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:
- establishment or management of plantations for the production of rubber, oil palm, cocoa, tea and similar crops;
- cultivation or production of cereal crops, tubers, fruits of all kinds, cotton, beans, groundnuts, sheanuts, beniseed, vegetables, pineapples, banana and plantains,
- 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
- identify factors influencing credit accessibility of the livestock farmers from lending institutions under the scheme;
- 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;
- determine the creditworthiness of the livestock farmers who obtained loan from the lending institutions under the scheme;
- identify the problems encountered by the farmers who obtained loans from lending institutions under the Agricultural Credit Guarantee Scheme in their farm business, and
- make recommendations based on findings in this study.
1.4 Hypotheses of the Study
The following null hypotheses were tested in this study.
- Socio-economic characteristics do not influence the amount of loan granted to the livestock farmers in Southeast, Nigeria;
- 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