CONTRIBUTION OF MICROFINANCE BANKS TO AGRICULTURAL DEVELOPMENT IN CHANCHAGA LOCAL GOVERNMENT AREA OF NIGER STATE

BY

IBRAHIM ALHAJI IBRAHIM 2001/11286AE

DEPARTMENT OF AGRICULTURAL ECONOMICS AND EXTENSION TECHNOLOGY, SCHOOL OF AGRICULTURE AND AGRICULTURAL TECHNOLOGY; FEDERAL UNIVERSITY OF TECHNOLOGY, MINNA, NIGERIA

February, 2010.

CONTRIBUTION OF MICROFINANCE BANKS TO AGRICULTURAL DEVELOPMENT IN CHANCHAGA LOCAL GOVERNMENT AREA OF NIGER STATE

BY

IBRAHIM ALHAJI IBRAHIM 2001/11286AE

PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR OF TECHNOLOGY (B. Tech) DEGREE IN AGRICULTURE IN THE DEPARTMENT OF AGRICULTURAL ECONOMICS AND EXTENSION TECHNOLOGY SCHOOL OF AGRICULTURE AND AGRICULTURAL TECHNOLOGY, FEDERAL UNIVERSITY OF TECHNOLOGY, MINNA, NIGERIA

February, 2010.

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DECLARATION
I, Ibrahim Alhaji Ibrahim (2001/11286AE), declare that this project is independently initiated, executed and completed by me. That the findings emanating from this research work to the best of my knowledge have not been accepted in substance for the award of any other degree or programme of this University or any other institution.

. Ibrahim Alhaji Ibrahim 2001/11286AE

. Date

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CERTIFICATION
This project is original work, approved, supervised and carried out by Ibrahim Alhaji Ibrahim (2001/11286AE) in partial fulfillment of the requirements for the award of Bachelor of Technology (B. Tech) Degree in Agriculture.

Mrs. F. D. Ibrahim (Project Supervisor) . Signature & Date

Dr. J. N. Madu _______________ (Head of Department) Signature & Date

Prof. S. A. Rahman _______________

(External Supervisor)

Signature & Date

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DEDICATION
This project is dedicated to my parents, Alhaji Gimba and Habibat Gimba. May Allah reward and guide them. Ameen.

ACKNOWLEDGEMENT Praise be to Allah, the Beneficent, the Merciful. My gratitude goes to my parents: Alhaji Ibrahim and Hajiya Fatima (Yawo) and others members of my family like Aliyu, Tanimu, Mal. Yas and others for their moral and financial support. Special thanks go to all my friends and especially Muhammad Imran, who has been taking me tutorials from 100 levels to date. My sincere gratitude goes to my supervisor, Mrs. F.D. Ibrahim for all her support despite her PhD studies. I wish her success and hope to attend her convocation, the day she will start using the title Doctor- Insha Allah. To Mal. Shaba, Mr. Ezekiel and Mr. Ajayi, I say thank you very much for your patience and support.

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ABSTRACT
The contribution of microfinance banks to agricultural production in Chanchaga Local Government Area of Niger State was examined in this study. Eighty respondents were randomly selected from a list of agricultural microcredit beneficiaries obtained from Nexus Microfinance Bank, Minna. Structured questionnaires were used to collect the primary data. Descriptive statistics and ordinary least square multiple regression analysis was used to analyse the data collected. Results showed that majority of the farmers (65.3%) were within their economically active years of their lives i.e. between 21 and 40 years. Almost all the beneficiaries have one form of education or the other with only about 6.9% reporting that they do not have any form of education at all. The linear regression function was the lead equation. It reveals that amount of loan received and farm sizes were significant at 1% and cost of labour was negatively significant at 10%. The R2 value was 0.835 indicating that about 83.5% of the variation in the value of output (y) was explained by the five independent variables included in the model. Furthermore, the null hypothesis which states that there is no statistical relationship between amount of loan received and the output of farmers was rejected because the coefficient of loan (3.204) was positive and statistically significant at 1%. Problems faced by beneficiaries include poor marketing system (16.7%) and inadequate extension services (19.8%) among others. It was therefore recommended that the Agricultural Credit Guarantee Scheme of the government should be revived and made more functional and Microfinance banks should disburse loans not only in cash but also in kind in order to check diversion of the funds for unproductive purposes.

