Nigerian Journal of Agriculture, Food and Environment. 8(1):1-9 Published March, 2012 Adekunle, et al., 2012

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1 RURAL FINANCIAL SERVICES AND POVERTY ALLEVIATION: THE ROLES OF THE NIGERIAN AGRICULTURAL COOPERATIVE AND RURAL DEVELOPMENT BANK (NACRDB) IN OYO STATE, NIGERIA ABSTRACTS Adekunle 1, A., Adegbite 2, D. A. and Fakayode 3, S. B. 1,2 Department of Agricultural Economics and Farm Management, University of Agriculture, Abeokuta, Nigeria 3 Department of Agricultural Economics and Farm Management, University of Ilorin. P.M.B 1515, Ilorin. Nigeria * segun_fakayode@yahoo.com, Cell Number This study examined activities of the Nigerian Agricultural Co-operative and Rural Development Bank NACRDB vis-à-vis poverty alleviation in rural Nigeria, using Oyo state as a case study. Specifically, the study investigated the loan administration activities of NACRDB, identify factors affecting the volume of NACRDB loan obtained and compared agricultural output level of the beneficiaries and non-beneficiaries of NACRDB loans. For the study, sixty two farmers households (31 loan beneficiaries and 31 non-beneficiaries) were surveyed across the study area. Data gathered during the study were analysed with the OLS regression and difference of means test. Results from the study have revealed that farmers have large household sizes, of low formal educational status and poor formal organizational membership. Factors responsible for the volume of loan accessed by NACRDB were found to include farm size and farmers farming experience loan. The study also revealed no significant difference between output level of the loan beneficiaries and non beneficiaries implying that the volume of loan received by the loan beneficiaries has not impacted significantly on their level of production. Based on the study findings, the study therefore calls for efforts at increasing NACRDB loan sums availed farmers, in order to improve their output level. monitoring of loan use, adequately mobilization and education of NACRDB loan beneficiaries. Keywords: rural Nigeria, loan administration activities, beneficiaries, non-beneficiaries, mobilization, education. INTRODUCTION Over the years, various governments had placed much emphasis on sustainable agricultural development through various strategies. Unfortunately, however, food output had continued to decline as evident in high prices of food item (Umeaboli and Mbachu, 2001). Schuh (1989) stated that developing countries are so often food deficit especially when so many of them as well endowed with natural resources with a major portion of their population employed in agriculture. This is because these countries significantly under invest in the human capital needed to modernize their agriculture secondly, their economic policy discriminate severely against their agricultural sector, i.e. policy makers do not provide adequate economic incentives for their agricultural producers. Assurance of food supplies at reasonable cost has been a major concern to overtime. However, agriculture has been the predominantly source of the Nigerian economy during the pre-oil boom era employing over 80 per cent of the population and contributing to over 70 per cent of the Gross Domestic Product (GDP) (Mejeha, 2001). Before 1970s direct intervention by the Federal Government on Agricultural activities were minimal. The bulk of agricultural activities were handled by a large number of small holder farmers and few large scale farmers who provided all the inputs who also have to market their product on their own (Majeha, 2001). The introduction of agricultural credit policies in 1960s was an intervention measures which the Government adopted to direct the growth of and development of agriculture. Since then, specific credit policy prescription became an annual exercise (Balogun and Otu 1990). Before the Central Bank of Nigeria (CBN) introduced the credit guidelines, financial institutions were reluctant to grant loans for agricultural production, the reasons being that returns on agricultural investments were low compared with investment in other sectors. In order to solve this problem the Federal Government in early 1970 through the credit guidelines encouraged banks to finance agriculture through moral suasion and control (Balogun and Otu 1990). In an effort to facilitate credit flow to farmers, Federal Government of Nigeria established a specialized financial institution namely the Nigerian Agriculture and Cooperative Bank (NACB) was established in 1973 and complementary schemes, Agricultural Credit Scheme Fund (ACSF). Furthermore, in an attempt to provide formal insurance cover for the financial risk associated with agricultural enterprises, the Nigerian Agricultural Insurance Company (NAIC) was established in Similarly in 1989, the Peoples Banks of Nigeria (PBN) was established with main objectives of producing basic requirements to the poor rural Nigerians. Also the programme for the establishment of Community Banks started in NJAFE VOL. 8 No. 1,

