CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Nigeria has vast fertile farmland, a wide range of crops and many rivers, yet it continues to face a poor food situation. This is largely traced to the weak performance of the agricultural sector. Before oil was discovered, agriculture was the mainstay of the Nigerian economy: it provided employment for most of the population, food, raw materials for industry and a large share of foreign exchange earnings (Oyewale & Alliu, 2018). As oil took over, agriculture’s relative contribution to national output fell. Declining agricultural productivity has led to heavy food imports paid for with scarce foreign exchange, resources that might otherwise have funded much-needed infrastructure (Oyewale & Alliu, 2018). Governments have responded in several ways, including import restrictions on some staples such as rice, maize and palm oil, intended to encourage local production.

Despite growing urbanisation, Nigeria remains largely rural, and most of the population depends directly or indirectly on agriculture for a living. Output is held back by low farm incomes and by production methods that are often outdated, which leave the sector unable to meet the country’s food needs. Even so, agriculture is still central to the economy and to efforts to diversify it away from heavy dependence on oil revenue, provided that agricultural policies and programmes are well designed and adequately funded along the whole value chain (Oyewale & Alliu, 2018).

The challenges facing Nigerian farmers are many, and they include access to land, shortage of skilled personnel, poor farming practices, climate change, weak infrastructure and inadequate storage. A critical one is access to finance (Oyewale & Alliu, 2018). Banks have often been reluctant to lend to agriculture because of its risk profile: returns may not cover the risk, output is volatile, markets are poorly connected, and farmers often lack the assets needed as collateral (Oyewale & Alliu, 2018). The data illustrate the neglect. Agriculture received about 16% of commercial bank credit in 1990, but only about 3% in 2016, even though the absolute amount rose (Oyewale & Alliu, 2018).

Government has therefore tried to restructure the sector through institutions, schemes and public services that would improve farmers’ access to finance and strengthen their economic position. Earlier programmes included the National Accelerated Food Production Project (NAFPP) and the green revolution programme, and the Structural Adjustment Programme (SAP) also affected the sector. Credit-related measures include the Agricultural Credit Guarantee Scheme Fund (ACGSF), set up in 1978 to guarantee up to 75% of commercial bank loans for agricultural production and processing, the Agricultural Credit Support Scheme (2006), the Commercial Agriculture Credit Scheme (2009), the Nigeria Incentive-based Risk-sharing System for Agricultural Lending (NIRSAL, 2011) and the Central Bank of Nigeria’s Anchor Borrowers’ Programme (Oyewale & Alliu, 2018).

A central public institution in this field is the development bank for agriculture. It began as the Nigerian Agricultural Bank (incorporated in 1972 and operational in 1973), became the Nigerian Agricultural and Co-operative Bank (NACB) in 1978, and later merged with the People’s Bank of Nigeria and the risk assets of the Family Economic Advancement Programme to form the Nigerian Agricultural, Co-operative and Rural Development Bank (NACRDB). In October 2010 it was renamed the Bank of Agriculture (BOA) Limited (Bank of Agriculture Limited, n.d.). This study refers to it as NACRDB, the name in use during most of the period covered by the schemes it examines, and notes that it now operates as the Bank of Agriculture.

Research on the effect of bank lending on agricultural output in Nigeria has produced mixed results. A study covering 1981 to 2016 found that commercial bank credit had a significant positive long-run relationship with agricultural production, while interest rates had a negative effect (Oyewale & Alliu, 2018). A more recent study covering 1985 to 2024, in contrast, found that deposit money banks’ loans and advances had no statistically significant effect on agricultural output, whereas government agricultural expenditure had a substantial effect (Bank credit and agricultural output in Nigeria, 2026). These divergent findings are why the role of bank lending in agricultural development merits further study.

1.2 Statement of the Research Problem

Agriculture has long been recognised as an important sector of the Nigerian economy, and its development is a requirement for overall economic growth. Development planners have introduced programmes such as the National Accelerated Food Production Project and the green revolution programme to raise farm output and productivity, and further credit schemes have followed. Even so, agricultural production has not kept pace with the country’s needs, and evidence on whether bank lending translates into higher output is inconclusive (Oyewale & Alliu, 2018; Bank credit and agricultural output in Nigeria, 2026). The study therefore seeks answers to the following research questions:

1. What are the reasons for the continued decline in the production level of the agricultural sector of the Nigerian economy?
2. What actions can be taken to raise the current production level of the agricultural sector?
3. What effect does the decline in the agricultural sector have on the human resources of the economy?
4. How and to what extent have the performance and commitment of financial institutions in general, and of the NACRDB (now the Bank of Agriculture) in particular, in providing financial support influenced the activities of the agricultural sector?

