ROLE OF COMMERCIAL BANKS IN FINANCING SMALL SCALE AGRICULTURAL BUSINESSES (A Case Study Of Udi, Awgu, Eziagu And Enugu South)

ABSTRACT
The study was done to ascertain the role of commercial banks in financing small-scale agriculture in selected areas of enugu agricultural zone. The aim was to determine the extent to which commercial banks have given out loans for small scale agriculture in comparison with other source of credit, and to look into the problem faced by both the small holder farmers and the banks as regard credit flow to farmers.
The problems of loans repayment and reasons for loan default were also taken into consideration in this study. Information was gathered through questionnaire and personal interviews.
It was gathered b from the result that the small scale formers have not benefit to any noticeable extent from commercial banks credit accommodation in the bid to improved their farms. The study also indicated that rigorous procedures and complexity of loans farms were some of the factors that vitiate and reduce the access of small farmers to credit.
In addition, it was gather that the inducement to ask for credit facilities by the small scale farmers from commercial bank died down due to the level of collate red requirement, viability of the scheme form which the loan was to be granted, the tag that the beneficiary in most cases must be a corporation or a limited liability company, other problem the small scale farmers envisaged as regard being accommodated by commercial banks or other financial institutions includes in a nutshell, illiteracy, ignorance, small size of farm holdings, little capital, lack of tangible assets and clear little of land low level of productivity, low income, little or no saving, interest rate paid, and economic condition in general.
The importance of these finding were also indicated. In particular so long as the current practice of subjecting the farmer to some vigous procedure and task to overcome before granting the credit, it will be unrealistic to expect credit programmers to benefit small scale farmers and suggest the need for policies designed to accommodated these limitation.
Finally, it was suggested that channeling credit through farmer’s co-operatives would conderably strengthen the risk of loan default. 

CHAPTER ONE

1.0 INTRODUCTION 
In Nigeria, agricultural like in most other developing countries the small scale farmer predominates several constraint and barriers which appear insurmountable limited the overall farming activities and if this is anything to go by, it can destroy a developing economy which heavily rest on the shoulders of small scale farmer. These small scale farmer are characterized by illiteracy, ignorance, small size of farm holding, little capital, lack of tangible asset and tenure system, low level of technology, low level of productivity, low level income, and general rural milieu. These features combined together makes the services of formal source of finance difficult to the small farmer. The resultant effect is that it becomes inevitable exposed to other informal source of finance and stands to be exploited at the slightest opportunities,
The important of credit to small scale farmer cannot be over emphasized in view of the fact that 90% of Nigerian farmers who actually feed the nation are in the category of small scale farmers. These farmers employ very little capital for their production. Unfortunately factors mentioned earlier makes it difficult for small scale farmers to have access to the service of financial institution. The banks fear that due to the problem affecting the small scale farmer, that they cannot be repay back bank loans.
Credit is a vital element in agricultural foundation without which the farmer can hardly do mush. It contributes to farmers social welfare enhances productivity, help in capital formation and continuity of income.
It is lack of adequate credit facilities that makes it impossible for farmers in our rural areas to adjust to new and improved techniques that will lead to increase output and productivity. This implies that the increase credit facilities will lead to rapid agricultural development by accelerating the rate of adoption of new and improved method and technique of farming by our rural farmers. It is in full realization of the death of agricultural product that the federal government of Nigeria has geared its efforts towards increased food production by establishing such programmers and scheme as natural accelerated food production scheme.
Agricultural and co-operative bank NACB, Rural Bank Scheme, River Basin and other Agricultural scheme provided by the third and fourth development plans respectively.
It is observe from the above that both the federal government and state government have now come to show some degree of concern for the rural farmers i.e. small scale farmers and their need for credit loan.
The Nigerian Agricultural and co-operative bank (NACB) was established by the federal republic of Nigeria in 1973 as Nigerian Agricultural development bank (NADB), which has change to the Nigerian Agricultural and co-operative bank in 1978 in order to enhance co-operative activities. The establishment of NACB was government realization of the importance of credit to agricultural production.
As a development banks, it was charged with the rate of contributing to the overall development of agricultural production and agro based industries. It authorized and paid up capital of N1million was increased to N2million in 1975 and the federal government wholly subscribed this.
The primary objective of the bank is to increase the level and quantity of agricultural production including poultry: - farming pig breading, fisheries, forestry, timber production, animal husbandry and other type of farming as well as storage and marketing of such production in Nigeria. The specific objectives are to assist in promoting rural development as well as improving income and quality of life of Nigeria rural population and make the nation self sufficient in food production. This bank grants loan for agricultural production. To encourage the commercial bank to grant loan to farmers, the federal government stipulated that at least 6% of commercial bank loans and advance raised to 15% in 1999, between 2000 and 2002 raised to 18% must be given to agricultural sector.
The liberalization of the economy during the sap era gave boost supports, which agricultural also benefited earning enormously. Although, agricultural financing was on the decline, the birth of community banks in early 1991 brighter more hope for agricultural; financing in the rural areas, and communities where, these unit banks were established although the impact is yet to be felt.
In order to facilities this guideline, the agricultural credit guarantee scheme fund (, A.C.G.S.F) fund act , No 26 of 1977 came in to see that small scale farmers source loan to finance their agriculture from the commercials banks.
In doing so, the small-scale farmers should first obtain certificate of guarantee from the central Bank that will guarantee them to get loan from Commercial Bank.
The active participation of commercial banks in the finance of agricultural in Nigeria. For amongst these constraint were the high rate of risk involve in extending loan to agricultural sector. The second’s important constraint was the subsistence nature of productive activities, which could hamper loan repayment.
As at 2000, agricultural loans valued at N88million guarantee under the agricultural credit Guarantee scheme (A.C.G.S) decline by 3.6% in number and increased by 7.2% in value in 2001 due to interest elements.
As at 2002, only very few commercials bank aid agriculture and the few that grant credit the procedure is too directed and processed at the Banks head offices. Infect individual loans have bees quietly ignored except for group in the form of co-operative society which also has to be backed with good security or collateral.
Between January 2002 to September 2002, only a poultry N0.500million was spent to boost agriculture by Enugu state Government.
The commercial Banks interest rate on small-scale farmer increased to 25% in this 2005 fiscal year.
To overcome some of the risk in lending to agriculture, N100million found to be contributed, 60% by the federal government and 40% by the central bank of Nigeria were provided. The purpose of the fund was to provide some guarantee in respect of loans granted by banks for all types of agricultural activities throughout the federation. The finals maximum liability guarantee banks is 75% of any amount of loan to farmer in default subject to a maximum of N10,000million to small scale farmer, both the banks and the farmers experience immense problem in the provision and collection of credit since finance constitute an and to agriculture.