2 December, 1990 (CBN 1997). The Family Economic Advancement Programme (FEAP) was established in August, 1997 to provide credit for agricultural production and processing cottage and small-scale industries through cooperatives societies. Finally, Nigerian Agricultural, cooperatives and Rural Development Bank (NACRDB) was established following the merger of Nigerian Agricultural Cooperative Bank (NACB), Peoples Bank of Nigeria (PBN) and Family Economic Advancement Programmes (FEAP) in the past (Oyebola, 2003). Thus, Nigerian Agricultural, Cooperative and Rural Development Bank (NACRDB) is dedicated primarily to agricultural financing at both the micro and macro levels as well as micro financing of small and medium scale enterprises. It is with these in mind, that the study was focused on the roles of Nigerian Agricultural, Cooperative and Rural Development Bank (NACRDB) in its performance of rural financial services in poverty alleviation. The roles of agriculture in Nigeria It is not an under statement to say that there is a shortage of food in Nigeria in the last three decades. Before the discovery of oil in the 1970s, there was a high food production in the country which has not only fed people but also earned the nation huge amount of foreign exchange (CBN, 1992). Among the roles conventionally played by agricultural sector in the nations economy are those of provision of adequate food for an increasing population, supply of raw materials for the industrial sector, provision of employment, foreign exchange earnings through commodity exports as well as provision of market for the products of the industrial sector. According to the report on the First Nigeria Economic Summit 1993 it was reported that, the overall role of agriculture, which is primarily to provide goods and industrial raw materials has not been fulfilled over the years. It was stressed further that the effect can result in increasing poverty level in the country. According to Ukwu (2002), The meaning of poverty to many is diverse. It means different things to different people in contexts and circumstances. The most basic meaning refers to poverty refers to as the quality or conditions of being poor; the condition of having little or no wealth or material possession. In the absolute term poverty afflicts farm families whose output and income cannot produce some minimum standards of living (Clayton, 1983). As Ukwu put it in 2002 the eradication of poverty is universally accepted as primary development objectives. Today Nigeria is one of the poorest nations of the world and is confronted not just with pockets of poverty-disadvantaged or unorganized areas, groups and individual but with mass poverty as a situation in which most of the people live a very sub-standard lives. The reduction of poverty is the most challenge facing any country in the developing world when on the average majority of the population is considered poor. Evidences in Nigeria show that the number of those in poverty has continued to increase. For example, the number of those in poverty increased from 27 percent in 1980 to 46 percent in It declined slightly to 42 percent in 1992 and increased very sharply to 67 percent in By 1999, estimates had it that more than 70 percent of Nigerians lived in poverty (Ogwunike, 2002). In 2001, the Federal Government increased the allocation to poverty alleviation programmes by 150 percent (Ogwumike, 2002). This is because poverty alleviation was seen as a means through which the Government can revamp the battered economy and rebuild self-esteem in majority of Nigerians who had been dehumanized through past military regimes. This study therefore intends to see the roles played by the Nigerian Agricultural Cooperatives and Rural Development Bank (NACRDB) as a specialized rural financial institution in its delivery of services for rural poverty alleviation. Statement of the problem It has been observed over the years that, capital is one of the major constraints to increasing agricultural production. Small-scale farmers in Nigeria have been faced with the inability to access loans due to the terms and conditions required to borrow in formal financial institutions. These procedures are often constrained by the official procedures involved in the acquisition of the loans as well as the requirements to produce substantial assets as security before his application for loan could be considered by the institutions. Though some farmers were able to obtain loan in the past, the volume received was often below the required amounts. The specialized financial institution such as Nigerian Agricultural Cooperative Bank (NACB), Peoples Bank of Nigeria (PBN), and Family Economic Advancement Programme were however unable to arrest these situation. The creation of the Nigerian Agricultural Cooperatives and Rural Development Bank (NACRDB) was therefore meant to correct these anomalies. This study therefore aimed at evaluating the roles in rural financial services for enhancing agricultural production, hence in alleviating poverty. Justification for the study Various efforts have been made by successive Government to ensure increase in agricultural production and reduce poverty level among the small-scale producers in Nigeria. One of such efforts informed the establishment of the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB). The study intends to examine the financial institution s activities in the rural financial services for reducing poverty level among the rural dwellers, as well as its performance in the target objectives of fostering and accelerated growth and development of the agricultural and rural economy, providing all classes of agricultural loans for farming, livestock, poultry and fisheries NJAFE VOL. 8 No. 1,

3 and purveyance of affordable credit facilities to the less privileged segments of the Nigerian society who cannot readily access the services of conventional banks. This study also intends to examine the operations and roles of the institution in the selected study area and to see if there are changes and improvement in the institutional policies that could enhance the performance of the Bank in harnessing credit to small-scale farmers in an attempt to reduce poverty. The bank and other credit Agencies will benefit from the recommendation emanating from the study, could also enhance their operational efficiency. The policy makers will also benefits from the study it could be used as a guide in the future policy formulations. Objectives of the study This study examined the performance of the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) vis-à-vis its agricultural financing activities towards poverty alleviation in Oyo State. Specifically the study: Assessed socio economic characteristics of beneficiaries and non-beneficiaries of the NACRDB loans the study area investigated the loan administration activities of NACRDB in the study area Identify factors affecting the volume of NACRDB loan obtained Compare agricultural output level of the beneficiaries and non-beneficiaries of NACRDB loan MATERIALS AND METHODS Study area The study covered Oyo West Local Government area of Oyo State. Oyo State as one of the 36 states of the Federation is located on the South-West of Nigeria. The state covers an area of approximately 32,241.8km2. It lies between the latitude 70 o 02 and 90 o 10 North and longitude 20 o 04 and 40 o 30 East. It is bounded on the West by the Republic of Benin, East by Osun State, North by Kwara State and Niger State and the South by Ogun State. Oyo West Local Government Area, is located towards the western part of Oyo Metropolis made up of Atiba, Oyo East, and Oyo West Local Government Area which are offshoots of the defunct Oyo Local Governemt. It was bounded in the North by Atiba Local Government, in the East by Oyo East Local Government, in the West by Iseyin Local Government and the south by Afijio Local Government Area. The headquarters of the Local Government council is located along Oyo- Iseyin road, Ojongbodu about 45km form the State Capital, Ibadan. A total of 137 villages/wards were identified and are estimated household is put at 13,331,21.6% and 20.3% of the villages have primary and secondary schools respectively located within 2.5km radius. Farming and trading are the identified primary and secondary occupations. There are nine ethnics group residing in the area and Yoruba is the first major group 46% of the household can speak English language 66% of the farm families have access to extension services. The major crops produced in the area are Cassava, Maize, Yam Cowpea and Livestock kept including poultry, piggery, fishing and cattle. Sampling technique Systematic sampling method was used to collect the information from 31 respondents. From the list of the NACRDB loan beneficiaries obtained from the NACRDB Bank branch office in the study area, beneficiaries were selected randomly across their respective localities/local Government Area. The interview questionnaire were administered to each beneficiaries selected from the list in the local government area. Also the list of farmers non-beneficiaries of NACRDB loans across Local Governments Areas in the study area area were obtained from the Agricultural Development Programme office of Oyo State. 