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The Roles of Credit Facilities in Agricultural Development in Nigeria

The Roles of Credit Facilities in Agricultural Development in Nigeria




When Nigeria attained political independence in 1960, agriculture was the dominant sector of the economy. It constituted over 65 percent of the country’s Gross Domestic Product (GDP) and provided the bulk of the foreign exchange earning through the exportation of “Cash crops”. The sector catered adequately for nearly all the food requirement and raw material for industries in the economy. Major export crops included cocoa, groundnut, cotton, palm oil, rubber etc.

This situation however changed drastically at the beginning of 1970. Agricultural output started to decline rapidly at a time, which not only coincided, with the end of the Nigeria Civil war but also with the period of oil boom and severe drought of 1972-1973 as seen in the

Table 1. Below:


YearAverage Annual GDP

(N Million)

Agricultural GDP

(N Million)

Agric GDP as of Total

Source: computed from various issue of the Central Bank of Nigeria Annual report (1989)

The overall agricultural situation deteriorated creating a wide gab between the supply and demand for food. Revenue from agricultural export dwindled and government was faced with monitoring food import bills as in (table 2) below:

Table 2:





Source: computed from various issues of the Central Bank of Nigeria annual reports 1989

At the same time industries increasingly resorted to imports of agricultural raw materials thus, putting a lot of stress on foreign exchange.

In order to tackle some of the problems facing the agricultural sector, Nigerian in their confused state resorted large number of custom policies and programmes with a view to solving her food crisis. Some of the policies thrusts were embodied in successive national development plans for the periods 1970-1985.

Budgetary allocations were made to support the stated policy exchange earnings, through non-oil exports and adequate supply of agricultural raw materials to the industrial sector. Introductory measures aimed at boosting agriculture like National Acceleration Food Production Programme (NAFPP) in 1973, Operation Feed the nation (OFN) in 1976, by Obasanjo, the Green Revolution Programme (GRP) launched in 1980 by Shagari Administration on school to land programme in River State by Oyakililome.

Again some other projects like Agricultural Development Project (ADP), River Basin Development Authority (RBDA), and Directorate for food, Road and Rural Infrastructures (DFRRI).

Rural Banking Scheme (RBS) and Social Mobilization for Economy Recovery and Self-Reliance (MAM) were introduced in order to improve agricultural growth. Other credit facilities that are available to the farmers to enhance the development of agriculture include overdraft, short term loans, long term loans, trade credits etc. the involvement of financial institutions in financing agriculture dates back to early 1950s and 1960s when lending scheme such as Agricultural Development Board (ADB), Agricultural credit Co-operation (ACC) were initiated. However, today this institution engages in financing different facts of agricultural production.

When these programmes are evaluated against the broad objectives of reducing rural poverty, increased agricultural productivity and improvement of the overall socio-economic conditions of the state rural farmers, the results vary from token success in some states and expensive failures in others. It was noted that the major determinant of increased agricultural productivity in the country as it were in 1960s includes: availability of credits to the rural farmers, protection of farmers from unfair income distribution patterns within the economy, dragging them out of the viscous circle of poverty in which many of them have found themselves, and rural farmers being economically mobilized to enable them produce not only enough food for domestic consumption, but also surplus for exports. If this is done, the rural farmers will be seen account for about 80 percent of the total food consumption in the country and encourage able percent for exports.


The development in the flow of credit facilities to agricultural sector is quite encouraging and impressive. But judging by the results in the market place and other sectors of the economy there seems to be no room for complacency. Food prices have been rising persistently. There have been great shortages of most of the essential foodstuffs and raw materials. Here seems to be no improvement in methods and techniques of our rural farmers. In effects, many people now have doubts over the ration able of agricultural credits. Some have asked the following questions:

  • Do real and deserving farmers; especially rural farmers actually have credits facilities made in agricultural development in the country?
  • Are there other factors inhibiting agricultural credits from playing their expected role in development of agricultural in the country? Or
  • Is lack of our inadequate credit facilities really the major impediment to agricultural development in the country?

In order to answer the questions effectively it becomes necessary to review the achievement so far made by credit facilities in agricultural development in the country and what has is deteriorated to the extent that agricultural produce are now imported.

Hence, our decision to carry out this research. The Roles of Credit Facilities in agricultural development in Nigeria


The specific objective of undertaking these studies are:

  1. To examine the current distribution and use of agricultural credit in the country so as to determine to what extent it has helped to improve the productivity of our small scale or rural farmers.
  2. To determine to what extent lack of or inadequate credit facilities has been of a major impediment to agricultural development in the country.
  3. To determine other factors (if any) inability agricultural credit from playing its expected role of accelerating the rate of adoption of improved technologies in our rural farmers.
  4. To determine the incentives that will enable farmers to participate fully in the credit schemes.
  5. To make policy recommendations.


The hypothesis, which this study wants to verify, is that credit facilities have played a significant role in agricultural development in the country by accelerating the rate of adoption of new and improved technologies by rural farmers.

Ho: There is no correlation between government credit facilities/policies and agricultural development.

