CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Agricultural Credit Guarantee Scheme Fund is one of the laudable programmes put in place

by the Federal Government of Nigeria to boost agricultural production, generate revenue for

the farmers, alleviate poverty and earn foreign exchange for the country. It is also aimed at

ensuring food security, rural transportation and improved nutritional health profile of the

citizens (ACGSF manual, 2015). In addition to the Agricultural Credit Guarantee Scheme

Fund which is a Federal government initiative to boost agriculture and rural development, the

Benue State Government has evolved her own initiative towards boosting agricultural

development programmes to ensure food production amongst other objectives. Poverty is a

global phenomenon which threatens the survival of the human population. In contemporary

times, credit for developing the agricultural sector in the economy has become increasingly

demanding. This is because finance plays an essential role and acts as the life wire for

poverty reduction, as well as stagnation in any given economic system especially in

developing countries (Nigeria inclusive). In their opinion, Beck and Demirguc-Kunt (2006)

advocate that special financing mechanism can better provide greater access to agricultural

finance. Though, the Nigerian government in the 1970s has introduced some policies and

initiatives in an attempt to attract finance in order to enhance agricultural productions in the

country. While most of these initiatives have failed, one wonder if the surviving ones are

really fulfilling the purpose of their establishment, since rural poverty is still on the rise; with

a significant amount of Nigerian involved in agricultural production. Over the years, there

has been the notion that the impediment in the process of accessing finance by farmers is not
particular because of non-availability of credit but the refusal of credit facilitators to give

loans due to uncertainty of

The Agricultural credit guarantee scheme fund (ACGSF) is one of the multifarious schemes

initiated by the Federal Government of Nigeria to finance agriculture through provision of

incentives for deposit money banks (DMBs) to extend credit facilities to Nigerian farmers.

This scheme founded by decree no 20 of 1977 and inaugurated its operations in April 1978

with initial 100 million naira share capital was subscribed by the Central Bank of Nigeria and

the federal government of Nigeria (40 per cent and 60 per cent respectively). This

capitalization was subsequently shored up to N1 billion in 1999, and further up to N 6 billion

in 2006 (CBN, 2017), which is the present amount of fund available for the purpose of

guarantee. Under the scheme, the gross credit extension to Nigerian farmers is guaranteed up

to 75% of realizable net default value. Furthermore, credit financing and its influence on the

growth of agricultural productivity and output has received considerable attention in the

literature with no exception on Nigeria. While Food and Agricultural Organization (2020)

identifies credit constraint as one of the key problems of agriculture in Nigeria, empirical

studies such as Awotide, Abdoulaye, Alene and Manyong (2014) and Osabohien, Mordi and

Ogundipe (2020) give credence to the significant impact of credit financing on agricultural

productivity in the country.

1.2 Statement of the problem

Though various poverty alleviation programmes and agricultural development policies have

been put in place but the twin problems of poverty and absence of food security is still

lingering. Even in the urban centres, imported rice and other can foods tend to dominate the

market. That this occurs in a country which possesses varying agro-ecological and other

natural resources in abundance which is suitable for increased production cannot but be
worrisome, hence the establishment of ACGSF to curb the menace. It is in realization of this

economic and social status of the Nigeria rural population farmers in particular that has

necessitated this study with particular focus of ACGSF, which is one of the longest surviving

policy strategies towards reducing poverty and improving agricultural output among rural

farmers in Nigeria. Agricultural Credit Guarantee Scheme Fund is one of the laudable

programmes put in place by the Federal Government of Nigeria to boost agricultural

production, generate revenue for the farmers, alleviate poverty and earn foreign exchange for

the country. It is also aimed at ensuring food security, rural transportation and improved

nutritional health profile of the citizens (ACGSF manual, 2005). In addition to the

Agricultural Credit Guarantee Scheme Fund which is a Federal government initiative to boost

agriculture and rural development. Poverty is a global phenomenon which threatens the

survival of the human population. This informed the United Nations declaration of 1996 as

the International Year for the Eradication of poverty (CBN economic and Financial Review,

1996). It is also important to note that the major goal of any country is to have a society that

efficiently harnesses its scare resources such that nobody suffers from basic human needs.