31 respondents which are loan non-beneficiaries were therefore also selected and interviewed for the study. Furthermore copies of questionnaire were administered Supervisors of the NACRDB branch banks in the study area. This was carried out in order to collect data about activities of NACRDB in the study area. Type of data This study relied mainly on primary data from administered interview guide to the farmers, both loan beneficiaries and loan non-beneficiaries while secondary data were obtained from the branch of the Nigerian Agricultural, Cooperative and Rural Development Bank (NACRDB) in the study area. Data analysis Descriptive statistics were used to determine the socio-economic characteristics of the beneficiaries and nonbeneficiaries of the NACRDB loans in the selected study area. For objective two descriptive statistics was used to analyze the administration of loan activities by the financial institution. Multiple regression analysis was used to analyse the factors affecting the volume of loan and the relationship of the factors to the volume of loan received by the beneficiaries. It is stated as NJAFE VOL. 8 No. 1,

4 Y=f (X 1, X 2, X 3, X 4.. U)..(1) Where, Y =volume of loan received (Naira) X 1 = education level (years) X 2 = farm size (ha) X 3 = faming experience (years) X 4 = gender dummied as 0 for male and 1 for male U = error term Model estimation Linear function Y= b 0 + b 1 X 1 + b 2 X 2 + b 3 X 3 + b 4 X 4 + b 5 X 5 U Semi log function Y= b 0 + b 1 log 1 + b 2 logx 2 + b 3 logx 3 + b 4 logx 4 + b 5 logx 5 U Double - log form Log Y = b 0 + b 1 logx 1 + b 2 logx 2 + b 3 logx 3 + b 4 logx 4 + b 5 logx 5 U Where, bo = constant bis = parameters to be estimated U = error term Criteria for lead equation The following criteria are used in choosing lead equation of the regression analysis The coefficient of Multiple Determination (R 2 ) which must be between 0-1 The significance of the estimate with respect to their t value. The a priori of the explanatory variable. The measure of the overall significance of the regression model using the F- test. To compare the output of the beneficiaries and non beneficiaries of the loan, the difference of Means was used. The equation is as 1-1 T = σ 2 + σ Where N 1 N 2 1 = mean output level of the loan beneficiaries 2 = mean output level of the loan non-beneficiaries σ 2 = Standard deviation of output level of loan beneficiaries 1 σ 2 = Standard deviation of output level of loan beneficiaries 2 N 1 = number of respondents (beneficiaries) N 2 = number of respondents (non-beneficiaries) RESULTS AND DISCUSSION Socio-economic characteristics of respondents The respondents socio-economic characteristics analysed during the study were household size, education level, age, social organization and their farming experience. This is discussed as follows: NJAFE VOL. 8 No. 1,

5 Table 1: Respondents household size Size Loan beneficiaries Loan non-beneficiaries Frequency Percentage Frequency Percentage and above Total Mean 7 7 Education Status Non formal Primary Secondary Tertiary Total Age in years < and above Total Membership of organization Member Non-members Total Source: Field Survey, Table1 shows the household size of the respondents, for loan beneficiaries their mean households size consisted of 7 members, while the modal household size group (45.0%) was made up of between 5-7 members. For the loan non beneficiaries, their mean households size consisted also of 7 members with a similar modal household size group (45.0%) made up of between 5-7 members. This means that majority of the respondents have the household size that comprised between 5-7 members. The investigation on respondents educational status showed that most of the loan beneficiary respondents (45.0%) have had non-formal education. Few of them have had tertiary education For the non-beneficiary respondents, most of them (55.0%) have not had any form of formal education while only very few have had tertiary education. However loan beneficiaries that have attained formal education including primary, secondary and tertiary were more than their non-beneficiaries counterparts implying that farmers who acquired formal education benefited more than those who had not acquired formal education. Regarding respondents age characteristics, the Table that about one-third of the loan beneficiary respondents (35.48%) fall between years age brackets with mean age of 45 years. The modal age was 51years. For loan nonbeneficiary respondents, over one- third of them were aged between years with a mean age of 42 years. Their modal age was 45 years. This result implies that majority of loan beneficiaries and non-beneficiary respondents are middle age and youthful farmers. These groups belong to the economically active population category (FAO, 1997). To a large extent, the involvement of farmers in social-organizational activities especially those of cooperative societies will make available, large amount of pooled rural resources, especially funds for their farming and other livelihood activities. This