EFFECT OF BANKING SECTOR CREDIT ON SMALL SCALE RICE FARMERS IN OSUN STATE NIGERIA

Abstract

This study was on effect of banking sector credit on small scale rice farmers in Osun state, Nigeria. Two objectives were raised which included:  Analysis both problem and solution to small scale production of rice in Osun state and examine the effect bank credit on the small scale of rice production in Osun state. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN, Abuja. Hypothesis was tested using Chi-Square statistical tool (SPSS).

 

Chapter one

Introduction

1.1Background of the study

Agriculture has remained the dominant contributor to the rural sector of the Nigerian economy owing to its source of employment to about 60% of the workforce and array of commodities produced across the different regions of the country. Similarly, the production supported by its high population density, diverse and favourable climatic conditions, rich soil type has placed Nigerian in vantage position in the production of certain crops (notablycassava, yam cowpea), livestock and fishing in Africa (Abdullahi, 2003, Manyong et al, 2005). Today, Agriculturein Nigeria is increasingly recognized as central to sustainable economic development as it plays a very significantrole in addressing food insecurity, poverty and human development challenges (Amaza and Maurice, 2005). In thebid to meet food production target however, farmers are particularly in need of credit for investment in agriculturetowards expanded production and boosting the country’s food self-sufficiency ratio.

Rice is one of the most valuable cereal crops cultivated and consumed all over the world. It is a staple food in several African counties, Nigeria as an example and constitutes a large portion of the diet on a regular basis (Lu et al. 2018). Rice is cultivated inmostly all agro-ecological zones in Nigeria but on a relatively small scale. As assertedby FAO (2015), Nigeria is the continent’s leading consumer of rice, one of the largestproducers of rice in Africa and simultaneously one of the largest rice importers inthe world. Rice is an an important food security crop, it is an essential cash crop for it is mainly small-scale producers who commonly sell 80% of total production and consume only 20%.

Rice (Oryza spp. L.), a grain cereal, is an important staple food for the world’s human population, providing more than 20% of the calories consumed worldwide (Kenmore 2003). It has the second highest production worldwide, after maize (Mohanty et al. 2013). Rice is an important crop that has allured several studies in

Nigeria. Some studies had focused on adoption of improved rice variety (Awotideet al. 2013); consumption and marketing of rice (Obih and Baiyegunhi 2018) whilst others focused on resource use efficiency (Goni et al. 2007; Ogundari 2008) and technical efficiency (Ogundele and Okoruwa 2006). A review of studies related to agricultural producers’ efficiency shows there is a large body of literature dealing with farm-level technical efficiency.

The term bank credit refers to the amount of credit available to a business or individual from a banking institution in the form of loans. Bank credit, therefore, is the total amount of money a person or business can borrow from a bank or other financial institution. A borrower’s bank credit depends on their ability to repay any loans and the total amount of credit available to lend by the banking institution. Types of bank credit include car loans, personal loans, and mortgages.

Bank credit consists of the total amount of combined funds that financial institutions advance to individuals or businesses. It is an agreement between banks and borrowers where banks make loans to borrowers. By extending credit, a bank essentially trusts borrowers to repay the principal balance as well as interest at a later date. Whether someone is approved for credit and how much they receive is based on the assessment of their creditworthiness.

 

Small scale enterprise is defined as any enterprise with a maximum asset less than N1 million and with the number of staff employed less than or equal to 10. (International Finance Corporation (IFC) publications (2001). Small scale enterprises in Nigeria are characteristically different from other form of enterprises and were relatively few before 1981, representing only 4.5% of enterprises in existence in 1960 and about 16.4% UPTO 1980 (Abumere et al. 1998).

The recent global food crisis which resulted in the escalation of prices of rice causingsome panic in the Nigerian food market has resulted in the urgent need to strengthen thenation’s agricultural production capacity. The only sustainable way to ensure national foodsufficiency and security on a long-term basis is in improving local rice cultivation andprocessing, rather than resorting to massive importation. Thus, based on 2006 populationcensus figures, Nigeria has a population growth rate yearly of about 3.2 percent as

against 2.5 for aggregate food production growth, revealing a decrease in foodproduction. In order to meet the nation’s food requirement there is the need for an urgentcall for the evolution of strategies that can increase food production. In spite of increasing hectares being put into production annually the reality is that, Nigeria (and Oyo State in particular)has not been able to attain self-sufficiency in food crop production. Low crop yields and resource productivity seems to be mainly, the constraint to rapid growth of food production

According to low agricultural productivity in Africa is shown by the true yields of major crops. Government interventions at various times aimed at increasing food Production in Nigeria, has not yielded the desired results, while existing medium/large scale farms have equally been ascertained as not being able to sustain the food requirement of ever-increasing population in Nigeria, the task of bulk food production, still lies with rural peasant farmers.

