FINANCING OF LIVESTOCK PRODUCTION UNDER THE AGRICULTURAL CREDIT GUARANTEE SCHEME FUND IN SOUTH-EAST, NIGERIA

ABSTRACT

The Agricultural Credit Guarantee Scheme Fund (ACGSF) was established by the Federal  Government  in 1977  in order  to encourage  commercial  and other deposit banks to participate in increasing the productive capacity of farmers through a credit lending programme that will meet the farmers’ needs.  However, there is a growing concern that credit flow from the financial institutions under the scheme to livestock farmers is poor, thus leading to inadequate production and consequently high prices of meat in the markets. The study therefore, is focused on the financing of livestock production by financial institutions under the Agricultural Credit Guarantee Scheme

Fund in South-East states. The specific objectives of the study were to: (i) identify factors influencing credit accessibility of the livestock farmers, (ii) analyse the effect of loan  obtained  from  the  financial  institutions  on  the  farmers’  performance,  (iii) determine the repayment performance of the loan  beneficiaries and its determinants, (iv)  analyse  the  creditworthiness  of  the  loan  beneficiaries  and  (v)  identify  the problems encountered by the farmers who obtained loan from the financial institutions under the scheme.   Two states ( Ebonyi and Imo states ) were purposively selected from the five South-East states. Simple random sampling technique was used to select

90  beneficiaries  in Ebonyi  state and 105 beneficiaries  in Imo  state which  gave a sample size of 195 representing 70% of the sampling frame. Data were collected from December, 2011 to April, 2012 using a structured questionnaire. Data collected were analysed using descriptive statistics, multiple regression, logit and discriminant models.The lending institutions were able to give 52.5% of the loan demand of the livestock  farmers.  The logit result showed  that the significant  determinants of the farmers’  accessibility  to  credit  were  marital  status,  educational  level,  farming experience and total income. The loan obtained by the farmers had significant effect on their income at 5% level of probabilit. The repayment performance of the farmers was high (90.1%). The multiple regression analysis showed that amount of loan obtained, age of the farmer, educational level, household size, livestock value and total income were significant factors influencing loan repayment of the farmers. The discriminant analysis on the credit worthiness of the loan beneficiaries showed that

78.8%  of  the  original  grouped  cases  were  correctly  classified.  The  analysis  also showed  that age, gender, major occupation,  educational level, farming experience, livestock value, household size and total income of the farmers made positive contributions to credit worthiness. The problems encountered by the loan beneficiaries in   their   farming   activities   included   poor  monthly  returns,   high   interest   rate, insufficient loan and high cost of livestock feed.

CHAPTER ONE

1.0     INTRODUCTION

1.1     Background of the Study

Livestock are animals that are reared in the farms (homes) for their economic importance. They are reared for the purposes of consumption, savings and as capital assets. Livestock production can be practised as a small or large scale enterprise. It can also be practised as a full or pastime business.   Examples of conventional livestock are cattle, goat, sheep, pig, and poultry. There are also micro-livestock or mini-livestock. According to Madubuike (2004), micro- livestock or mini-livestock are the small sized animals, vertebrates and invertebrates,  aquatic  or  terrestrial,  of  weight  usually  lower  than  20kg  and usually gathered from the wild.   It includes fish, snail, grass cutter, giant rat, quails and guinea pigs.

Generally, livestock are important because of their products (meat). Livestock products provide animal protein which is very necessary for a healthy human life. Animal protein significantly contributes to the total supply of nutrients in food intake and increases the productivity of human labour (Mahmood, Khalid and Kouser 2009).

The contribution of livestock production to the national objective of providing sufficient animal protein at affordable prices, generating income and providing employment to some of the populace makes imperative the need for assistance in terms of credit to boost production (Okogie, 1999). Also, the principles of Economics and Finance have shown that by using other people’s funds along with his own, an entrepreneur is most likely to improve his business substantially than if he had depended solely on his equity (Lot, 1998).

