THE IMPACT OF CREDIT POLICY IN BANKS AND ITS CONTRIBUTION ON NIGERIA’S ECONOMIC DEVELOPMENT. (A CASE STUDY OF NIGERIA AGRICULTURAL CO-ORPERATIVE AND RURAL DEVELOPMENT BANK)

TABLE OF CONTENTS

Page

CHAPTER ONE

1.1 Background of the study

1.2 Statement of the problems

1.3 Research Questions

1.4 Research Hypothesis

1.5 Objective of the study

1.6 Scope of the study

1.7 Methodology

1.8 Limitation of the study

1.9 Significance of the study

1.10 Definition of terms

CHAPTER TWO

2.1 Literature Review

2.2 Credit policy and its development in Nigeria

2.3 Credit policy implementation and criticism

2.4 Credit policy programmes and its acceptability

References

CHAPTER THREE

3.1 Introduction

3.2 Source of data and collection

3.3 Research design

3.4 Statement of research questions

3.5 Restatement of research hypothesis

3.6 Model specification

3.7 Assumption of ordinary least square

3.8 Regression analysis

References

CHAPTER FOUR

4.1 Introduction

4.2 Data extracted

4.3 Presentation of results

References

CHAPTER FIVE

5.1 Summary of the study

5.2 Conclusions

5.3 Recommendations

5.4 Suggestions for further studies

CHAPTER ONE

BACKGROUND OF THE STUDY

1.1   INTRODUCTION

The survival of any company or organization will require research and development, new product improvement, modern facilities, wider market and other manifestation of growth. Financing this growth will bring the entrepreneur into the world of financers in form of credit from banks and other investment bankers.

Garner et al (1991) noted "As an entrepreneur of a small or medium scale company, one of the most interesting and potentially rewarding experience is capital to take advantage of growth opportunities".

According to the prudential guideline (1990) credit facilities is the aggregate of all loan, advance, and overdraft from banks, trade credit, Debentures, leases guarantees and other loss contingencies connected with bank's credit risk.

The birth of the Nigeria Agricultural Co-operative and Rural Development Bank (NACRDB) limited as the single largest development finance institution in Nigeria followed the successful merger of the former People's Bank of Nigeria (PBN); the defunct Nigeria Agricultural and Co-operative Bank (NACB) Limited, and the Risk Assets of the Family Economic Advancement Programme (FEAP) in October, 2000.The Nigeria Agricultural and Co-operative Bank (NACB) began operation on the 6^th of March 1973 as Nigeria Agricultural Bank Limited before the merger.

Thus, Nigeria Agricultural Co-operative and Rural Development Bank is dedicated primarily to agricultural financing at both micro and macro levels, as well as micro financing of Small and Medium Scale Enterprises. The bank also provides finance and credit facilities to agro-allied industries, loans to farmers, agricultural institutions, organizations and co-operative societies, direct investment by way of equity participation in wholly or joint-ventures project, guarantees are provided by the bank to viable agricultural and agro-allied ventures, and lastly rural saving scheme are provided.

The bank is a registered limited liability company that is wholly owned by the Government of the Federal Republic of Nigeria with the share capital fully subscribed by the federal ministry of finance incorporated 60% and the Central Bank of Nigeria (CBN) 40%.The bank's braid mandate encompasses saving mobilization and the timely delivery of affordable credit to meet the funding requirement of the teeming Nigeria population in the agricultural and non-agricultural sectors of the national economy.

The Nigeria Agricultural co-operative and rural development bank has five lending channels of financial support to its clients: firstly, the On Lending Scheme, which is done through the co-operative financing agency (CFAs), Non-Government organizations (NGOs), Self Help Group (SHGs) and some private sector, micro-credit institutions.

Secondly, Small Bolder Scheme (SHs) which are designed for small and medium scale individual and group farming organization and funds are provided as loans on very favorable terms and conditions. Interest charges are usually below the market rate.

Thirdly, First/Second Livestock Development Programme (SLDP) which are designed for small and medium scale individual and group farming organization and funds are provided as loans on very favorable terms and conditions.

Fourthly, the special project which is usually undertaken in collaboration with such international financial institutions and donor agencies as IF AD, ECOW AS and ILO.

Lastly, Investment in projects that is a target mainly for medium and large scale entrepreneurs who have the capacity to provide collateral securities.

1.2   STATEMENT OF THE PROBLEM

Nigeria economy has witnessed tremendous changes especially in the financial system. Since the advent of Structural Adjustment programme in June 1986, many noticeable changes have been brought to the Nigeria Banking industry in many dimensions.