1.3 Objectives of the Study

The study seeks to determine the role of bank lending in agricultural development in Nigeria. Specifically, it aims to:

1. examine and evaluate the agricultural credit granted to farmers in recent years;
2. ascertain how effective the credit granted by the NACRDB (now the Bank of Agriculture) has been in achieving the planned objectives of the agricultural sector;
3. analyse the measures and programmes the government has introduced to enhance the agricultural sector; and
4. establish ways in which the agricultural sector can be improved in future.

1.4 Scope of the Study

The study examines how financial institutions influence activity in the agricultural sector through their credit policies and farm credit systems. It analyses programmes established to develop the sector. A number of farm credit sources have failed to perform their intended functions, and the study considers why. Its main focus is on the institutional programmes and schemes set up to upgrade agriculture, in particular the Nigerian Agricultural, Co-operative and Rural Development Bank (NACRDB), now the Bank of Agriculture.

1.5 Significance of the Study

The agricultural sector, like any other, cannot function without funds. Unlike many other sectors, however, agriculture can repay borrowed money only after a long period because production is slow. Financial institutions have been reluctant to lend to the sector for this reason, and for the risk and collateral problems noted earlier (Oyewale & Alliu, 2018). If this continues, a persistent shortage of funds could cause output to fall and agricultural activity to decline further, which is why the problem of credit and finance for agriculture was chosen for study.

The study will benefit several groups. Government and regulators can use it to judge how well credit schemes are working and where to target support. Financial institutions can learn how to design and deliver agricultural credit more effectively. Large- and small-scale farmers stand to gain from improved access to credit, and the public gains from better food supply. Researchers will also find a basis for further work, particularly in view of the mixed evidence on bank lending and agricultural output.

1.6 Statement of the Research Hypotheses

The study is guided by the following hypotheses, each stated in null (H0) and alternative (H1) form.

Hypothesis one

• H0: Agricultural decline cannot be curbed through effective bank credit.
• H1: Agricultural decline can be curbed through effective bank credit.

Hypothesis two

• H0: Bank credit and financial facilities are not made available to farmers by the development bank.
• H1: Bank credit and financial facilities are made available to farmers by the development bank.

Hypothesis three

• H0: Bank credit facilities have been ineffective because of the policies formulated, and not because of their implementation and utilisation.
• H1: Bank credit facilities have been ineffective because of improper implementation and utilisation, and not because of the policies formulated.

1.7 Sources of Data

Testing the hypotheses and answering the research questions require data from several sources. The materials analysed will include books, newspapers, magazines, journals, minutes of meetings, publications of the bodies concerned, and other media that record historical data. Published statistics and reports, such as those of the Central Bank of Nigeria and the Bank of Agriculture, will also be used. These sources will supply both primary and secondary data.

1.8 Limitations of the Study

Some factors may limit the accuracy and reliability of the study. They include:

1. difficulty in obtaining data; and
2. a low response rate from the parties concerned.

Apart from these limitations, any remaining errors and omissions are the responsibility of the researcher.

1.9 Definition of Terms

Agriculture: The growing of crops and rearing of animals for human use. It includes livestock, forestry, wildlife and fisheries, as well as production of crops such as cocoa, palm products, groundnut, cotton and rubber.

Agricultural sector: The part of the Nigerian economy that supplies food and raw materials to domestic and foreign industries.

Financial institution: An organisation owned by individuals, groups, a state or the country as a whole. Financial institutions mainly accept deposits from customers, repay them when needed, and grant credit to customers according to their creditworthiness.

Nigerian Agricultural, Co-operative and Rural Development Bank (NACRDB): A government development bank charged with granting credit to individual and group farmers to finance their farming activities. It was formed by the merger of the Nigerian Agricultural and Co-operative Bank with the People’s Bank of Nigeria and the risk assets of the Family Economic Advancement Programme, and in October 2010 it was renamed the Bank of Agriculture Limited (Bank of Agriculture Limited, n.d.).

References

Bank of Agriculture Limited. (n.d.). Our history. https://boanig.com/history

Bank credit and agricultural output in Nigeria. (2026). International Journal of Management Science Research and Technology, 4(5), 456–475. https://doi.org/10.5281/zenodo.20571231

Oyewale, K., & Alliu, K. (2018). The impact of banks’ credit on agricultural productivity in Nigeria: An empirical analysis. Nigerian Journal of Management Studies, 18(1), 124–132.