Credit is the back bone for any business activity including agriculture. Agriculture, as a sector, depends more on credit than any other sector of the economy  because  of  the  seasonal  variations  in  the  farmer’s  returns  and  a changing trend from subsistence to commercial farming (Mahmood, Khalid, Kouser, 2009). This is, in view of the fact that credit plays an important role in enhancing  agricultural productivity,  especially in developing countries (Iqbal, Munir, Abbas, 2003). The unpredictable and risky nature of agricultural production, the importance of agriculture to our national economy, the urge to provide  additional  incentives  to  further  enhance  the  demand  by  lending institutions  for  appropriate  risk  aversion  measures  in  agricultural  lending provided justifications for the establishment of the Agricultural Credit Guarantee Scheme Fund (ACGSF) by the Federal Government of Nigeria in 1977 (Mafimisebi, Oguntade, Mafimisebi, 2008).

The scheme was established to facilitate the flow of institutional credit from commercial and other deposit banks to farmers in order to stabilize their farm productivity,  increase their output, income and loan repayment capacity. The fund is under the management of a board while the Central Bank of Nigeria is the managing agent for the administration of the scheme. In September 2003, the Central  Bank  management  and  Board  of  the  Agricultural  Credit  Guarantee Scheme  Fund  approved  the participation  of licensed  community banks  (now Microfinance banks) in the Agricultural Credit Guarantee Scheme with effect

from January. 2004. The agricultural purposes for which loans can be guaranteed under the scheme are:

a. establishment or management of plantations for the production of rubber, oil palm, cocoa, tea and similar crops;

b. cultivation or production of cereal crops, tubers, fruits of all kinds, cotton, beans, groundnuts, sheanuts, beniseed, vegetables, pineapples, banana and plantains,

c. animal husbandry including poultry, pig, cattle rearing, fish farming, rabbitry, snailery, grass-cutter farming, honey production. (CBN,  1978).

The scope of (c) above was expanded in the Amendment Decree of 1988 to include fish culture, fish captures and storage. As at now, bank loans under the scheme are guaranteed up to 75% against default in payment, subject, in the case of loan to an individual to a maximum of one million naira and in the case of loan to a co-operative society or a corporate body to a maximum of five million naira (CBN, 2005).

1.2   Statement of Problem

Animal protein is usually used as a criterion to measure food quality but this is recognized  as  a  limiting  factor  in  the  diets  of  many  people  in  developing countries.  Nigeria is rated as an animal protein deficient country (Ohajianya, Onyeagocha and Ibekwe, 2006).  Okorie (2002) reported that per capita protein intake  in Nigeria  averages  51.7  grams daily of which  8.6 grams came  from animal sources. This is far below the minimum of 65 grams of animal protein

intake   level   recommended   by   the   Food   and   Agriculture   Organization (Madubuike, 1992). It is also a known  fact that Nigeria imports most of the livestock  and  its  products  such  as  poultry  products,  fish  and  beef  that  are consumed  by  her  citizens.    This  situation  is  attributable  to  low  livestock production and its consequence is low consumption of the products because of high prices.

Though credit has been established as a very important component in agriculture, most farmers especially those engaged in livestock production are constrained in obtaining required credit from formal lending institutions which are  accepted  as the  cheapest  source  of credit  facility (Ikhatua,  2000).    This scenario creates direct and indirect effects on their farm production. Directly, it affects the purchasing power of the farmers to procure farm implements that could lead to enhanced output. Indirectly, it affects the risk behaviour of the farmers (Guirkinger and Boucher,2005).

Credit constraint condition of farmers have been attributed to some socio- economic factors like educational level, farmers’ income, inadequate collateral (Freeman, Simeon, Jabbar, 1998) and rationing factors used by financial institutions to discriminate potential borrowers (Striglitz and Weiss, 1981).The rationing of credit by lending institutions as a result of imperfect information put borrowers into a situation  where the full amount of credit applied  for is not received and in some cases  turned down.