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TABLE OF CONTENT

Cover Page Title Page Declaration Certification Dedication Acknowledgement Abstract Table of Content List of Tables CHAPTER ONE: INTRODUCTION 1.1 Background of the Study 1.2 Problem Statement 1.3 Objective of the Study 1.4 Justification for the Study 1.5 Research hypothesis CHAPTER TWO: LITERATURE REVIEW 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Concept of Rural Finance Concept of Microfinance History of Microcredit Microfinance and Women Microfinance and Poverty Reduction Interest Rates of Microfinance Institutions Microfinance Banks in Nigeria
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i ii iii iv v vi vii viii x

1 3 4 5 5

6 7 8 10 10 13 14

2.8 2.9 2.10

Commercial Banks and Microfinance Government Participation in Microfinance The Global Financial Crisis and its Impact on Microfinance

17 18 19

CHAPTER THREE: METHODOLOGY 3.1 3.2 3.3 3.4 Study Area Method of Data Collection Sampling Technique and Sample Size Methods of Data Analysis 22 22 23 23

CHAPTER FOUR: PRESENTATION AND DISCUSSION OF RESULTS 4.1 4.2 4.3 4.4 4.5 Socio-economic Characteristics Mode of Disbursement and Repayment Number of Farmers that have benefited from the Banks Effect of Loan Disbursement on Output Problems Faced by the Beneficiaries 24 31 33 34 38

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION 5.1 5.2 5.3 Summary Conclusion Recommendation 39 40 41 42

REFERENCE

APPENDIX

45

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LIST OF TABLES
Table 1: Distribution of Respondents by Age 24

Table 2: Distribution of Respondents According to Sex

25

Table 3: Distribution of Respondents by Marital Status

26

Table 4: Distribution of Respondents by Educational Level

27

Table 5: Distribution of Respondents by Household Size

28

Table 6: Distribution of Respondents by Years of Farming Experience

29

Table 7: Distribution of Respondents by Source of Labour

30

Table 8: Distribution of Respondents Based on Customer ship of Microfinance Bank

31

Table 9: Mode of Disbursement Distribution of Respondents

32

Table 10: Distribution of Respondents by Repayment Plan

33

Table 11: Micro-credit Beneficiaries Based on Categories

34

Table 12: Ordinary Least Squares Estimates of Factors Affecting the Output of Beneficiaries

36

Table 13: Production Problems Distribution of Respondents

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CHAPTER ONE 1.0

1.1 Background to the Study Lack of access to credit has negatively affected poor farmers and rural dwellers for many years. Rural people need credit to allow investment in their farms and small businesses, to smooth consumption and to reduce their vulnerability to weather and economic shocks. Because they have little access to formal financing institutions poor rural people follow sub optional risk management and consumption strategies and rely on costly informal credit sources (FAO, 2000). To this end, Eluhaiwe (2008) noted that microfinance banks were established in Nigeria in 2005 for the purpose of providing economically active poor and low income earners financial services, to help them engage in income generating activities or expand their businesses.

INTRODUCTION

By definition microfinance refers to the provision of financial services to poor or low income clients including consumers and the self employed (Ledgerwood, 2000). According to Robert et al (2004), microfinance refers to a movement that envisions a world in which as many poor and near poor households as possible have permanent access to an appropriate range of high quality financial services including not just credit but also savings, insurance and fund transfers. In addition, Eluhaiwe (2008) states that microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions. Three features distinguish microfinance from other formal financial products. These are:

i. ii. iii.

The smallness of loans advanced and or savings collected The absence of asset based collateral and Simplicity of operations

Brigit (2006) distinguishes between four general categories of microfinance providers. They are: informal financial service providers, member-owned organizations, NonGovernmental Organization (NGOS) and formal financial institutions. The informal financial service providers include money lenders, savings collectors, money guards, Rotating Savings and Credit Associations (ROSCAS) and input supply shops. For the fact that they know each other well and live in the same community, they understand each others financial circumstances and can offer very flexible, convenient and fast services. Member-owned organizations include self help groups and credit unions. Like the informal financial service providers, they are generally small and local though they may have little financial skill.

According to Brigit (2006), NGOS involved in microfinance like Grameen bank of Bangladesh and Prodem in Bolivia have proven to be very innovative, pioneering banking techniques like solidarity lending, village banking and mobile banking that have overcome barriers to serving poor populations. Lastly, formal financial institutions engaged in microfinance are state banks, agricultural development banks, savings banks, rural banks and non bank financial institutions. They are regulated and supervised, offer a wide range of financial service and control a branch network that can extend across the country and internationally.

