ABSTRACT
The main objective of this study is to examine the effect of commercial banks’ credit on agricultural growth in Nigeria using time series data from 1981-2014. Secondary source of data collection was used. The data collected were subjected to ADF-Augmented Dickey Fuller test. Descriptive statistics was used to determine the values of various measures included in the work. The ex-post facto research design was used and the data were analyzed using multiple regression analysis method. The analysis revealed that commercial banks' loans and advances have positive and significant impact on agricultural growth in Nigeria. Agricultural credit guarantee scheme fund has also a positive and significant impact on agricultural growth in Nigeria. Lending rate was found to have a negative and insignificant impact on agricultural growth in Nigeria. Based on the findings, the study recommended that government and other monetary authorities should use rewards and other measures of incentive that will motivate commercial banks in granting more loans and advances to agricultural sector. Government should also strengthen agricultural credit guarantee scheme by increasing the percentage of her guarantee against loan default to about 90%, so as to increase the confidence of commercial banks in granting more credit to agricultural sector in Nigeria.
TABLE
OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
List of Tables x
Abstract xi
CHAPTER
1: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement
of the Problem 3
1.3 Objectives of the Study 5
1.4 Research Questions 6
1.5 Research Hypotheses 6
1.6 Significance of the Study 6
1.7 Scope of the Study 7
1.8 Limitations of the Study 7
CHAPTER
2: LITERATURE REVIEW
2.1 Conceptual
Framework 8
2.1.1 The history of modern banking in Nigeria 11
2.1.2 Sources of agricultural financing in
Nigeria 12
2.1.3 The role of commercial banks in agricultural
growth in Nigeria 13
2.1.4
Policies and programmes established to enhance agricultural growth in
Nigeria 17
2.1.4.1 By the commercial banks 17
2.1.4.2 By the central bank of Nigeria 20
2.1.4.3 By the government 21
2.1.5 Agricultural growth and economic development 31
2.1.6 Problems of agricultural financing in
Nigeria 34
2.2 Theoretical Framework 37
2.2.1 Theory of financial intermediation 37
2.2.2 Theory of economic growth 39
2.3 Empirical Review 41
2.4 Gap in Literature Review 55
CHAPTER3:
RESEARCH METHODOLOGY
3.1 Research Design 57
3.2 Nature and Sources of Data 57
3.3 Population
of the Study 58
3.4 Method of Data Analysis 58
3.4.1 Descriptive
statistics 58
3.4.2 Correlation matrix 58
3.4.3 Stationarity testing 59
3.4.4 Unit root test 60
3.4.4 Multiple regression analysis 61
3.4.5 Co efficient of determination 61
3.4.6 F-statistics 61
3.4.7 T-statistics 61
3.4.8 Durbin
Watson statistics 62
3.4.9 Breush
Godfrey statistics 63
3.5 Model Specification 63
3.5.1 Description of model variables 63
3.5.1.1 Dependent
variable 64
3.5.1.2 Independent
variables 64
3.5.1.3 Stochastic
variable 64
CHAPTER
4: DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDINGS
4.1 Data Presentation 65
4.2 Data Analysis 67
4.2.1 Descriptive
statistics 67
4.2.2 Correlation
matrix 68
4.2.3 Test
for stationarity 69
4.2.4 Regression
analysis 70
4.2.5 Test for auto correlation 72
4.2.6 Test
of hypotheses 73
4.2.6.1 Hypothesis one 73
4.2.6.2 Hypothesis two 73
4.2.6.3 Hypothesis three 73
4.2.6.4 Hypothesis four 74
4.3 Discussion of Results 75
CHAPTER
5: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary of Findings 78
5.2 Conclusion 78
5.3 Recommendation 79
5.4 Contribution to Knowledge 79
5.4.1 Method 80
5.4.2 Scope 80
References 81
APPENDICES 89
LIST OF TABLES
Tables Page
4.1 Macroeconomic and
Financial Indicators 66
4.2 Descriptive
Statistics of the Variables 67
4.3 Correlation Matrix 68
4.4 Summary of Unit
Root Test for the Variables 69
4.5 Summary of the
Regression Result on the Impact of Commercial Banks’
credit on agricultural growth in Nigeria. 70
4.6 Breusch-Godfrey’s LM statistics 72
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Research has shown
that Nigeria is endowed with abundant natural resources. Ajakaiye (1993)
conceived that arable land constitutes about 75 percent of her total land resources.