 

In Nigeria, agricultural production is dominated by small-scale farmers who account for about 95% of the country’s agricultural production (Mafimisebi et al, 2007). This system of farming is characterized by low asset base, low fixed capital, labour intensive production, small farm size, low investment and expenditure on farm inputs, crude tools and equipment and low productivity, among others (Ijere, 1986; Olayide and Heady, 1982, Mafimesebi et al, 2007). According to Verheya (2000), although increased agricultural production in Nigeria is constrained by a number of factors, such as non-availability of complementary inputs in the right quanlity and quantity, poor conditions of feeder roads and other transport facilities, inadequate technologies, youth apathy to agriculture and so on, credit is the most limiting factor among them. Consequently, this results in inability of the farmers to optimize potentials, food insecurity, and poverty at individual and national levels. Hence, boosting agricultural production through adequate finance becomes imperative.

.Ololade&Olagunju (2013) studied the determinants of access to credit among rural farmers in Oyo state, Nigeria. Using binomial Logit regression analysis, noted that the significant determination of factors affecting access to credit by Rural farmers were gender marital status, guarantor and high interest rate. The study reveals that not being married reduces the probability of having access to credit by 83.3%.the studyreveals that being a female reduces the access to credit by 71.3%. Farmers’ access to credit is positivelyaffected by availability of guarantor and a unit increase in interest rate leads to the probability of not havingaccess to credit. Oruonye and Musa (2012) examined the challenges of small scale farmers’ access to micro

credit in Ganol L.G.A. Taraba state, Nigeria. Using a demographic data the findings revealed that about65.7% of the respondent claimed that they have problem accessing micro credit to carry out farming activities at the beginning of farming season. The problems of micro credit accessibility in the study area according to the respondent opinion include high interest rate (20%), delay in approval by government (37.1%) and 34% ofthe respondent did not respond.

In order to fill this gap in the literature and complement other studies, this study assesses the effects of banking sector credit on small scale rice farmers in Osun state. The major reason for talking on the effect of banking sector credit on small scale rice farmers in Osun State is that, according to the research I didn’t find any work thathas been done on the two variables together. So, we focus essentially on productivity, because agricultural productivity is a measure of the performance of the agricultural sector and thus provides a guide to the efficiency of the sector.

Statement of the problem

In Nigeria in general and Ile Ife local government area of Osun state in particular, the agricultural production system is dominated by smallholder farmers. These farmers operate mainly within the limits of their highly insufficient resources which tend to constrain their capacity to employ most recommended technologies in their farms (Ohen and Ajah 2015; and Okereke 2012). This diminishes the ability of these smallholders to optimize food production for both domestic consumption and for income generation. The necessity of this study is based on the fact that there seems to be a gap in knowledge existing in the area of this subject matter in relation to the study area. Therefore, this study was conceived to fill this perceived existing gap in knowledge as a contribution to knowledge towards effective policy formulation

Objective of the study

The main objective of the study is to examine the effect of banking sector credit on small scale rice farmers in Osun state Nigeria using ife and Oriade local government, Ila area while the specific objectives are delineated below:

• Analysis both problem and solution to small scale production of rice in Osun state.
• Examine the effect bank credit on the small scale of rice production in Osun state.

Research hypotheses

The following research hypotheses were formulated;

H1: there is no problem and solution to small scale production of rice in Osun state

H2: there is no effect bank credit on the small scale of rice production in Osun state

 

• Significance of the Study

The significance of the study is to examine the examine the effect of banking sector credit on small scale rice farmers in Osun state Nigeria using Osogbo and Oriade local government, Ila area as a case study. The study will be of importance to economic business investors, policymakers, geographers, economists, students, academicians, professionals as well as government on need to provisions of foods and shelters into the society to broaden the knowledge of individuals on the impact of agricultural development and increase the income the government will generate on the export of food like rice to both the country’s overall economic status  and other African countries  and the rest of the world.

This study will guide the future researchers on the awareness of the rice production effects on household’s status in the study area and other regions. It will also create awareness on the other agricultural produces in the study area. Finally, this study will add to the existing literature knowledge on the topic under discuss and create an avenue for future researchers who wish to delve into the study acquainted of a possible impact on the banking credit to agricultural produce and it effect on the general public.

Scope and limitation of the study

The scope of the study covers effect of banking sector credit on small scale rice farmers. The study will be limited to farmers in Osun state

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work

 

DEFINIATION OF TERMS

RICE:- Rice (Oryza spp. L.), a grain cereal, is an important staple food for the world’s human population, providing more than 20% of the calories consumed worldwide (Kenmore 2003). It has the second highest production worldwide, after maize (Mohanty et al. 2013).

SMALL SACLE:-Small scale enterprise is defined as any enterprise with a maximum asset less than N1 million and with the number of staff employed less than or equal to 10. (International Finance Corporation (IFC) publications (2001).

BANKING CREIDT SECTOR:- Bank credit is usually referred to as a loan given for business requirements or personal needs to its customers, with or without a guarantee or collateral, with an expectation of earning periodic interest on the loan amount. The principal amount is refunded at the end of loan tenure, which is duly agreed and mentioned in the loan covenant.

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