Impact of loan acquisition on agriculture

Impact of loan acquisition on agriculture




Agriculture is still regarded as one of the main stay of Nigerian economy, before and after independence with the production of food for vast teaming population. It contributes immensely to the production of raw materials which has translated into increased foreign exchange earnings, better social life and higher standard of living of people. For instance it has constituted about 70% of the country’s gross domestic product (GDP), provides increased food surplus (raw material) to the rapidly expansion of Nigerian industrial sector and account for the bulk of the non-oil export (Eke 1997). Therefore wise nations all over the globe make agriculture a priority by developing and exploiting this sector for the survival of the nation. This is done by formulating policies by the government of different countries.

The term agriculture is derived from the Latin word “Ager” (field) and “cultura” (cultivation). This means field cultivation. This is not a complete definition of agriculture since agriculture has to do with animal production. Therefore agriculture can be defined as the art and science of cultivating the soil, producing livestock, preparing livestock feed, processing crops and livestock products for man and the process of selling excess crops and livestock. Agriculture may also mean just the production of crops, rearing of animals and general management of the soil. Agriculture also involves the science of preparing soil for the production of crops and rearing of animals for human use. It also embraces various preparations and processing of plant and animal products as well as the disposals of these produce through marketing (Cheghu 2004) observed that the sector generates employment for the teeming population over the years, the agricultural production has witnessed a drastic decline in productivity. This could be due to low impact on loan acquisition, lack of credit availability, lack of adoption of new technology and land fragmentation among other constraints to agricultural development (Nyong, 1993).

Recently, due to current decline in the world oil market price and economic down turn which has also affected the oil sector in Nigeria; there is a realization of the importance of agricultural sector to get its former pride of place. Therefore, there is need for efficient credit facilities and a great impact of the acquisition of loan for increased productivity in the sector, since agriculture development require amongst other things increased used in modern input. Such as fertilizer, tractors, increased seeds (Ajakaiye, 1990). General impression about the agricultural sector opined that, local farmers as small scale operation characterized by low productivity and low income due to their capital formation. The inability to purchase the modern requisites needs to be supplied with loans from banks and other credit facilities which will be used to increase production. These facts have often led the Nigerian government to promote and support the supply of credits (loans) to farmers and make loan acquisition easy enough for farmers hence, enhance or increase agricultural productivity at a large scale.

In the past years, the Nigerian government has lent financial intermediation through the establishment of lending agencies in addition to formal credit sources such as banks. This was done in the hope that such programs would have led to an effective supply of financial services in advances of demand for them from the sector. In spite of all these intermediations by the government, the impact of loan acquisition is still low and the demand for credit is still higher than the supply (Ago 2002).

The problem of low impact of loan acquisition in agriculture seem to be a common feature of the public credit scheme to finance agricultural sector because of the problem of low productivity associated with low impact of loan acquisition and situations where individuals engage in business other than farming because of quick return and relative high degree of certainty (Okon and Nyienakuna, 2002).

The impact of loan acquisition and other problems associated with agricultural financing reduce the funds available and requires disproportionate amount of administrative cost and time to recover the loan, thus profitability is reduced. These problems have persistently plagued the agricultural sector of loan and credit to the agricultural sector all to improve agricultural productivity.

The shortages in the supply of loans and farm credit in Nigeria are caused by the inability of farmers to produce collateral to enable them collect loans for enhancement of their agricultural production and the relevance of commercial banks to release loans to farmers. Therefore farmers now depend on informal sources to agricultural financing which result in the ability of the farmers to accumulate enough capital. So it is argued that, if loans were made available to these farmers, the agricultural sector would develop more rapidly (Nwagbo 1981).

Therefore, federal government of Nigeria initiated programs and established institution to serve as a strategy to increasing productivity as well as raising the income of farmers through:

The Nigerian agriculture and co-operative bank (NACB 1973) now named Nigerian agricultural and co-operative rural development bank (NACRDB) through merger of defunct Nigerian agriculture and co-operative bank and defunct people bank of Nigeria by the decree 22 of 1990.

Agricultural credit guarantee scheme (ACGS, 1978), operation feed the nation (OFN, 1976) and non-governmental organization (NGO). To make loans and credit available to farmers at a cheaper rate in all aspect of agricultural production, processing and marketing.



Farmers in Khana L.G.A are operating in the subsistent level due to lack of application of modern /heavy farm machineries and small sizes of farm holding. Also farmers are faced with problem of inadequate finance and restriction on formal source of finance.

Over the years, advocacies have been made in increasing the access of farmers to agricultural productivity of rural farmers. They are believed to be indigenously efficient in their crop/soil management practices (Mathew 2002 and Ajayi 20005). Thus access to loans would ensure high productivity. In the study area, agriculture is still subsistent, it is perceived to be generally characterized by low productivity which is due to low impact of loan acquisition towards agriculture. Could it be true that if farmers have access to loans and credits their level of productivity would guarantee the repayment of such loans. Therefore, this study sought to ascertain the relationship between the impact of loan acquisition on agriculture and the level of agricultural productivity of the beneficiaries among other factors that could affect agriculture loan.


The general objective of the study is to ascertain the impact of loan acquisition on agriculture (crop production) in Rivers state (Khana L.G.A). However, in order to achieve these principal objectives, the specific objectives are to:

  • Identify the socio-economic characteristics of the farmers.
  • Problems faced by farmers in acquiring loans
  • Assess repayment performance of the farmer.
  • Determine those factors affecting farmers’ repayment capacity.
  • Compare the productivity of beneficiaries and non beneficiaries of loan.


The inability to payback agricultural loans has become a major source of concern towards sustainable financing of agricultural activities (Okon and Nyienakuna, 2000). This study considers it expedient to find out significant determinants that can be used as elements for reduction of low impact of loan acquisition among rural and peri-urban farmers by finance experts and will reveal a lot of knowledge on the circumstances surrounding loan acquisition by farmers.


AGRIC LOAN: This refers to the amount of money collected from any sources for agricultural purposes.

REPAYMENT PERFORMANCE: This refers to a proportion of loan that a beneficiary was able to repay at the end of the loan repayment duration. Since the source of loans were from different sectors i.e. private but informal, public but formal and informal sector, with short repayment duration.

AGRIC PRODUCTION: refers to the level of technical efficiency index of a farmer based on the transformation of four primary input (labour (manday), land (hectare), seeding (kg) and fertilizer (kg) to output (kg)) in the course of utilization of the loan for agric production.)

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