Matthew (2008) report that the country has fresh water sources covering 68
million hectares, 960 km of coastline, and an ecological diversity of crop and
livestock, forestry and fishery products. Ijaiya and Abdulaheem (2000) reported
that agriculture in Nigeria is the most dominant sector and indeed, a major
source of livelihood for its citizens. Corroborating the above statement,
Binswanger and Townsend (2001) asserts that agriculture is one of the sectors
that encourage economic growth and development. This is justified by the fact
that, it is this sector which provides food, domestic savings, employment
opportunities, rural development and the improvement of the Gross Domestic
Product (GDP). In the same vein, Reynolds (1975) states that agricultural
development can promote the economic development by increasing the supply of
food available for domestic consumption and releasing the labour needed for
industrial employment. Abubi (2000) also
posits that, it accounts for about 70 percent of the sectors that generate
employment for the working population. Anyanwu (2002), further unveiled that
the role of agriculture in transforming the socio-economic framework of an
economy cannot be overemphasized. It is because agriculture has been the main
source of gainful employment from which the Nigerian nation feeds its teeming
population, provides industries with local raw materials and serves as a
reliable source of government revenue.
The production and
exportation of agricultural products play a dominant role in attracting foreign
exchange. The major agricultural export commodities in Nigeria include cocoa,
coffee, cotton, groundnut, groundnut oil, palm kernel, palm oil, soya beans,
ginger, rubber, benign, (CBN, 2003).
Obadan (2000) conceive that the production of palm oil accounted for about 96.4
per cent of the total export earnings while non-oil export products accounted
for about 97.3 per cent of export before the discovery of crude oil in Nigeria.
He observed that from the 1970s, the Nigerian economy became mono-cultural,
having been transformed from one dependent on fairly diversified portfolio of
agricultural products to an economy heavily dependent on crude oil for economic
growth and sustenance. Ojo (2003) in the same vein, unveiled that the advent of
crude oil production and related activities especially in the early 1970s
changed radically the structure of Nigerian economy. According to him, the huge
foreign exchange earnings from crude oil export encouraged importation of
finished goods to the detriment of our domestic goods while the agricultural
sector was rendered less competitive over time through over-valued currency,
inappropriate pricing policies and scarcity of farm labour, caused mainly by
the migration of youths to urban areas in search of white collar employment.
Since the
availability of adequate credit is vital for the improvement of agricultural
growth in the economy, the Federal Government of Nigeria prioritized the
agricultural sector and thus directed that commercial banks devout a certain
percentage of their loanable funds to the sector. To encourage the commercial
banks to meet this target, the Central Bank of Nigeria introduced the
Agricultural Credit Guarantee Scheme Fund (ACGSF) in 1977 to guarantee credit
disbursement by commercial banks to the sector. The loan amount was raised and
guaranteed rate was raised to 75 percent against default payment of loans. The incentive
and others, the agricultural sector contribution to the total Gross Domestic
Product (GDP) is still very low. Thus, to enhance an increase in agricultural
growth, farmers have to adopt a capital intensive strategy and this called for
an additional demand for banks loans and advances. It is against this backdrop
that this study is embarked upon, to examine previous works related to this
study and determine how commercial banks’ credits could enhance the growth of
the agriculture in Nigeria.
1.2 STATEMENT OF THE PROBLEM
Prior to this research, different authors such
as: Udoka (2015), Obilor (2002), and the likes have written on topics related
to this study in Nigerian banking sector and came out with various conclusions.
Some of these researches have shown that Nigeria, like most other countries in
the African continent is not only blessed with ample agricultural farmland, but
also conducive geographical/climatical conditions that favour agriculture.
Abubi (2000) admits that this enormous resource base, if well managed, could
support a vibrant agricultural sector capable of ensuring self sufficiency in
food and raw materials for the industrial sector as well as providing gainful
employment for the teeming population and generating foreign exchange through
exports.
