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1.1     Background of the study:

Nigeria is pre-dominantly an Agriculture country, with Benue state being termed as the “food basket of the Nation” because of the abundance of its agricultural resources. Agriculture, among other roles, provides food for the teeming population employs significant proportions of the country’s labour force, produces raw materials for manufacturing industries and generating foreign exchange for the country.

In Nigeria, agriculture is the mainstream of the economy as the sector has always been an important component of Nigeria economy with small- scale farmers producing over 90% of available food in the country and about 70% of the labour force relying on this sector and a contribution of about 8.5% to Gross Domestic Product(Ama, press release; 2003). For a nation to arrive at a convenient production to enhance food security, credit will be the first important scheme in agricultural production.

In that, with agricultural credit, the farmers secure farm machinery and equipment, covers the unsubsidized portion of farm inputs, hires additional labour ( Oboh, 2006). The inadequate level of assessment carried out in the agricultural credit scheme fund is a major factor preventing adoption of technological innovations. Farmers in this indisposed situation perpetuate poverty and low standard of living. This is because, some of the innovation which these farmers wish to adapt may be expensive to procure or that they may decide to use the mean financial resources in financing other projects, other than agricultural production.

Such investment may eventually turn to be a waste because of inadequate assessment of the scheme at the level of farmers (Okoroeun, 2003). It is widely recognized that the development of agriculture is one of the crucial requirements for overall economic growth (Oyatoye, 2003). There is, therefore, the need to develop agriculture to increase productivity to meet this food demand of about 140 million Nigerians.

Also, Oboh (2006) noted that it has long been recognized that the absence of adequate credit scheme for financing agriculture in Nigeria is one of the major impediments to the country’s agricultural development. Credit is defined as taking control of resources, which do not belong to the user at a cost. It is also defined as the capacity or ability to borrow money. Agricultural credit is any of several credit vehicles used to finance agricultural transactions, including loans, notes, bills of exchange and bankers acceptance.

These types of financing are adapted to the specific financial needs of farmers, which are determined by planting, harvesting and marketing cycles. (Investopedia ulc: 2012). Agricultural credit encompasses all loans and advances granted to borrowers to finance and service production activities relating to agriculture, fisheries, and forestry and also for processing, marketing, storage and distribution of products resulting from these activities.

          Makeham and Malcolm (1996) identified two broad categories of farmers who need agricultural credit.

  1. those who have started developing their farms without credit but find that savings are too small to execute the development.
  2. those, whose production is so low that they cannot save money to increase production despite many opportunities and keeners to progress, cannot increase output without getting a loan from somebody.

Okoronkwo (2003) suggested that “the credit needs of such farmers, therefore should be met so that the small farm output and income are augmented”. Similarly, Abe (2007) noted that the capital requirements of farmers are great, their credit requirements have expanded”. Agricultural credit is essential for acquiring inp[uts such as land, seeds, chemicals, financing production activities such as planting, harvesting, storage and marketing of agricultural produce.

The main source of agricultural credit to farmers in the rural areas include loan from money lenders and cooperatives societies, friends, neighbours and produce buyers. The interest rates charges on those loans obtained from money lenders are too high which makes it difficult for farmers to repay the loan. Thus situation is worsened by family size which is generally large, consequently, little ot nothing is saved.

Fundamental problems and constraints militate against the satisfactory performance of the Nigerian agricultural sector, ranges from low productivity, low yields, inadequate facilities for marketing and storage. In a bid to tackle this problem mentioned above, several attempts have been made by both federal and state governments to solve the problems. Among this are the settings up of various credit institutions for credit delivery service to farmers on soft term bases.

The commercial and merchant banks have long history in agricultural financing. The commercial banks such as the First Bank of Nigeria plc; United Bank for Africa (UBA) Plc; and Union Bank Plc, among others have also been involved in the provision of agricultural credit to farmers. Unfortunately, Agricultural financing has been very unattractive to banks involved and because a large number of the participants in this subsector of the economy lack the necessary collateral to bank their high rate of loan default and diversion.

It is in light of these problems that the central Bank of Nigeria has been playing an increasing role in financing agriculture. In other to encourage the banks to release more funds to agriculture and to enable small farm holders to benefit from agricultural credit-the government at different levels in the country resorted to establishing specialized credit institutions such as; Nigerian Agricultural Co-operative and Rural Development Bank (NARDB), Agricultural Credit Guarantee scheme fund (ACGSF) in 1977.

The agricultural credit Guarantee scheme funds were launched on the 3rd April, 1978 under Decree 20 of 1977. It was designed to facilitate farmers’ access to have credit and thus help to stimulate agricultural expansion. The Guarantee covers 75% of loan in default granted to farmers net of what the lending bank could realize from the sale of collaterals for the loans.

The Central Bank provides development financing indirectly for private sector through the Agricultural Credit Guarantee Scheme. The scheme was established with ₦100 million contributed was 60% by the Government and 40% by the Central Bank of Nigeria. The Central bank Guarantees commercial and merchant banks agricultural loans under prescribed conditions with the aim of increasing the level of bank credit to the agricultural sector.

The capital base of the scheme was increased to ₦3 billion in March, 2001. The fund guarantees credit facilities extended to farmers by banks up to 75% of the amount in default net of any security realized. Ijere (2004) in a “New perspective in financing Nigerian agriculture” noted that “on behalf of the Federal Government of Nigeria, the central Bank has issued the following guidelines that all banks are to open more rural branches in relation to urban branches, arrangements are to be made for the bulk of the agricultural loans to be channelized through town and country cooperatives societies; all banks should establish agricultural finance departments at their head offices and in all state capitals; the banks should take appropriate measures to encourage small farmers without insisting on tangible security; and merchant banks should modernize their special skills in project finance and cooperate development to put together the package of finance, technology and expertise in the implementation of large agricultural projects”.