1.1 STATEMENT OF THE PROBLEM
MAJOR PROBLEMS 
This study entitle the rate of commercial bank in financial small scale agricultural zone attempt to determine the role of commercials Banks in financing small scale farmers as compared to other financial institutions available and to determine the best credit financing for farmers in enugu zone.
SUB PROBLEMS
A I what are the condition for granting loan.
Ii what range of money is given out to small-scale farmer as loan.
Iii The difference between the interest rate of short-term, medium-term and long-term loans.
Vi, what types of loan do banks give out easily to farmers?
B. What are the problems encounter to loan repayment
C. What are the problems encounter with loan supervisor.
D. What are the reactions of farmer to condition of giving out loan?
E. What problem effects the giving out of loans? 
The researcher therefore sets out to access to role of commercial banks in financing small holder farmer. This is with a view to determine the actual achievement of the banks in selection Enugu zone in term of size of loan, profitability of credit etc.
The question here then is whether it can be safely said that small holder farmers have benefited appreciably from banks in term of capital provision.
A comparison of banks performance with other sources open to small scale farmer will be undertaken in this reseach in oder to find out which of these sources of credit are most useful and important to farmers.

1.2 PURPOSE OF THE STUDY
It is difficult to learn that the effort of the government (federal and state) toward the afferent of self sufficiency in food production not with standing food prices have been on persistent rise. These have been great shortages on most of the essentials foodstuff and raw materials. They do not seem to be any output or productivity of rural farmers. As a result, many have doubts over the rationale of agricultural loans credit in the state.
Some have gone as far as asking the following question: Do real and deserving farmer especially the rural farmer actually receive these loan? What impact have these loans made in the agricultural development of Enugu zone ? Are there other factors inhabitant commercial banks from playing their expected role or developing agriculture in Enugu zone, or is lack of adequate credit facilities really the major impediment to agricultural development in Enugu.
To answer the above question very effectively and correctly, it is necessary to review the contribution so far made by commercial banks and make useful recommendation and necessary toward the improvement of credit delivery system of commercial banks and recipient farmer in Enugu out this study ``the role of commercial bank in financing small scale farmer in enugu agricultural zone’’
The specific objectives however are:-
(1) To determine the extent too which commercial banks have given out loans to small scale agricultural in comparison with other sources of finance.
(2) To look into problems faced by small-scale farmers and the banks with regard to credit flow to farmers.
(3) To critically examine the problem of loan repayment. Identify the reason for loan default including the socio-economic factors that reduce the farmers ability to repay loans.
(4) To determine the influence of commercial banks loans on the use of implements, such as tractors by the small farmers holder.
(5) To suggest ways of improving credit delivering to small scale farmers by banks for analysis and interpretation of available data.