Credit constraint has been shown to be the major cause of low agricultural output  of  farmers  (Iqbal,  1986),  which  manifests  into  low  farm  income. Inadequate  credit  supply  to  farmers  is  a  key  problem  upon  which  other production factors exert negative influence on their output. The inability of most farmers to have access to adequate fund because of constraints is believed to have  heightened  the  problem  of  low  farm  production  in  South-east  states. Increase in livestock products can be achieved from adequate and guaranteed flow of credit into livestock production (Jabbar, Ehui, Von-Kaufman, 2002). The amount of resources that a farmer controls, the terms and conditions under which they are obtained, and the way and manner that they are utilized determine to a good extent the farm output and consequently income. It is also believed that for farmers that are fortunate enough to have access to credit, a wide gap exists between  the  amount  of  credit  requested  and  the  amount  obtained  from  the lending institutions.

It  is  in  recognition  of  the  above  that  the  Agricultural  Credit  Guarantee Scheme Fund (ACGSF) was established in 1977 to encourage commercial and other  deposit  banks  to  participate  in  increasing  the  productive  capacity  of farmers  through  a credit lending program  that will meet the farmers’  needs. However, there is a growing concern that credit flow from financial institutions under the scheme to the farmers especially the livestock farmers in South-east states is poor leading to inadequate production and consequently high prices of livestock  products  in  the market.  It is  common  knowledge  that most of the

livestock  products  consumed  in  the  South  east  states  are  either  imported  or brought in from other states of the Federation. The consequence is high prices of meat in the area. Available statistics indicate that the average price of a kilogramme of meat in the Southeast is N1000.00. This is high in view of the income level of majority of the population. It becomes plausible therefore, for an investigation into the relationship between the livestock farmers’ circumstances and  their  receipts  or otherwise  of loan  from  financial  institutions  under  the scheme. This will assist in determining how the lending institutions respond to the borrowing demands of the farmers in the study area.

Farmers’  accessibility and  enhanced borrowing  capacity to adequate  credit have been accepted to be a key to improved farm output.   It is believed that access to agricultural credit from banks is an issue of segregation along social strata, as the banks are apprehensive of the farmers’ creditworthiness.  This study is   therefore,   designed   to   determine  how  credit   under   guarantee  by  the Agricultural Credit Guarantee Scheme Fund (ACGSF) is assessed by livestock farmers  in  South-east,  Nigeria.  It  will  also  examine  the  effect  of the  credit obtained  on  the output of the farmers as well as the  factors  influencing  the amount of credit obtained under the scheme by the farmers.

Agricultural lending involves giving out of credit to farmers for agricultural purposes. Lending for agriculture is a risky business because its repayment can hardly be fully obtained (Kohansal and Mansori, 2009). It is reported that agricultural  loan  repayment  is  poor  especially  among  formal  institutions  in

Nigeria (Ukoha and Agwamba, 2002; Njoku and Obasi, 1991), as farmers are believed to use credit obtained for farming activities for other uses. This raises the question of creditworthiness or otherwise of the beneficiaries and their characteristics.   According   to   Von-Pischke   (1991),   poor   agricultural   loan repayment in most developing countries has made formal institutions to meticulously screen  farmers’ applications.  This is to determine  who  is more likely to repay as and at when due. Also, loan beneficiaries are closely monitored on their use of lent funds to ensure that they are used majorly for the purpose for which it was lent so as to increase the likelihood of repayment. The inability of the borrower to repay the borrowed  fund in accordance  with  the  loan terms constitutes a major problem in credit administration. According to Arene (1993), losses in both principal and interest to banks can result in loan shrinkage, liquidation,  and  ineffectiveness.  Formal  lending  institutions  concerned  with losses from untimely repayment and default seek to minimize these by choosing carefully  the  distribution  of  credit  among  the  loan  applicants.    It  becomes plausible therefore, to assess the credit receipts, its effect on farm output and the repayment performance of the     farmers who obtained loans for livestock production  under  guarantee  by  the  ACGSF  and  also  empirically  determine factors influencing their loan repayment.

