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1.0 Introduction – – – – – – – – – 1

1.1 Background of the study – – – – – – – – 1

1.2 Statement of the Problem – – – – – – – 4

1.3 Research Questions – – – – – – – – 4

1.4 Objective of the Study – – – – – – – 5

1.5 Hypothesis of the Study – – – – – – – 5

1.6 Significance of the Study – – – – – – – 5

1.7 Limitation of the Study – – – – – – – 6

1.8 Scope of the Study – – – – – – – – 6



2.0 Introduction- – – – – – – – – – 7

2.1.0 Brief Historical Background of the Study- – – – – – 7

2.1.1 Microfinancing and Small Scale Agriculture: An Overview – – – 9

2.1.2 Concept of Micro-Financing and Small-Scale Agricultural Development 11

2.1.3 The Strategy for Microfinance Banking – – – – – 12

2.1.4 Justifications for the Establishment of Microfinance Banks for

Small Scale Agricultural Development – – – – – 14

2.1.5 Frameworks for the Supervision of microfinance Banks – – 15

2.2.0 Microfinance And Agricultural Development in Nigeria – – – 17

2.2.1 The Roles of Microfinance in Agricultural Development – – – 17

2.2.2 Microfinance Institutions that Advance Loans to Agriculture – – 18

2.2.3 Problem Militating Against Small-Scale Farmers in Getting Microfinance

Loans – – – – – – – – – – 20

2.2.4 Microfinance Policy to the Agricultural Sector – – – – 21

2.2.5 Roles of Government in the Promotion of Agriculture in Nigeria – 22

2.2.6 Contributions of Agriculture to Economic Development – – – 25

2.3.0 The Impacts Of Micro Finance Banks On Small Scale Agriculture – 29

2.3.1 Microfinance Banks in Nigeria and their Financial Positions – – 29

2.3.2 Small Scale Agricultural Activities in Nigeria – – – – 33

2.3.3 A Small Scale Rice Production In Nigeria – – – – – 33

2.3.4 B Small Scale Cassava Production In Nigeria – – – – – 34

2.3.3 c Small Scale Yam Production in Nigeria – – – – 38

2.3.4 Disbursement of Microfinance Credit to Small Scale Farmers – – 39

2.3.5 Impacts of Microfinance Credits to Small Scale Agricultural Production

(Rice, Yam, & Cassava) – – – – – – – 43



3.0 Introduction – – – – – – – – – 45

3.1 Sources Of Data – – – – – – – – 45

3.2 Methods Of Data Collections – – – – – – 45

3.3 Method Used In Analysis – – – – – – – 45

3.4 Research Problems and Limitations – – – – – 46


4.0 Data Analysis – – – – – – – – 47

4.1 Data Presentation – – – – – – – – 47

4.2 Model Specification – – – – – – – – 48

4.3 Model Estimation – – – – – – – – 49

4.4 Model Evaluation – – – – – – – – 49

4.4 Interpretation of Result – – – – – – – 51



1.1 Background to the Study

The revitalization of the agricultural sector has been the cornerstone of the government development policy. This is aimed at moving the country quickly to self-sufficiency in food production of agricultural raw materials for domestic agro-based industries. The need to increase agricultural productivity is implicit in the fact that It remains the leading non-oil sector of Nigerians population. The main objective of the agricultural policy as laid down by “Agricultural Policy for Nigerian”- 1988, are Attainment of self Sufficient in basic foods commodities, increase production and processing of export crops, modernization of agricultural production, processing, storage and distribution through improved technology, increase rural population and lastly improved protection of agricultural lands.

In most developing countries, agriculture is both the main traditional pursuit and the key to sustained growth of the modern economy. Stagnation in agriculture is the Principal explanation for poor economic performance while rising agricultural productivity has been the most important concomitant of successful industrialization.

After independence, the agricultural sector accounted for 53% of GDP by 1980. This has however gone down to 36%. The aggregate index of agricultural production with 1984 as the as the base year rose by 5% in 1993 compared to 66% and 59% in 1992 and 1991 respectively (Abdullahi,1991). Agriculture constitutes the dominant sector of populations who are small farm producers and reside in the rural areas. It is observed that over 80% of the rural population in Nigeria are small holders farmers. (Mellor, J. W., 1996).

As a matter of history, up to early 1970s, agriculture dominated Nigeria’s economy, but since then oil has held the principal position and Nigeria started to experience growth without development. As a result, agriculture has suffered, and increasingly, has occupied a back seat in our drive towards economic take-off. Stagnation on agriculture became more apparent during the 1970s and agricultural services to the economy started to decline at an increasing rate and thus, the Nigerian agriculture is now characterized by low income, low levels of capacity to satisfy the food and fibre needs of the country, primitive techniques of production. According to Ogunfiditimi (1996) it is in fact now a proto-type of peasant Agriculture, which is caught in a vicious circle of poverty, that is, low income, leading to poor savings and little investment in yield-increasing technology. Because technology is poor, both output and income are low.