1.3 SIGNIFICANCE OF THE STUDY
The study could not have been more significant at any other period than now where a lot of policy measure are being implemented to increase the productivity of our agricultural sector. As indicated in green revolution launched in Anambra state in 1990, the supply of credit facilities to farmers have been a top priority measure of the Anambra state government adopted to raise the productivity of the rural farmers in the state.
The contribution of agriculture to the Gross Domestic product of Nigeria (GDP) has been declining lately. Agriculture as we all know is one of the major sectors of the economy not only because it earns foreign exchange and provides raw materials for processing and for agro-allied industries. This decline could either mean a faster growth in the rest of the economy or a decline in absolute terms of agricultural output.
It is common allegation by farmer that commercial bank adopt the attitude reluctant to get draw into lending to small scale farmers because of higth rate of cost and risk in valuation of these speculation which forms part of this study make it all the more significant.
The study is also of important in view of the following:-
(1) It discuses the problem that arises in the implementation of agricultural credit programmers with a view to understanding necessary adjustment to such in order to meet promptly the real needs of farmers.
(2) The policy recommendation that will be made from this study, can help the government and commercials banks to improved their credit policy for the agricultural development of Enugu to Government Area.
(3) The public will benefit from the study, the result improved agricultural loans, in Enugu local Government Area.
(4) The study will help to clearing some misconception people have about commercial banks lo an scheme and will also be of help to researcher working in related subject.

1.4 STATEMENT OF HYPOTHESIS
A hypothesis is an intelligent guess or a conjunction statement of the relationship between two or more variable, hypothesis are formulated in a reseach work to provide an avenue to the solution to a reseach problem. Data are collected, analyzed and interpreted with a view to accepting or rejecting hypothesis. An investigator does not set out to proved his hypothesis but he, rather accepts or rejects the hypothesis based on the result of his investigations.

FORMULATION OF HYPOITHESIS
Based on the objective above, the following hypothesis will be tested by the researcher. 
HYPOTHESIS I
HO: The bulk of finance used by the farmers is from commercial banks 
HO: The bulk of finances used by the farmers is net from commercial banks 
HYPOTHESIS II
HO: small scale farmer in Enugu agricultural zone are encouraged commercials banks because of the level of collateral security.
HI: small scale farmer in Enugu agricultural zone are encouraged to borrow from commercial banks because of the level collateral security.
HYPOTHENSIS
HO: small scale farmer in Enugu zone have high rate of loan default.
HI: Small-scale farmers in Enugu zone have no high rate of loan default.

1.5 SCOPE AND LIMITATION OF THE STUDY
This study evaluates the role of commercial bank loan scheme as issued by the loan department of the bank in the development of agriculture in Enugu agricultural zones.
The most important limiting factor of this study is the non-availability of records more especially as it has to do with income and expenses of the farmers. In addition to the above is the uncompromising attitude of the farmer who would not even want to make ordinary estimate with respect to the returns from their business and the expenses they incurs, therefore these limitations makes it impossible for this study to examine the schemes on the income of the farmers hence his living standards and general welfare. 
Some other limiting factors are as follows:-
I Time: since this study is just one out of the many courses offered by the researcher, she was not able to carry out intensive resaech on the study in question.
Ii Finance : Another major constraint is insufficiency funds, since the work is single handed sponsored by the researcher. As a student the project is sponsored from his pocket money. As a result she finds it difficult to cover some inevitable expense like stationary, transportable etc.
Iii). Respondent : Most of the farmer are illiterate and at times, it is very difficult for them to give the accurate number of hectares cultivated by them. Since they were not able to do this, everything are based on estimates.

1.6 DEFINITION OF TERMS 
LOANS 
This is the transfer of fund from one economics entity to another e.g .Government to individual to individual Bank to individual etc .which must be repaid with interest over a stipulated period of time . Agriculture loan therefore ,refers to such funds that are meant for agriculture .
AGRICULTURE CREDIT 
This encompass all loan and advance granted to borrowers ,whether beneficiaries or agriculture reforms or some other one to finance and services production activities relating to agriculture ,fishing and forestry and for the processing ,marketing ,storage and distribution of products resulting form these activities ,The term agriculture loan has in some instance been used because the loan scheme being considered here are meant for agriculture .
CREDIT 
The word credit come form the Latin word ,credo meaning I believe ,it ability to command capital of another in return for a promise to repay at a specified time in the future [usually with a cost represented by repayment of interest ] for the purpose of this reseach , credit and loan shall be used inter-changeable .