•     Ineffective repayment of loans issued

•     There is problem of inability to cope with constant changes of the policy measures.

•     The size and structures of the industry as well as their mode of operations and system are affected significally.

1.3   RESEARCH QUESTION

Relevant research questions addressed in the research include;

•     Does the credit policy has any negative effect on the bank performance?

•     Has the overall size of the bank expansion has anything to do with the ability to give loan facilities to the economy?

•     What has the effect of the credit policies in banking sector to the economic growth?

•     Has the credit policies in bank has any relationship with macroeconomic variables?

•     Has economic reform experience in banking sector's activities?

1.4   RESEARCH HYPOTHESIS

HYPOTHESIS 1

H_O:   That the credit facilities given to the economy by banks has no significant correlation to economic growth.

H₁:    That the credit facilities given to the economy by banks has correlation to economic growth.

HYPOTHESIS II

H_O:   That the activities of banking sector do not have any relationship changes experiences in macroeconomic variables.

H₁:    That the activities of banking sector are related to changes experience in macro-economic variables.

HYPOTHESIS III

H_O:    That the activities of the banking sector does not have influence on general Price level of the economy.

H₁:    That the activities of banking sector influence on general price level of the economy.

1.5   OBJECTIVES OF THE STUDY

The major objectives of this study is to verify the importance of the Nigeria Agricultural Co-operative and Rural Development Bank (NACRDB) on credit policy administration towards the Nigeria economic development to achieve the following Objectives;

To find out if the bank was partial in administrating its credit facilities towards economic growth.

-      To what extent that the bank exercise its leasing operations.

-      To identify special problems arising from the bank.

-      To highlight the advantages of the Nigeria Agricultural Co-operative Rural Development Bank (NACRDB) as the main source of capital provider in the Agricultural sector.

1.6   SCOPE OF THE STUDY

In other to obtain an objective result and to facilitate the completion at the research work within the scheduled period, the study would be limited to the Nigeria Agricultural Co­operative and Rural Development Bank (NACRDB), to determine the various companies within the period of 2001- 2006 and the uses they have been put by the beneficiaries. The area of coverage at this research includes;

·                    The time frame which will cover a period of 5years and also it is expected to be submitted within a short period.

·                    The institution covered is Nigeria Agricultural Co­operative and Rural Development Bank (NACRDB).

·                    The geographical scope which is restricted to Nigeria and consequently, it does not look into the international Agricultural market.

1.7   METHODOLOGY

The research methodology used for this study is Multiple Least Square method (MLS). In form of Y as multiple variable i.e.:

Y = F (X1, X2, X3, X4....e.t.c.)

Y = βO + βX1 + β2X2 + β3X3….e.t.c).

To be analyzed using Spss which is the statistical package for social scientist.

1.8   LIMITATIONS OF THE STUDY

There were difficulties in obtaining the published financial report of the Nigeria Agricultural Co-operative and Rural Development Bank: (NACRDB). This contributed to delay in concluding the research, as several trips were made to the institutions concerned:

•     Difficulties in having access to companies or organizations that have overtime or the other sourced funds in NACRDB.

•     Difficulties in having access to the officers, executives, managers to be interviewed.

Consequently, the use of published Annual reports of Nigeria Agricultural Co-operative and Rural Development Bank (NACRDB). Provide the best alternative method in this research.

1.9   SIGNIFICANCE OF THE STUDY

The study would be of tremendous help to many group of people in our society, Basically, should be beneficial to government, policy, formulators, students, managers, entrepreneurs and the general public.

Firstly, it will help them to know the various problems going on within the area of concentration.

Secondly, it would enable the government policy formulators to examine the implication of Nigeria Agricultural Co-operative and Rural Development Bank (NACRDB) on the performers of the farmers in Nigeria.

Moreover, the finding of the study should provide reference materials to scholars and researchers that might want to embark on similar studies.

1.10 DEFINITION OF TERMS

CREDIT POLICY: This is a policy that exists in a credit granting organization. It is the identification and specification of credit objectives which define the line of responsibilities tor credit administration.

MICRO CREDIT LOAN SCHEME:  These are scheme that are meant to access small-scale enterprises to loan facilities.

MICRO FINANCE:  This is a way of funding or financing organizations in a small scale.

MACRO FINANCE: This is the opposite of micro finance in which financing is made to organization in a large scale.

LOANS: These are financial credit given to individuals, firms and organization over a period of time before repayment. It can either be short-term loan or long-term loan. Short-term loan are usually 1-5yrs while long-term loan are 5years and above. Collateral securities are usually provided.