Salami and Arawomo
(2013) noted that, despite these endowments, the sector has continued to record
a persistent decline in growth. The capacity of the sector to fulfill its traditional
role in the Nigerian economy has been constrained by various social-economic
and structural problems.
Enyim, Ewno and
Okoro, (2014) have identified poor credit supply as one of the factors
accounting for the poor performance of the agricultural sector in Nigeria. Obilor
(2013) further stated that commercial banks are obviously not interested in
agricultural finance because of it’s long-term nature. To encourage the
commercial banks, the government established the Agricultural Credit Guarantee
Scheme Fund (ACGSF) to provide guarantee against inherent risk in agricultural
lending. Nwankwo (2013) emphasized that this measure has not achieved the
initial objectives because agriculture being both labour and capital intensive
venture, requires huge capital outlay. Enyim, Ewno and Okoro, (2014) also
stated that high lending rate of commercial banks loans to farmers is another
cause of the decline in Nigerian agriculture.
Itodo, Apeh and
Adeshima, (2012) noted that, consequent upon the ineffectiveness of Nigerian
agricultural sector, the country with it’s highly diversified agro-ecological
condition is depending on massive importation of basic food items and raw
materials for industrial inputs. This panacea has led to a severe decrease in
the nation’s standard of living and high level of unemployment on the populace.
Udensi, Orebiyi, Ohajianya and Eze, (2012) obviously stated that, the
government’s effort to equip the agricultural sector has not yielded the
expected result.
An investigation
is therefore needed in examining the relationship existing between commercial
banks’ credit (loans and advances, agricultural credit guarantee scheme fund
and lending rate of commercial banks) and agricultural growth in Nigeria in
order to suggest a strategy that will ensure increased agricultural growth that
will be enough to carter for both export demand, domestic savings and
consumption.
1.3 OBJECTIVES
OF THE STUDY
The main objective
of this work is to analyze the effect of commercial banks’ credit on
agricultural growth in Nigeria.
The specific objectives of the study includes to:
1. Investigate the effect of commercial banks’
loans and advances on agricultural growth in Nigeria.
2. Determine the effect
of Agricultural Credit Guarantee Scheme Fund (ACGSF) on agricultural growth in
Nigeria.
3. Examine the effect
of lending rate of commercial banks’ loans and advances on agricultural growth
in Nigeria.
1.4 RESEARCH
QUESTIONS
1. To what extent have commercial banks’ loans
and advances to agriculture affected on the growth of agriculture in Nigeria?
2. In
what ways has Agricultural Credit Guarantee Scheme Fund affected on the growth
of agriculture in Nigeria?
3. How has lending rate of commercial banks’
loans and advances to agriculture boosted the growth of agriculture in Nigeria?
1.5 RESEARCH
HYPOTHESES
Ho1 Commercial banks’ loans and advances have no positive
and significant effect on agricultural growth in Nigeria.
Ho2 Agricultural Credit Guarantee Scheme Fund has no
positive and significant effect on agricultural growth in Nigeria.
Ho3 Lending rate of commercial banks credit has no
positive and significant effect on agricultural growth in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
Considering the abundance of natural
resources in Nigeria, agriculture ought to be a major catalyst for economic
growth through adequate provision of food, employment, industrialization and
increased GDP through foreign exchange earnings. Thus this study seeks to
unveil the problems and prospects of agricultural financing in Nigeria. It is very
important to carry out a research of this kind to suggest ways of combating the
perceived problems of farmers, such as loan procurement and effective credit
lending. The outcome of this study will be beneficial also to students,
lecturers, researchers, policy makers, investors, government and all rational
persons.
1.7 SCOPE OF THE STUDY
The
focus this research analysis is on the effect of commercial banks credit on agricultural growth in Nigeria using the commercial banks registered
in Nigeria and listed on the floor of Nigerian Stock Exchange ranging from the
year 1981 to 2016. The choice of 1981 is
consequent upon the fact that it is a period of oil discovery in large quantity
and return of democratic rule in Nigeria. While 2016 was chosen to ensure data
currency, over previous researches on related topics.
1.8
LIMITATIONS OF THE STUDY
In the course of
this study, several difficulties, such as time constraint and access to the
necessary information were encountered. However, I persevered in ensuring the
success of this work by overcoming such difficulties.
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