bank involvement in credit distribution to the agricultural sector is yet uncertain. Nigeria as a country with highly diversified agro-ecological endowment, is yet relying on massive importation of basic food items and industrial raw materials, it is ironical.

Agriculture in Nigeria is the most dominant sector and major source of livelihood for the majority of the population. It accounts for about 70% of employment, and in spite of this Binswanger, et al (1999) say it has not been able to achieve the major objectives of agricultural development which the World Bank (2011) indentified to include; (I) increase in food production and farm income, (ii) make household food, water and energy secure and (iii) restore and maintain the natural resources.   They stated further that the failure of agriculture to meet these objectives is due to limited use of purchased inputs and mechanization. This limitation is tied to undercapitalization or lack of credit Aku, P.S, (2004).  

2.2  The Role of Bank of Agriculture to the Development of Nigeria Economy

Credit Delivery:  This is perhaps one of the most important roles of Bank of Agriculture to the development of the Nigeria economy as the loans extended are used to expand existing business and in some cases to start new ones. According to CBN (2013) Bank of Agriculture grants to clients is increasing from 2012 to date and most of it goes to financing micro-enterprises in rural areas.

Ketu (2013) observed that Bank of Agriculture has disbursed more than N3.2billion micro-credit to over 45,000 farmers and 37 enterprises across the country to empower their productive capacities. As such it is expected that output will increase with increase in funding. The entrepreneurial capacity of will thus improve.

Boosting small scale enterprises/agriculture: About 60 percent of the poor people in the country live in the rural areas and 80percent of them are farmers and artisan NBS (2005). Bank of Agriculture has therefore groups empowered them through loans and services, and hence small scale agricultural practice and micro-enterprises is developed.

Employment Generation: Agriculture and micro-enterprises contributes immensely to job creation, and which particular interest to all microfinance bank in rural areas. Bank of Agriculture has so far engaged in extending credits and other services to making many rural enterprises and hence generating employment in rural areas in areas of, blacksmithing, goldsmitting, watch repairing, bicycle repair, basket weaving, barbing palm wine tapping, cloth weaving, dye, food selling, carpentry, bricklaying, pot-making, leather works and drumming.

It has, therefore been acknowledged that the rural setting is an area of many industries, which could be developed to contribute significantly to the national economy, just as rural people are more frequently self-employed than urban people (2008).

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