As part of government strategy to attain increased productivity in the agricultural sector, several policies, activities and projects were being formulated. These include developing rural infrastructure, supply of fertilizers, seeds and other inputs, improving agricultural extension services, and provision of credits aimed at encouraging small scale agriculture.

The predominant of small scale agriculture is a resource based agriculture and is basically subsistence. The farm size ranges from 0.10 hectares to 5.99 hectares and often is scattered holdings per household, production inputs consist mainly of land and family labour. Capital investment is negligible, inputs like fertilizers and chemicals are seldom used and levels of production technology are low. Soil fertility is maintained by bush fallowing, the production is much less market oriented. Several policies to enhance small scale agriculture are been taken by various governments, however, the corresponding impact on production has not been realized, as policies are seldom fully implemented and fraught with frequent changes. This is due to a variety of reasons changes. This is due to a variety of reasons such as shortage and improper disbursement of funds, lack of executive capacity and manpower management problems and inadequate plan preparations.

According to Soludo (2006), sustained small scale agriculture cannot be achieved without putting in place well focused programmes to reduce the problem militating small scale agriculture (farmers) by increasing their access to factors of production especially credit. The latent capacity of the rural small scale farmers would be significantly enhanced though the provision of micro financial services. Microfinance is about proving financial services to the poor who are traditionally not served by the conventional institutions. He believes that microfinance can be distinguished from other formal financial product though the smallness of loans advanced, the absence of assets based collateral and the simplicity of operations which is at the level of the common man.

The practice of microfinance in Nigeria is culturally rooted and dates back several centuries. The traditional microfinance institutions provide access to credit for the rural and urban low income earners. They are mainly of the informal Self-Help Groups (SHGs) or Rotating Saving and Credit Association (ROSCA). Others include saving collectors and co-operative societies which have limited outreach due to inadequate loan-able funds.

In order to enhance the flow of financial services to Nigerian rural areas, government has in the past initiated a series of publicly financed micro/rural credit programmes and policies targeted at the poor. Notable among such programmes were the Rural Banking Programme, sectorial allocation of Credit on concessionary interest rate and the Agricultural Credit Guarantee Scheme (ACGS). Other Institutional arrangements were the establishment of the Nigerian Agricultural and Cooperative Bank (NARCB), the National Directorate of Employment (NDE), the Nigerian Agricultural Insurance Corporation (NAIC), the Peoples Bank of Nigeria (PBN) the Community Bank (CB), the Family Economic Advancement Programme (FEP) and later merged the NACB with PBN and FEAP in 2000 to form the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) to enhance the provision of Credit to the agricultural sector.MICRO FINANCE BANKING

Alfa (2002) observed that most of the micro-credit scheme suffer set backs because they were founded on erroneous assumptions believing that the poor constitute the same group and tends to employ the same solution towards eradicating the problem of poverty. Researches shown or revealed that the poor should be involved in solving the problem of poverty since they are aware of their own conditions.MICRO FINANCE BANKING

Against this background and the problems of inadequate credit and finance, there is a need to device a strategy whereby credit will get to the farmers living in the rural areas as at when due, as to increase the contribution of the sector to our national development. Agriculture is seen and thus believed to be major sector towards growth and development in most countries like Nigeria, and as long as it remain so, the future of this sector in performing its roles becomes imperatively important.

1.2 Statement of the Problem

The practice of microfinance in Nigeria, is culturally rooted and dates back many years to the poor performances of the agricultural sector in the country’s economic developments which can be attributed to the traditional way of farming on the part of the small scale farmers.

There are many factors which hindered sustained development of small scale agriculture. One of such factor is low technological level, which comprises of small land holding and the use of traditional tools like hoes, and cutlasses. Other factors include non-wide spread use of fertilizers, and improper use of storage facilities. To raise agricultural the agricultural sector must have its production raised via the adoption of new technology and improvement in its capital investment. MICRO FINANCE BANKING

Based on the above, the Federal Government have realized that raising Small Scale farmers output and income is very essential, if continued, economic development and political stability is to be attained. The present system by which small scale farmers depends on non-institutional finance sources (friends, relatives and money lenders) as a source of loans is been divided with paucity of data. However, it is often assumed that capital from the source is generally low and inadequate relative to the need of agriculture in general.MICRO FINANCE BANKING

Government sponsored agricultural credit scheme and the establishment of microfinance Banks have been some of the major programme among others designed to facilitate easy flow of credits would enable the farmers to procure the major input for a result oriented agricultural production.

