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This study examined access to formal credit by farmers’ co-operatives in Enugu State. The specific objectives were to: (i) ascertain the institutional credit guidelines which affected access to formal credit by farmers’ co-operatives in Enugu State, (ii) describe the patterns of access to credit, (iii) ascertain the extent of access to formal credit by the respondents, (iv) ascertain the factors which determined access to formal credit, (v) examine the respondents’ perceptions of the effects of institutional credit guidelines on access to credit and (vi) identify the constraints experienced by banks and farmers’ co -operatives in the course of providing and accessing credit respectively. The study adopted survey design. Multi-stage, purposive and random sampling techniques were used for data collection. Nine local government areas (LGAs) were purposively selected from the seventeen LGAs that make up Enugu State. One hundred and eleven active formers’ co-operatives were randomly selected out of a population of two hundred and twenty-two active farmers’ co-operatives found in the selected LGAs. Twenty each of commercial and micro-finance banks that provided credit to farmers’ co-operative societies in the study area were also randomly selected. Therefore, the overall sample size for the study was 151 respondents. Data were collected using structured questionnaire. Data were analysed using Ordinary Least Square (OLS) Regression Models, Access Index (AI) and Likert Scale Rating. Institutional credit guidelines which negatively affected access to formal credit were: interest rate (83.49%), collateral requirement (39.89%), minimum account balance (69.81%), and number of documents required from co-operatives by banks (71.27%). Patterns of credit flow from banks to farmers’ co-operatives were cash (73%), production goods (20%) and technical training (7%). Out of the whole farmers’ co-operatives that applied for credit, only twenty-seven (24.3%) were able to access credit. Extent of access to credit was very minimal (17.3%). Socio- economic characteristics of farmers’ co-operatives that determined access to formal credit were: age of co-operatives (p<0.01), educational level of co-operative members (p<0.05), co-operatives’ equity capital value (p<0.05), co-operatives’ asset value (p<0.01), and cost of processing credit application (p<0.05). Banks’ institutional credit guidelines which determined access were: interest rate (p<0.01), value of collateral (p<0.10), minimum account balance (p<0.01), and number of documents required by banks (p<0.01). Farmers’ societies without access were more constrained by the guidelines than those that had access. Factors that constrained co-operatives with access were: interest rate (1.98), minimum account balance (1.99), while those that constrained co-operatives without access were: interest rate (2.83), collateral requirement (2.53), minimum account balance (2.87), and number of documents required (1.97). The problems experienced in the course of sourcing credit were: lack of information (69%) , stringent banks’ credit policies (77%), long period of processing credit applications by banks (67%), banks’ discrimination against agricultural lending (60%), cumbersome documentations (70%), and approval of insufficient amount by banks (64%). Problems encountered by banks in the course of providing credit to farmers’ co-operatives were: credit repayment default (90%), difficulties in enforcing credit contracts (45%), inability on the part of co-operatives to provide collateral (55%) and lack of borrowers’ credit history (42%).
1.1 Background of the Study
Access to financial services (especially credit) for agricultural enterprise development and sustainability is of paramount importance to both Nigerian governments and the citizenry. To create more jobs and inclusive roles in the Nigerian economy, especially in the rural areas, access to formal credit is very necessary. Access to credit helps to boost rural farmers’ financial capacity which eventually affords them the opportunity of farm input diversification and the adoption of better and modern farm technologies for increased output. Credit is considered as a catalyst that activates other factors of production and makes under-used capacities functional for increased production (Ijere, 1998). Funding and development of agriculture is analogous to rural development. Over 80% of the farming populations in Nigeria are small holders, residing mostly in rural areas (Afolabi, 2010). The author therefore, argued that the need for agricultural loans among the small scale farmers cannot be overemphasized as this enables them to establish and expand their farms. Ijere (1978) observed that over 70% of rural small-scale farmers are dependent on farming as their means of livelihood and the nation relies on their output for food self-sufficiency. The provision of credit has increasingly been regarded as an important tool for raising the incomes of the rural populations (Atieno, 2001). In Nigeria, between 70% and 80% of the population live in the rural areas and a vast majority of this population totally depends on agriculture for livelihood (CBN, 1999; World Bank, 1999 and Odo, 2005). Three out of every four people in developing countries (including Nigeria), live in the rural areas and most of them rely directly or indirectly on agriculture as a means of earning a living (World Development Report (WDR), 2008). Therefore, rural development is closely linked to agriculture as majority of
the rural dwellers depend on farming and various aspects of agribusiness activities for livelihood.
This study focused on access to formal credit from commercial and microfinance banks. Commercial banks are the financial hub of Nigeria’s financial infrastructure and therefore do not suffer much of insufficient lending fund. On the other hand, microfinance banks are closer to the rural dwellers (including farmers’ co-operative societies). The concept of micro-finance has been used to successfully expand the availability of credit to rural communities including farmers’ cooperatives. Micro-finance involves the provision of small loans to borrowers without conventional collateral. Though, interest rates charged by micro-finance banks were higher than those charged by commercial banks.
Lack of access to finance in the agricultural sector is a major hindrance to increasing rural income and development. According to Demirguc-Kunt, Beck, and Honohan, (2007); and Beck, Demirguc-Kunt, and Honohon (2008) financial exclusion retards economic growth, and development, it also increases poverty and inequality. According to Reed (1984) cited in Adekanye (1986), one of the primary functions of commercial banks is the extension of credits to worthy borrowers. In making credit available, production is increased, capital investments are expanded, and a higher standard of living is raised. Financial intermediaries are therefore, agents of socio-economic change.
The strategic importance of agricultural credit prompted Federal Government of Nigeria at various times to implement some policies aimed at boosting farmers’ access to credit. Umebali, (2005); Olaitan, (2006), Badiru, (2010), Oladeebo and Oladeebo (2008) observed that among such projects were: establishment of the Nigerian Agricultural Co-operative Bank (NACB) in 1977, which was later changed to Nigerian Agricultural Co-operatives and Rural Development Bank (NACRDB) and the Agricultural Credit Guarantee Scheme of 1977. Others were the establishment of community banking 1990; Rural Banking
of 1977, the small holder loans scheme and sectoral credit allocation to agriculture, the
Commercial Agriculture Credit Scheme (CACS) that was initiated in 2009 and the Nigerian
Incentive-based Risk-Sharing System for Agricultural Lending (NIRSAL) (CBN, 2011).
Table 1.1 Commercial Banks Agricultural Lending Under (CACS) from 2009 to 2011.
Amount in (N Billion)
Access Bank Nigeria plc
Fidelity Bank Plc
First Bank of Ni
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