Modern microfinance emerged in the 1970s with a strong orientation towards private sector solutions. This resulted from evidence that state owned agricultural development banks in developing countries had been a monumental failure, actually undermining the development goals they were intended to serve (Adams et al, 1984). 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 Self Help Groups (SHGs) and Rotating Saving and Credit Associations (ROSCAs) types.
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Furthermore, microfinance services particularly those sponsored by government, have adopted the traditional supply-led subsidized credit approach mainly directed to the agricultural sector and non-farm activities such as trading, tailoring, weaving, blacksmithing, agro processing and transportation (Central Bank of Nigeria (CBN) 2005).

Cheryl (2001) asserted that micro financial services are needed everywhere, including the developed world. However, in developed economies intense competition within the financial sector, combined with a diverse mix of different types of financial institutions with different missions, ensures that most people have access to some financial services. Efforts to transfer microfinance innovations such as solidarity lending from developing countries to developed ones have met with little success. However, microfinance has been growing rapidly with $25billion currently at work in microfinance loans. It is estimated that the industry needs $250billion to get capital to all the poor people who need it (Deutsche bank, 2007)

1.2

Problem Statement

As business enterprises, microfinance banks aim at making profit. Hence they prefer to give credit to those engaged in less risky businesses. More or less agriculture does not fall into this category of businesses due to several risks and uncertainties associated with it ranging from unpredictability of weather, possible outbreak of pests and diseases, instability of market prices and so on. To further worsen the situation collateral security is not a precondition for granting of credit by microfinance banks.

Another problem is the attitude of some beneficiaries who divert the loans given to them to non farm activities such has marrying more wives, buying motorcycles and cars, renovating their houses etc. The general belief is that this is their portion of the national cake which they
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do not need to refund thereby resulting in high default rate. Furthermore, the high illiteracy rate especially among farmers coupled with the stress of securing loans from banks like filing of forms, submissions of passports, and so on discourage farmers from approaching microfinance banks for credits but rather patronize money lenders who will give them quick loans. All these factors hinder the contribution microfinance bank try to make in developing agriculture in Chanchaga Local Government Area of Niger state.

The study will attempt to answer the following research questions:

1. How many microfinance banks are in Niger state as a whole and Chanchaga local government council in particular? 2. What criteria are used by these banks to disburse micro credit to farmers? 3. What is the interest rate charged by microfinance banks?

1.3

Objectives of the Study

The broad objective of this study is to examine the contribution of microfinance banks to the agricultural development of Chanchaga Local Government Area. The specific objectives are to:

1. Determine the socio economic characteristics of farmers that benefitted from credit facilities of microfinance banks. 2. Evaluate the mode of disbursement and repayment structures of the banks. 3. Identify the number of farmers who have benefitted from the banks. 4. Determine the effect of loan collected on farmers output. 5. Examine the problems facing the farmers proffer solutions to the identified problems.

1.4

Justification for the Study

Prior to the oil boom, agriculture was the mainstay of the Nigerian economy. In the recent past, even though oil was and is still the single major revenue earner to the government, agriculture contributes significantly to the countrys Gross Domestic Product (GDP). It employs 70 to 80 percent of the population in most sub-Saharan African countries and contributes between 40 to 60 percent of the GDP (Eluhaiwe, 2008). Yet one major problem faced by farmers especially in the rural areas is inadequate finance; and this is where microfinance banks come in.

According to Robert et al (2004), in the developing world, there were 665 million client accounts at over 3,000 institutions that serve people who are poorer than those served by the commercial banks as at 2004. Of these accounts, 20 million were with institutions normally understood to practice microfinance. Likewise Justus (2009) reported that the Central Bank of Nigeria (CBN) has licensed a total of 840 microfinance banks which are distributed in various parts of the country as at December 31, 2008. This study is therefore justified in that it intends to examine the contribution of microfinance banks to the development of rural enterprises but with specific emphasis on agriculture in Chanchaga Local Government Area of Niger state.

1.5

Research Hypothesis Null Hypothesis: There is no significant relationship between the amount of loan received by farmers and their output. Alternative Hypothesis: There is a significant Statistical relationship between the

amount of loan received by farmers and their output.