1.3   Objectives of Study

The  broad  objective  of  this  study is  to  evaluate  the  financing  of  livestock production by financial institutions under the Agricultural Credit Guarantee Scheme in South-east, Nigeria. The specific objectives are to

i. identify factors influencing credit accessibility of the livestock farmers from lending institutions under the scheme;

ii.  analyse  the  effect  of  loan  obtained  from  the  lending  institutions  on  the farmers’  output;

iii. determine the repayment performance of the loan beneficiaries for livestock production and factors influencing it;

iv. determine the creditworthiness of the  livestock farmers who obtained  loan from the lending institutions under the scheme;

v. identify the problems encountered by the farmers who obtained loans from lending institutions under the Agricultural Credit Guarantee Scheme in their farm business, and

vi. make recommendations based on findings in this study.

1.4 Hypotheses of the Study

The following null hypotheses were tested in this study.

i. Socio-economic characteristics do not influence the amount of loan granted to the livestock farmers in Southeast, Nigeria;

ii. Amount of loan obtained does not significantly affect the livestock farmers’

income.

iii. Socio-economic characteristics of livestock farmers in Southeast, Nigeria do not significantly influence loan repayment.

1.5 Significance of the Study

The primary objective of the Agricultural Credit Guarantee Scheme Fund is to surety loans for agricultural purposes in case of default thereby promoting issuance of loans to agriculture from formal lending institutions. This is aimed at facilitating accessibility of farmers to credit for enhanced production, as credit plays an important role in farm production (Okorji and Mejeha, 1993; Nweze,

1995).Unfortunately, there is still the problem of high prices of livestock and its products in the area which is linked to low output. The low output has been linked to inadequate flow of institutional credit to the farmers.

Also,  studies  conducted  on  the  lending  institutions  under  the  Agricultural

Credit Guarantee Scheme (Oguoma,2002;  Mafimisebi,  Oguntade, Mafimisebi,

2008) concentrated on credit supply and were not able to address issues relating to credit demand of the farmers.  This study is therefore, designed to fill the gap and serve as a data base for further research. The results of this study will enable the government to re-examine the ACGSF guidelines as it affects livestock production in view of the importance of its products in the healthy living of the populace.  It will also, bring to the fore the extent to which lending institutions under the scheme have been able to meet the credit demand of the livestock farmers in the study area.

The findings of this study will be beneficial to livestock farmers in the states as it will highlight the advantages of using credit from institutional sources under guarantee by the ACGSF. It will assist livestock farmers in knowing the indices used by lending institutions in granting loans. To students and researchers on agricultural credit, this study will serve as a vital document for further research especially as it relates to agricultural financing in South-east, Nigeria.

1.6 Limitations of the Study

Some limitations were encountered in the course of this research work. First was the reluctance of officials of lending institutions under the scheme to give information on their customers. The bank officials considered most of the questions as “probing” and a likely breach of their oath of secrecy. This was overcome through informal assurances to the bank officials.

Another limitation encountered was the reluctance of some of the farmers to answer the questions in the questionnaire. Also, some of the farmers expressed the view that   their borrowing is “a confidential and private matter” that should not be disclosed to another person. This was overcome through personal appeals and with the bank officials’ assurances that all the information supplied will be treated with strict confidentiality and for academic research only.

Finally, there were initial logistic problems encountered in locating the farmers with  the  address  supplied  to the  lending  institutions.  This was overcome  by employing  an  assistant  who  is  familiar  with  the  terrain  and  using  the  bank officials in questionnaire administration

₦5,000.00 – DOWNLOAD FULL PROJECT DOWNLOAD FULL PROJECT Added to cart

---

---

---

---

Related Project Topics :