is more so since farmers that belong to co-operative societies could be better informed about financial institution s activities in their area while the farmers non-cooperator may not be adequately informed about the activities of the financial institutions. Further analysis showed that over half of the loan beneficiaries were members of social organization including multi-purpose farmers co-operatives and farmer groups. However, most of loan non-beneficiaries reported that they were not members of social organizations including multi-purpose farmers co-operative and farmer groups. The findings on social-organizational membership of respondents therefore implies that those that belong to a co-operative society may be informed about the financial institution s activities in the area, while farmers without any organization may not be adequately informed about the activities of financial institutions. NJAFE VOL. 8 No. 1,

6 Table 2: Respondents Farming Experience Loan beneficiaries Loan non-beneficiaries Frequency Percentage Percentage % Frequency Percentage % <3years years years years and above Total Mean 8 9 Field Survey, 2005 It is usually expected that farmers with less farming experience will benefit least from the Bank. Table 2 shows the farming experience of the farmer respondents. For the loan beneficiaries, most of them have had about 8 years of farming experience, while the loan non-beneficiaries have had between 9 years. Administration of loan by the institution Table 3 shows the number of NACRDB loan applicants in 2003 and 2004 which is 188 and 128 respectively. Total number of loan awardees were however, 175 and 120 respectively. This was reportedly, because not all the applicants met the requirements to obtained bank loans. Total amount requested by loan applicants and total amount approved in 2003 totaled N16,720,000 and N19,775,000 respectively while for 2004, it was N15,549,600 and N18,588,500 respectively. Table 3: Total Number of applications for agricultural loan for 2003 and 2004 Year No. of No. of loans Amount Amount Applicants granted request (N) approved (N) ,720,000 15,549, ,775,000 18,588,500 Total ,495,000 34,134,100 Field Survey, 2005 Regression estimates of factors affecting volume of loan obtained Regression estimates explains the influence of a change in the value of independent variables on the dependent variable. Table 4 shows the regression result from the three functional forms regressed they are linear function, semilog function and Double-log function which were compared so as to identify the lead equation. On the basis of the magnitudes of the adjusted coefficient of multiple determination (R 2 ), the number of variables that were significant, F- ratios and the number of variables that meet the a priori expectation, the double log function was selected. The estimated regression equation result is presented as equation (2). log Y= log X log X* log X logx* 4... (2) F=2.685 R 2 =0.537 The coefficient of multiple determine (R 2 ) of the lead equation (Double-log) is implying that about 53.7% of the variability in the volume of loan obtained by loan beneficiaries is explained or determined by the independent variables. The significant independent variables determinants were found to include farm size and farming experience. The insignificant variables were however education status of the farmer and age of the farmer. This findings implication therefore is that a change in farm size and farming experience of the farmers will lead to variation in the amount of loan accessed by NACRDB loan beneficiaries. NJAFE VOL. 8 No. 1,

7 Table 4: Regression estimates of determinants of Volume of Loan Obtained by Loan Beneficiaries Functional b o b 1 b 2 b 3 b 4 R 2 F-Ratio form Linear *** (t-value) (1.26) (-0.58) (2.34) (0.29) (-1.34) Semi-log *** ** (t-value) (0.70) (-0.81) (3.37) (0.30) (-1.70) Double-log *** ** (t-value) (8.08) (0.91) (2.48) (-0.12) (-1.69) Field Survey, 2005 *** Coefficient significant 1% ** Coefficient significant 5% a prior b 1>0, b 2>0, b 3>0, b 4>0, b 5>0 Agricultural Output Level of loan Beneficiaries and Non-Beneficiaries In order to compare the output level of the loan beneficiaries and non beneficiaries, difference of means was used. Table 5 presents the comparisons result Table 5: Difference of means Statistics for Maize and Cassava Output of Beneficiaries and non-beneficiaries For maize output, Beneficiaries 1= σ 2 1= n 1 =31 Non-beneficiaries For cassava output 2 = σ 2 2= n 2 =31 Beneficiaries 1= σ 2 1= n 1 =31 Non-beneficiaries 2= σ 2 2= n 2 =31 Crops Beneficiaries Non-beneficiaries Maize Mean SD Cassava Mean SD Total/Observation Field survey, 2005 For Maize output Z statistic = not significant even at 10% level For Cassava output Z statistic = not significant even at 10% level Based on the significant non-significant Z-scores