CHAPTER TWO 2.0

2.1

LITERATURE REVIEW
Concept of Rural Finance

Rural finance encompasses the range of financial services offered and used in rural areas by people of all income levels. It includes Agricultural Finance, which is dedicated to financing agricultural related activities such as input supply, production, distribution, wholesale, processing and marketing; and Microfinance which provides financial services for poor and low income people by offering smaller loans and saving services, while accepting a wider variety of assets are collateral (FAO, 2009).

According to Eluhaiwe (2008), rural finance services in a comprehensive term refer to the provision of credit, savings mobilization insurance coverage and payment system for transfer of funds to and away from the rural sector. In view of low income and high risks in the rural areas, effective provision of these services serves important goals of accelerated growth, poverty alleviation and reduced exposure to vulnerability. Also, rural finance does not only mean agriculture credit or savings but includes:

i. ii. iii. iv.

Saving mobilization Rural credit Insurance services Payment system The Central Bank of Nigeria (2005) noted that in order to enhance the flow of financial

services to Nigerian rural areas, government has in the past, initiated a series of publicity financed micro/rural credit programmes and policies targeted at the poor. Notable among such

programmes were the Rural Banking Programme, sectoral allocation of credits, a concessionary interest rate, and the Agricultural Credit Guarantee Scheme (ACGS). Other institutional arrangements were the establishment of the Nigerian Agricultural and Co-operative Bank (NACB) the National Directorate of Employment (NDE), the Nigeria Agricultural Insurance Corporation (NAIC), the People Bank of Nigeria (PBN) , the Community Bank (CBS) and the Family Economic Advancement Programme (FEAP). In 2000, Government merged the NACB with the PBN to form the Nigerian Agricultural Co-operative and Rural Development Bank Limited (NACRDB) to enhance the provision of finance to the agricultural sector. It also created the National Poverty Eradication Programme (NAPEP) with the mandate of providing financial services to alleviate poverty. 2.2 Concept of Microfinance Microfinance is often defined as financial services for poor and low income clients. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as Microfinance Institutions (MFIs). These institutions commonly tend to use new methods developed over the past 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly (Microfinance Gateway, 2009). Microfinance programmes provide financial services such as credit, deposit and savings to the entrepreneurial poor that are tailored to their needs. Fruman and Goldberg (1997) stated that good microfinance programmes are characterized by: i. Small, usually short term loans, and secure savings products. ii. Streamlined, simple borrower and investment appraisal.
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iii. Alternative approaches to collateral. iv. Quick disbursement of repeat loans after timely repayment. v. Above-market interest rate to cover the high transaction cost inherent in microfinance. vi. High repayment rates. vii. Convenient location and timing of services.

2.2.1

Microfinance Clients

Typical microfinance clients are poor and low income people that do not have access to other formal financial institutions. Microfinance clients are usually self employed, household based entrepreneurs. Their diverse microenterprises include small retail shops, street vending, artisanal manufacture and service provision. In rural areas, micro entrepreneurs often have small income generating activities such as food processing and trade, some but far from all are farmers. Hard data on the poverty status of clients is limited, but tend to suggest that most microfinance clients fall near the poverty line, both above and below (Microfinance Gateway, 2009).

2.2.2

Differences between Microfinance and Microcredit Microcredit refers to very small loans for unsalaried borrowers with little or no collateral

while microfinance refers to microcredit, savings, insurance, money transfers and other financial products targeted at poor and low income people (Microfinance Gateway 2009).

2.3

History of Microcredit

According to FAO (2000), in 1976, Muhammad Yunus founded the Grameen bank, the worlds best known provider of microcredit. Some trace the origins of micro credit in its recent form to this event. Through the Grameen Bank, Yunus was able to institutionalize features that
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provide a model for many (although not all) microcredit providers today. Microfinance Organization (MFOs) and programmes have since flourished, including Grameen replications in 45 countries. Today there are more than 1,200 institutions providing microcredit at a national level, 26 major institutions leading international microcredit programmes and 7,000 to 10,0000 local and regional organizations providing microcredit as all or part of their development efforts.

2.3.1

How Microcredit Works

The provision of a typical microcredit would involve the following steps:

1. Eligible poor borrowers are identified according to the target criteria and procedures. 2. A small group (five to eight people of common gender) of eligible borrowers is formed and rules are explained and agreed to. 3. Each member carries out compulsory saving. 4. One or two group members borrow the initial maximum amount. 5. The group meets weekly with other groups to discuss business and make installment payments. 6. Financial management and other training are provided on a voluntary or mandatory basis to all members of the group. 7. When the initial loans are repaid, the next members of the group may borrow. 8. If a loan is not repaid on schedule, no member of the group may borrow until the loan is repaid by the borrower, or by other members of the group. 9. Eventually the repaid loans and group savings provide sufficient capital to maintain the revolving loan pool of all members (FAO, 2000).