Studies on poverty in Nigeria indicated that more than 70% of Nigerians are poor (NEEDS,

2004). Further studies have also shown that about 25% of population are extremely poor,

39% are moderately poor and only a small fraction of 36% are able to meet basic human

needs (SEEDS,2004). Also vast majority of the poor live in rural areas and most of them are

subsistent farmers. Though various poverty alleviation programmes and agricultural

development policies have been put in place but the twin problems of poverty and absence of

food security is still lingering. Even in the urban centres, imported rice and other can foods

tend to dominate the market. That this occurs in a country which possesses varying agro-

ecological and other natural resources in abundance which is suitable for increased

production cannot but be worrisome, hence the establishment of ACGSF to curb the menace.
It is in realization of this economic and social status of the Nigeria rural population and

farmers in particular that has necessitated this study with particular focus of ACGSF, which

is one of the longest surviving policy strategies towards reducing poverty and improving

agricultural output among rural farmers in Nigeria

1.3 Research questions

Arising from the background to the study, the following research questions were raised to

guide the study.

1. Is there a significant impact of ACGS loans to individual farmers (LIF) on poverty

reduction in Nigeria?

2. Is the impact of ACGS loans to group of farmers (not formally registered as a group) on

poverty reduction in Nigeria significant?

3. Is there a significant impact of ACGS loans to Cooperatives (LCO) on Gross Domestic

Product (GDP) in Nigeria?

4. Is the impact of ACGS loans to Small and Medium Scale Enterprises on poverty

reduction in Nigeria significant?

1.4 Objectives of the study

The broad objective of this research is to determine the impact of Agricultural Credit

Guarantee Scheme (ACGS) on poverty reduction in Nigeria. Against this backdrop, the

specific objectives of this research are to:

i. Find out whether ACGS loans to Individual Farmers (LIF) has impact on poverty

reduction in Nigeria;

ii. Determine the impact of ACGS loans to Informal Groups (LIG) on poverty

reduction in Nigeria;
 iii. Find out whether ACGS loans to Cooperatives (LCO) has impact on poverty

reduction in Nigeria; and

iv. iv. Determine the impact of ACGS loans to Companies (LCY) on poverty

reduction in Nigeria.

1.5 Hypotheses of the study

The hypotheses are derived from the research questions and objectives to guide the study as

follows:

HO1: There is no significant impact of ACGS loans to Individual Farmers (LIF) on poverty

reduction in Nigeria.

HO2: There is no significant impact of ACGS loans to informal Groups (LIG) on poverty

reduction in Nigeria.

HO3: There is no significant impact of ACGS loans to Co-operatives (LIG) on poverty

reduction in Nigeria.

HO4: There is no significant impact of ACGS loans to Companies (LIG) on poverty

reduction in Nigeria.

1.6 Scope of the study

This study focuses on Nigeria and investigates Agricultural Credit Guarantee Scheme

(ACGS) and poverty reduction in Nigeria under the period 1996 - 2020. The data utilized for

our empirical estimation relates to the Nigerian economy only, though have implications for

world economy. The study explore how cumulative loans under the Agricultural Credit

Guarantee Scheme (ACGS) to Individual farmers, Informal groups, Cooperatives and

Companies can boost agricultural development as well as impact positively on poverty

reduction in Nigeria. According to Central Bank of Nigeria (2019), all licensed commercial-

Deposit Money Banks in Nigeria has been approved as participating banks under the ACGS.
Therefore, focus is on the credit guarantee scheme funds under the Agricultural Credit

Guarantee Scheme (ACGS) in Nigeria.

1.7 Significance of the study

The significance of this study lies mainly on the period of investigation, which range from

1996 to 2020. This period marks the beginning of a major government intervention in the

agricultural sector in order to encourage Banks in the Nigerian economy to give unrestricted

financial access to farmers. Although, several related studies have been carried out by other

researchers, such has not covered an extensive period of thirty four years of the Agricultural

Credit Guarantee Scheme (ACGS). In other words, this study examines the important role of

finance in the sector’s contribution to growth since the inception of government as a

guarantor to agricultural loans through its agency: the Agricultural Credit Guarantee Scheme

(ACGS). Hence, this study bridge the gap of time lag by previous studies regarding the topic;

the current nature of this study cannot be taken for granted as it serve as a boost to

researchers who seek information on current issues relating to financing of the agricultural

sector and its attendant role in enhancing growth. Another significance of this study is the

fact that with improved agriculture, the Nigerian economy stands to gain in its efforts towards

development. Also, this study will benefit Agricultural practitioners, Federal and State

Governments, Banks especially Deposit Money Bank (DMBs) etc. Generally, this research

no doubt will form bases for formulation of sound policies that will promote growth in the

agricultural sector and the Nigerian economy at large.

1.8 Organization of the study

The aim of this study is to empirically examine agricultural financing and poverty reduction

in Nigeria. The study is organized as follows: chapter one is the introduction while chapter

two reviews the empirical and theoretical literature on agricultural financing; chapter three

discusses the models and methodology, while chapter four provides data and empirical

evidence and the final part which is chapter five provides the discussion of findings,

conclusion, recommendation and contribution to knowledge.