1.1 Background of the Study
According to CBN (2000), Nigeria is endowed with huge expanse of fertile land, rivers, streams, lakes, forests and grasslands, as well as a large active population that can sustain highly productive and profitable agricultural sector which can ensure self-sufficiency in food and raw materials for the industrial sector and as well provide gainful employment for the teeming population and generate foreign exchange for the economy. Ironically, the reverse is the case. Several factors account for the poor performance of the agricultural sector in Nigeria; these include virtual neglect of the sector, poor access to modern inputs and technology, and lack of optimum credit supply. (Enyim, Ewno and Okoro, 2013). Aside the problem of poor access to modern technology, the major bane of agricultural development in Nigeria is low investment finance. (Salami and Arawomo, 2013).
According to Udih (2014) Bank credit is expected to impact positively on the investible sectors of the economy through improved agricultural production of goods and services. He opined that sufficient financing of agricultural projects will not only promote food security, but also enhance the entrepreneurship performance of our young investors. Concluding that, this is borne out of the expectation that a good match between adequate bank credit and agricultural entrepreneurship will ensure massive agricultural productivity.
Umoh (2003) maintained that banks’ credit constitutes the power or key to unlock latent talents, abilities, visions and opportunities, which in turn act as the mover of economic development. However, from available statistics of commercial banks total sectoral credit distribution in Nigeria, the allocation to the agricultural sector, given the importance of the sector, is insignificant. For instance, credit allocation to the sector fluctuated between 6.98% and 10.66% in 1981 to 1985; between 10.66% and 16.15% in 1985 to 1990; between 16.15% and 17.5% in 1990 to 1995. It declined sharply to 8.07% in 2000, 2.46% in 2005, 1.67% in 2010, and fluctuated between 1.67% and 3.44% in 2010 to 2013 (Source: CBN Statistical Bulletin, 2013).
A dynamic and growing agricultural sector needs adequate finance through banks to accelerate the overall growth. Banks finance agricultural sector by granting loans to farmers for productive purpose which is intended to promote the expansion of financial resources for the credit systems.