2.3.2

Unfavourable Microcredit Clients

The Microfinance Gateway (2009) noted that households in the poorest 10% of the population including the destitute are not traditional microcredit clients because they lack stable cash flow to repay loans. Likewise, Sirajul (2006) indicated that entrepreneurial skills and ability are necessary to run a successful microenterprise and not all potential customers are equally able to take on debt. Thus the sick, mentally ill, destitute, etc who form a minority of those living below the poverty line are typically not good people for microfinance but rather better candidates for safety-net programmes or grants recipients (of direct basic assistance).

2.4

Microfinance and Women

Microfinance experts generally agree that women should be the primary focus of service delivery. Evidence shows that they are less likely to default on their loans then men. Industry data from 2006 for 704 MFIs reaching 52 million borrowers includes MFIs using the solidarity lending methodology (99.3% female clients) and MFIs using individual lending (51% female clients). The default rate for solidarity lending was 0.9% after 30days and 3.1% for individual lending (Wikipedia, 2009).

2.5

Microfinance and Poverty Reduction

According to Brandsma and Chaouali (not dated), giving the poor access to financial services can help reduce poverty, at least among the entrepreneurial poor. It can also ease the burden on public funds by cutting subsidies and allocating spending to more productive sectors of the economy. And given that they are labour intensive, microenterprises can absorb a large portion of excess labour.

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Furthermore, Womens World Banking (1995) argues that providing the poor with access to financial services may be the single most effective means to address poverty and create broad based economic growth. Finance and enterprise systems that serve the majority can be the pivotal links and the levers, enabling the poor to share in economic growth and giving poor people the means to use social services.

Microfinance has the possibility to have an instant impact on a wide range of poverty alleviation targets, such as income, health, nutrition and education. This will go a long way in achieving the number 1 Millennium Development Goal (MDG) of reducing those living on less than $1 per day (Siragul, 2006). The Microfinance Gateway (2009) stated that microcredit can provide a range of benefits that poor households highly value including long term increases in income and consumption. A harsh aspect of poverty is that income is often irregular and undependable. Access of credit helps the poor to smooth cash flows and avoid periods where access to food, clothing, shelter or education is lost. Credit can make it easier to manage shocks like sickness of a wage earner, theft or natural disasters. The poor use credit to build assets such as buying land, which gives them future security.

Providing financial services to the entrepreneurial poor increases household income, reduces unemployment and creates demand for other goods and services especially nutrition, education and health services. Thus microenterprises play an important role in alleviating poverty (Brendsma and Chaouali, not dated).

2.5.1

When Will Microfinance Benefit the Poor?

Sirajul (2006) indicated that a well designed microfinance programme is unlikely to have a positive impact on the poorest unless it purposely seeks to serve them through appropriate
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product design and targeting. Experience shows that if not there is a targeting tool, the very poor will either be missed or they will be likely to exclude themselves because they do not see the programmes as being for them. There is also a strong liking of the MFI officials to move to the top of the customers group, and to give little consideration to the needs of the very poor, with the end result that their percentage reduce over time. Hence, only MFIs that design programmes around the needs of the extreme poor are likely to retain them as clients.

2.5.2

Measurement of Impact of Microcredit FAO (2000) revealed that different measures are used to assess the impact of microcredit.

The most common indicator is change in household income. Also important are changes in assets, net worth, labour and household consumptions. Studies have measured changes in total household consumption, change in food consumption and timing of consumption. Others are change in school enrolment rates, health, empowerment and effects on women.

The results of a survey regarding the impact of three major microcredit programmes in Bangladesh showed on 18% increase in household consumption from microcredit borrowing by women and an 11% increase in consumption when men are the borrowers. Other impacts are consumption smoothing, labor supply smoothing and improved child nutrition especially for girls (Khandker, 1998). Moreover, 5% of participating families can escape poverty each year because of the increased consumption resulting from microcredit.

A major impact of microcredit is increased savings either through forced savings or diversion from increased income. This allows borrowers to smooth consumption, invest in earning activities and prepare for emergencies. Research shows that microcredit loans are used

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largely for investment purposes, such as investing in housing and other productive assets (Zaman, 1999).