Hi: There is a correlation between government credits facilities/policies and agricultural development


This study could not have been more significant any other than this period of Nigeria economic recession where both the federal and state government have been advising various policy measures to increase the productivity of our agricultural sectors. Supply of credit facilities to farmers has been among to top priority measures adopted by most states. The government has restricted some importation of products to encourage sustainable local productivity of these products to increase sustainable local productivity of these products.

 The study is also very important for the following reasons:

  1. It discuss many problems that arises in the implementation of agricultural credit programme with the view to understanding necessary adjustments to such policies in order to meet promptly the real needs of farmers.
  2. The policy recommendation that will be made from the study can help the government and other credit institutions to improve their credit policies for agricultural development of the state.

However, it must be noted that the credit on agriculture has not been able to meet its expectation. We still spend more than 50 percent of the foreign exchange earnings on importation of food. This study, which will also assess factors that have contributed to the observed impact, will be of prime relevance to: student, scholar and teachers in management and social science as well as agriculture. This will form the necessary background for the future policy decisions.


  1. Credit: The word credit comes from the Latin word credo meaning believe. It means the ability to command capital of another in return for a promise to pay at some specified time in the future usually with a cost represented by payment of interest Anyawu (1979).
  2. Agriculture: Literally, agriculture means field cultivation for production of food for the consumption of man. According to Akinsanmi (1975), “Agriculture is the production of plants and animals useful to man who covers not only the cultivation of the soil and feeding management of crops and livestock but also the preparation of plants and animal products for the use of man” according to Anyawu (1979) agriculture is the cultivation of land for producing food for the use of man, feed for animals and fiber or raw material for industries and includes the processing and marketing of crops.
  3. Agricultural Credit: Agricultural credit encompasses all loans and advance granted to borrowers, whether beneficiaries of agricultural reform or some one to finance and service production activities relating to agriculture, fishes and forestry and also for the processing, marketing, storage and distribution of product resulting from these activities.
  4. Agricultural Development: Agricultural development is the systematic use of knowledge gained from research for the production of useful material devices, systems, practices, methods and processes that results in increased returns to the farmers in relation to the cost inputs or labour expanded.
  5. Small Scale Farmers: A small scale farmer is one whose unit or seize of farm is very small say less than 2 hectares. He directs most of his produce for his consumption on having few for the market (Anyanwu 1979). He invariably requites small capital to run the farm, his tools is simple and his labour is limited for the purpose of his study, we shall use small scales, rural and peasant farmers interchangeably, bearing in mind that some of their small farmers have gone beyond subsistence scale farmers.
  6. Medium Scale Farmers: A medium scale farmer is one who engages principally in plantation and poultry farming. It is unit or seize of the farm and capital is large. He enjoys some decisive advantages in attracting loans from commercial banks and other credit institutions.


Mellor (1971) defined credit as a “device for facilitating the temporary transfer of purchasing power from one individual or organization to another. For Adegeye and Dittoh less of obtaining control over the use of money, goods and services in the present in exchange for promise to repay at a future date. Murray and Nelson (1968) have this to say “credit means the ability to command the capital of another in the return for a promise to repay at some specific time in future.

What all these authors are talking about is essentially the same. They are talking about transfer of ownership of money, goods and services from one person to another with the receiver promising to return it at a specific time later.


Although credit is important, it is pertinent to point out that it is not an end to itself but a means to an end. It cannot alone increase rural productivity unless when combined with other factors of production and some pre-credit conditions. To support this idea further, Herace (1959) said if improvement in agricultural credit is measured in isolation they are likely to fail or at best have little result. Padmanahan argued that if credit is extended end as additional consumption instead of “capitals” credit alone is not open Sesame, but a necessary key, which however must be used with others to propend the doors to a more plentiful future. Credit in itself does not create new resources, but if dispensed under proper, conditions, it may lead to increase under proper conditions. It may lead to increased productive power and provide the means for future economic growth effort to develop agricultural facilities which facilities the integrated economic activities.

The view propounded by Schultz (1964) that in traditional agriculture “capital” is not a significant constraint on the output of small farmers, which may not be widely accepted. He had argued that the low-level equilibrium can be broken when there loans profitable investment opportunities arising, under the following conditions.

  1. An improved technology, which is clearly superior to traditional methods, has been developed.
  2. Farmers understand it and are confident of using it in their field conditions.

The associated support services and the infrastructure facilities are present. It is at this time, according to him, that “credit” can play its role by providing the needed liquidity to farmers who do have sufficient inventible funds to exploit the opportunities. Arguing in this direction, Adegeye said, that agricultural credit can however, only help in breaking the poverty cycle if the farmers are aware of the technological and capable of using it. In other words, agricultural credit is not a resolution for improved agricultural production. Credit to small farmers in the absence of the technology, he argued, can even prove harmful since the farmers can become heavily in debated and be unable to pay back. He suggested other factors that will enhance proper use of agricultural credits as the availability of technology, that is improved seeds, fertilizers and so on at the right time and assurance of good prices for the products.

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