MICROFINANCE BANKING AS A STRATEGY FOR SMALL SCALE AGRICULTURAL DEVELOPMENT

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.

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.

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.

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.

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.