obtained for both maize and cassava output comparisons between the loan beneficiaries and loan non-beneficiaries, it is indicated that there is no significant difference between output level of the loan beneficiaries and non beneficiaries. This implies that the volume of loan received by the loan beneficiaries has not impacted significantly on their level of production. This could probably be because loan beneficiaries mismanaged sum awarded to them. Most of them however reported that they received very low sum. The difference of means result findings could also be because loan non-beneficiary respondents have other occupations which they were engaged in. they usually financed their farms from the savings money realized from NJAFE VOL. 8 No. 1,

8 these engagements. Some of them however obtained loan from other financial institutions such as cooperative society at rates cheaper than those of the banks. CONCLUSION AND RECOMMENDATIONS This study examined activities of the Nigerian Agricultural Co-operative and Rural Development Bank vis-à-vis poverty alleviation in rural Nigeria, using Oyo state as a case study. Findings from the study have revealed that farmers have large household sizes, of low formal educational status and poor formal organizational membership. Factors responsible for the volume of loan accessed by NACRDB were found to include farm size and farmers farming experience loan. The study also revealed there is no significant difference between output level of the loan beneficiaries and non beneficiaries implying that the volume of loan received by the loan beneficiaries has not impacted significantly on their level of production. Based on the study findings, the study recommends as follows: Efforts should be made to increase the volume of loan given to the farmers in order to improve their output level. If the volume of loan is small it would have little impact on the production level. A means of monitoring the utilization of loan should be devised so that the farmers will use loan sums what it was applied for the loan. Also loan beneficiaries must be adequately mobilized and educated on how to use loan effectively and efficiently and to repay the loan promptly. Disbursement of the loan should be timely so as to allow the farmers to use it as at when due especially at the beginning of planting season. Bureaucracies in loan processing must be reduced not to frustrate the intending loan applicants. The on-going too bureaucratic protocols need urgent review. REFERENCES Adegeye, A. J. and Dittoh, J. S. (1987): Essentials of Agricultural Economics. Oxford University Press Limited, London. Pp Akanji, O. O. (2002): Micro- Finance as a strategy for Poverty Reduction CBN Economic and Financial Review, 39(4):12 Aliyu, A. (2002): Restructuring of the Poverty Alleviation Activities of the Federal Government of Nigeria. National Poverty Eradication Programme Report, Abuja. Balogun, E. D. and Otu, M. F (1990): Credit Policies and Agricultural Development in Nigeria CBN Economic and Financial Review. 29 (2): Besley, T. (1996): Political Economy of Alleviating Poverty: Theory and Institutions, in Bruno, M. and Pleskovic, B (ed) Annual World Bank Conference, on Development Economy Bruno, M. Squire, L. and Ravallion, M (1995): Equity and Growth in Developing Countries Old and New Perspectives Policy Research Working Paper World Bank, Washington D.C. Central Bank of Nigeria (CBN) (1992): The Impact of SAP on Nigerian Agriculture and Rural Life A CBN/NISER National Study, (3) Pg 1 Central Bank of Nigeria (CBN) (1997): Economic Report for the First Half of 1997, Research Department, CBN, Abuja, Pg 8. Central Bank of Nigeria (CBN) (1999): Nigeria s Development Prospect: Poverty Assessment and Alleviation Study of Central Bank of Nigeria in collaboration with the World Bank (1999).. Claton, E. (1983): Agriculture, Poverty and Freedom in Developing Countries. The Macmillan Press Ltd, London First Nigerian Economic Summit (1993): February 18 20, 1993 Abuja. Published by Spectrum Books Ltd, Ibadan Pp Ijere, M. O. (1980): New Perspective in financing Nigeria Agriculture. Fourth Dimension Publishing Company Limited Enugu, Nigeria, Nigeria. Pp Kurien, C. T. (1978): Poverty, Planning and Social Transformation, Allied Publishers Private Ltd, Pg 56. Mejeha, R. O. (2001): Institutional Financing of Agricultural Production in Nigeria. Problems and Policy Issues. Proceedings of the 35 th Annual Conference of the Agricultural Society of Nigeria. September 16-20, Naraya, d. and Petesch, P. (2002): Voices of the Poor From Many Lands, World Bank Technical Report (2002), New York. Ogwumike, F. O. (1995): The effects of Macro-level Policies on Rural Development and Poverty Alleviation in Nigeria. Ibadan Journal of Social Sciences, 1(1): pp NJAFE VOL. 8 No. 1,

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