1.3 Research Questions

However, this work was conceived based on the desire of researcher to bring light to the micro financing activities of the microfinance banks particularly the creditaspect in order to study and also ascertain its participatory role in the provision of credit facilities to small scale agriculture through their microfinancing policies.

The research questions to be addressed include:

i. What are the roles of microfinance banks in small scale agricultural development in Nigeria?

ii. What are the possible measures or ways of enhancing small scale agriculture in Nigeria?

iii. What are the problems initiating against small scale agricultural development in Nigeria?

iv. Should microfinance policy be moderated or changed?

The answers to these questions will help to bring out the basis of this research work.

1.4 Objectives of the Study

The principal objectives of this research work is to critically examine and analyze the impacts of microfinance in the Nigerian economy and how it can help to improve the contributions of small scale agriculture towards the development of the economy.

More especially, the study seeks to:

i. Analyse an examine the concept of microfinance as viewed by the different schools of thoughts.

ii. To assess the impacts of microfinance on small scale agricultural development in the economy.

iii. Review the past agricultural policies and their effect on the development of the Nigerian economy.

iv. To examine the contributions of small scale agriculture to national development.

v. Offer meaningful suggestions and policy recommendations about how to improve the small scale agriculture towards our national development.

1.5 Hypothesis of the Study

The study will be based on the following hypothesis:

H1: Direct small holder loan scheme has not significantly contributed to the activities of small scale agricultural development in Nigeria.

H2: Direct small holder loan scheme has significantly positively contributed to the activities of the small scale agricultural development in Nigerian economy.

1.6 Significance of the Study

The study is concerned with a thorough examination of institutional practices of agricultural financing in Nigeria with particular reference to Barnawa Microfinance Bankdirect small holder loan scheme for small scale agriculture. At the present time when Nigeria is striving for agricultural development to reduce her food deficit situation, it is important for financial institutions to look for ways and means of improving her loans schemes to farmers, especially the small scale farmers who provide over 80 percent of Nigeria’s food requirements.MICRO FINANCE BANKING

Food production on a sustainable and self reliant basis for countries of our contemporary world is one of the most important goal and objective of the governments. Food security is an indisposal component of the total security of a modern nation. Throughout history, food has been used as an instrument of domination and enslavement.

Nigeria is directly or indirectly a major contributor to that food import bill. With minerals and vitamins deficiency in our food intakes, and energy and protein deficiency, we cannot but under perform and subsequently be economic and social liability. Current realities dictates and demand that both agric-business and small peasant farming must co-exist in Nigeria.MICRO FINANCE BANKING

Agriculture, in Nigeria is caught in a low level equilibrium trap. The rate of return cannot rise because of the nature of the technology in use such agriculture has been described as efficient but poor. In order to break this vicious circle of constraints, there is then the need to inject not only technology and agriculture services but also capital into rural agriculture which is of great concern to this study.

Finally, as Nigerian economy remains dangerously dependent on one sector (i.e. petroleum sector) the need for diversification and attaining self-sufficiency in food production is necessary. Thus, the tendency to justify the need for the much prudential agricultural financing in Nigeria cannot be over emphasized.MICRO FINANCE BANKING

1.7 Limitations of the Study

There are certain limitations which are placed in this study. The research work is faced with a lot of problems amongst others are the poor cooperation from institutional sources, constitute a serious delay in the release of data necessary for the work to be complete. There is also the problem of inadequate and accurate data for in-depth assessment of the subject matter.MICRO FINANCE BANKING

The sources of data whether primary or secondary was used in this study were assumed to be valid and reliable. The size of the small scale farmers in the area of study were of the range of 0.10 to 5.99 hectares of farm land.

There are certain considerations which delimit the scope of this study. First, although there are many financial institutions which finance agriculture in Nigeria, this study is only concerned with the area of Barnawa Microfinance bank financing.MICRO FINANCE BANKING

Secondly, the findings will be based on Barnawa Microfinance Bank Limited. It is meant to improve agricultural financing with particular reference to Barnawa Microfinance Bank Ltd. Loans disbursement and recovery respectively to and from the small scale farmers in the area and the country at large. Thirdly, this study concentrates on the Barnawa Microfinance bank Limited “Direct Small Holder Loan Scheme” (DSHLS).

Beneficiaries of the microfinance programme had only scanty records to present which made it difficult for the researcher to properly assess the success of the programme.MICRO FINANCE BANKING

1.8 Scope of the study

The main focus of this research work is to bring to light the activities of microfinance banks and small scale agricultural development in Nigeria. The study is more concern with the thorough examinations of institutional practices of microfinance banks with particular reference to direct loan scheme for small agricultural development in Nigeria from 1996-2005 which would be used to bring out precise and concise conclusions and recommendations. The outcomes are meant to improve agricultural financing with particular reference to BMFB Loans disbursements and recovery respectively to and from the small scale farmers in the area and the country at large.

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