ABSTRACT
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%).
CHAPTER ONE
INTRODUCTION
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
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.....
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