          The agricultural purposes in respect of which loans can be guaranteed by the fund are those connected with:

  1. the establishment or management of plantations for the production of rubber, oil palm, cocoa, coffee, tea and similar crops;
  2. the cultivation or production of cereal crops, tubers, fruits of all kinds, cotton, beans, groundnuts, sheanuts, beniseed (saseme) vegetables, pineapples, bananas and plantains; and
  3. animal husbandry, i.e poultry, piggery, cattle rearing and the like, and fish farming

“The above coverage of projects is being reviewed by the authorities with a view to including agro-allied manufacturing projects under certain conditions” (Ezeugoh, 1984).

                   Edordu (2003) identified that “the security which may be offered to a bank for the purpose of any loan under the scheme includes the following:

  1. a change on land in which the borrower holds a legal interest or a right to farm or a change on the crops on such land,
  2. a charge on the movable properties of borrower;
  3. a life assurance policy, a promissory note or their negotiable security;
  4. Stock shares
  5. a personal guarantee
  6. any other security acceptable to the bank

At present, the interest rate chargeable is 14.0% per annum on loans to institutions for on-lending to farmers and 8.0% on loans to individual farmers.

The Minister of Finance is empowered under the decree (Decree 20 of 1977 which provides for the establishment of ACGSF) to prescribe the interest rate chargeable by banks on loans provided under the scheme. He has discretionary powers to appoint any person as person as managing agent for administration of the fund for such period as he may deem fit, and any person so appointed shall act under the directives of the board. (Copyright © 2011, policy and legal advocacy centre).

Ezeugoh, (1986) state that “the decree provides for the establishment of an agricultural credit Guarantee scheme fund. Two of the members represent the central Bank of Nigeria, the remaining four, one of whom is the chairman is appointed by the minister of finance. The broad may co-opt any person as a non-voting member for such period as it thinks fit when it desires to obtain his advice on a particular matter.

The secretary to the Board is an official of the central Bank designated as such and the secretarial of the Board is located in the central Bank, while Ijere (2004) adds that “the Board is enjoined to meet at least four times a year” The need to find out more about the assessment of credit among sesame farmers in Oju L.G.A of Benue state and proffer solution to avert these constraints informed the decision for this study.


1.2     Problem statement for the study

A large number of credit institutions have been established; Agricultural Credit Guarantee Scheme (ACGSF). Nigerian Agricultural co-operative and Rural Development Bank (NARDB) e.t.c to cover some portion of losses incurred when borrowers default on loans in other to encourage financial institutions, and in particular, commercial banks to lend agricultural credit to farmers.

Inspite of all these strategies, few people/ farmers (sesame) are having access to agricultural credit provided by the scheme. The utilization seems not to be properly channel to agricultural production by the acquisitions. (The beneficiaries). Credit facilities available or eligible under the scheme are not properly defined for the farmers to understand, agreement to be executed by lending institution are not properly spelled out for the farmers, invocation of the guarantee, appropriation of amount received from the lending institutions e.t.c.

          The questions that arise therefore are:

  1. what are the specific problems encountered by the commercial banks under the scheme?
  2. what are the specific problems encountered by the Agricultural credit guarantee Scheme?
  • what are the effects of the problems on the performance of the scheme?
  1. what are the problems faced by farmers in acquiring agricultural credit under the scheme?
  2. what are the causes of loan default?

It is against this background that assessment of Agricultural Credit guarantee Scheme Fund with particular reference to sesame farmers in Oju L.G.A of Benue state.

1.3     Objectives of the study

          The broad objective of the study is to assess the effect of Agricultural Credit Guarantee Scheme Fund among sesame farmers in Oju L.G.A of Benue state.

          The specific objectives are to:

  1. analyze the socio-economic characteristics of the sesame farmers;
  2. identify sources of agricultural credit;
  • asses the sesame farmers’ utilization of the credit acquired;
  1. Analyze the effect of credit utilization of farmers’ output and income;
  2. Identify the constraints of sourcing for agricultural credit among the sesame farmers in the area

1.3     Hypotheses

          Based on the above study objectives, the following hypotheses were tested:

H01:   There is no significant difference between the output of sesame farmers before and after the utilization of credit acquired.

H01:   There is no significant difference between the income of sesame farmers before and after the utilization of credit acquired.

1.4     Justification of the Study

Agricultural credit plays a crucial role in agricultural development and lack of it is usually given as an explanation for many problems facing the sector in developing countries and Nigeria in particular. Farmer’s adoption of improved farming inputs require credit to beef up capital. Procurement of agricultural input that will step up production in order to keep pace with the increasing human population, there is the need for timely and proper credit delivery system.

Benue state is currently the food basket of the nation and one of the largest producers of sesame. It is this kind of place that the assessment of the scheme in agricultural financing is best carried out. Many studies on this topic may have been conducted before but the necessity for this one is out of the fact of time and/or place variations. The time factor may likely reveal new dimensions of performances and problems.

That is why assessment of the effect of Agricultural credit Guarantee Scheme Fund among sesame farmers in Oju L.G.A of Benue state is carried out. In any of the ways above the study would have made a meaningful contribution to the performance of the scheme and borrowers. Furthermore, the research is likely to open up new areas of study in this.


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