However, Mayoux (1999) suggested that microcredit results in woman empowerment. This is because MFI give more emphasis to women clients. The reasons are that women have higher payback rates and are reputed to be better credit risks, easier to discipline and more inclined to use the income they control for improving children nutrition and education.

Some evidence also suggests that microcredit programmes may reduce fertility rates (Schuler et al, 1997). This not surprising because given the higher opportunity cost of bearing children for a successful female entrepreneur, relative to a woman employed only in household or farm activities and where the child may be a more important source of labor. It may be that economic power, new information or new support system has allowed women to take more control over child bearing decisions. Also as womens income rises, child mortality rates usually fall, lessening the need or desire to bear many children.

2.6

Interest Rates of Microfinance Institutions It is no secret that the interest rates charged by microfinance institutions are higher than

those charged by commercial banks. This, according to the Microfinance Gateway (2009) is because the administrative cost of marketing loans is much higher in percentage terms then the cost of making a large loan. It takes a lot less staff time to make a single loan of $100,000 than 1,000 loans of $100 each. Besides loan size, other factors are credit decision for borrowers who have neither collateral nor a salary cannot be based on automated scoring. These decisions require substantial intervention of a loan officer in judging the risk of each loan. Also, MFIs may operate in areas that are remote or have low population density; making lending more expensive.
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This is often why traditional banks tend to stay away from such areas. Thus, if a MFI wants to operate sustainably, it has to price its loan high enough to cover all its costs.

FAO (2000) reported that many microcredit programmes sometimes provide training and technical advice to borrowers in an effort to increase their incomes. These include literacy programmes, enterprise management and education in family planning and nutrition. These full service programmes try to increase the skills and capacity of their borrowers. This results in high operational cost which must be supported by high interest rates payed by borrowers.

2.7

Microfinance Banks in Nigeria

2.7.1

Justification for Establishment

CBN (2005) noted that the following facts justify the establishment of microfinance banks in Nigeria. They are:

1. Weak institutional capacity: - The prolonged sub optima performance of many existing community banks due to incompetent management, weak internal controls, lack of deposit insurance schemes, poor corporate governance, lack of well defined operations and restrictive regulatory /supervisory requirements. 2. Weak capital base: - The weak capital base of existing institutions, particularly the then community banks could not adequately provide a cushion for the risk of lending to micro entrepreneurs without collateral. 3. The existence of huge unserved market: - The average banking density in Nigeria is one financial institution outlet to 32,700 inhabitants. In the rural areas, it is 1:57,000 that are less than 2% of rural households have access to financial services.

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4. Economic empowerment of the poor, employment generation and poverty reduction: The baseline economic survey of Small and Medium Industries (SMIs) in Nigeria conducted in 2004, indicated that the 6, 498 industries covered employed a little over one million workers. Considering the fact that about 18.5 million (28% of the available work force) of Nigeria are unemployed, the employment objective/role of SMIs is far from being reached. Hence, the establishment of microfinance banks would assist the SMIs in raising their productive capacity and level of employment generation. 5. The need for increased savings opportunity: - As at end-December 2004, the total currency in circulation stood at N585.8 billion, out of which N458.6billion or 84.12% was outside the banking system. Poor people can and do save, contrary to general misconceptions. However, due to inadequacy of appropriate saving opportunities and products, savings have continued to grow at as very low rate particularly in the rural areas. 6. The interest of local and international communities in micro financing: - Many international investors have expressed interest in investing in the microfinance sector.

2.7.2

Goals of Microfinance Banks

The microfinance banks were intended to serve the following purposes:-

i.

Provide diversified, affordable and dependable financial services to the active poor, in a timely and competitive manner that would enable them to undertake and develop long term sustainable entrepreneurial activities.

ii.

Mobilize savings for intermediation.

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iii.

Create employment opportunities and increase the productivity of the active poor in the country.

iv.

Enhance organized, systematic and focused participation of the poor in the socio economic development and resource allocation process.

v.

Provide avenues for the administration of the micro credit programmes of government and high net worth individuals on a non recourse case basis.

vi.

Render payment services such as salaries gratuities and pension for various tiers of government (CBN, 2005).

Eluhaiwe (2008) listed the benefits that can be derived from micro finance banks to include:

i. ii. iii. iv.

Saving money in the bank as an account holder. Borrowing from MFB to start or expand your business. Transferring money from one part of the country to another. Enjoying micro leasing, micro insurance, advisory services, etc.

2.7.3

Categories of Microfinance Banks CBN (2005) categorized microfinance banks into two based on establishment. They are:

i. ii.

Micro Finance Banks (MFBs) licensed to operate as a unit bank, and Micro Finance Banks (MFBs) licensed to operate in a state.

MFBs licensed to operate as unit banks shall be community-based banks. Such banks can operate branches and/or cash centers subject to meeting the prescribed prudential requirements and availability of free funds for opening branches/cash centers. The minimum paid up capital for this category of banks is N20million for each branch.
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MFBs licensed to operate in a state on the other hand shall be authorized to operate in all parts of the state (or the Federal Capital Territory) in which they are registered, subject to meeting the prescribed prudential requirements and availability of free funds for opening branches. The minimum paid up capital for this category of banks is N1 billion.

2.7.4

Ownership of Microfinance Banks

CBN (2005) noted that microfinance banks can be established by individuals, groups of individuals, community development associations, private corporate entities or foreign investors. But no individual, group of individuals, their proxies or corporate entities and/or their subsidiaries shall establish more than one MFB under a different or disguised name.

Universal (commercial) banks that intends to set up any of the two categories of MFB as subsidiaries are required to deposit the appropriate minimum paid up capital and meet the prescribed prudential requirements. Likewise, existing Non-Governmental Organizations providing microfinance which intends to operate a MFB can either incorporate a subsidiary MFB while still carrying out its NGO operations or fully convert into a MFB. In this case, they have to obtain an operating license.

2.8

Commercial Banks and Microfinance

Some commercial banks in Nigeria today have gone into the microfinance subsector. Brandsma and Chaouali (not dated) advised that banks should be encouraged to engage in microfinance for several reasons:

1. Microfinance can be profitable for banks especially those that are strong in retail banking or customer lending.
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2. Banks have a large outreach potential through their extensive branch networks. This gives them large economies of scale relative to NGOS or MFIs, which would have to make major investments in infrastructure to reach the same number of borrowers or savers. 3. Banks have the most accessible source of funds for on lending - their deposit base. For instance, in the Middle East and North Africa total funding needs for microfinance account for less than 1% of deposits in the banking system. 4. Banks can offer deposit and savings services to the poor, a financial service often more needed then credit.

2.9

Government Participation in Microfinance

A vast majority of government microfinance programmes do a poor job of delivering retail credit because they are usually subject to political influence, high default, continuing drain on national treasuries, and sometimes lending based more on the borrowers influence than their actual qualification. Among government programmes reporting to international data bases only 1/8 of clients are being served sustainably (Microfinance Gateway, 2009).

The structural dynamics that make it hard for governments to deliver good retail credit are that sound credit administration requires screening out borrowers who are not likely to repay, and responding vigorously to late payments. These requirements usually run counter to the practical incentives and imperatives of even the sincerest working politician. Thus, governmentrun MFIs that deliver good microcredit tend to be insulated from politics, managed by technocrats, and strongly and explicitly focus on sustainability (Microfinance Gateway, 2009).

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2.10

The Global Financial Crisis and Its Impact on Microfinance

Compared with other financial institutions, Microfinance Institutions (MFIs) have emerged relatively unscathed from the financial crisis of the past few decades. During the currency crisis in East Asia and the banking crisis in Latin America in the 1990s, institutions serving poor customers generally performed better financially than mainstream banks. But microfinance now has many more links to domestic and international financial market, and as a result todays financial crisis is more likely to affect it. (Littlefield and Kneiding, 2009).

2.10.1 Changes in Income Sources and Expenses

It is not easy to separate the effects directly related to the financial crisis from preexisting condition like the food crisis. But reports do suggest that the dual forces of increased prices and an economic slowdown are leading to a squeeze on household income. While food prices have come down in recent months, they remain very high in many places, and low income people have been struggling to adjust ( Duflos and Gaehwiler, 2008).

Zaidi et al (2008) indicated that recent research in Pakistan shows an inflation rate of nearly 25% has surprisingly not had a damaging effect on microfinance clients as at of late 2008. On the contrary, those clients producing food crops and agricultural commodities have actually benefitted from higher market price (Littlefield and kneiding, 2009).

According to World Bank predictions, growth of remittance flows from developed countries to developing countries will reach their lowest point in 2009, but they will bounce back to reach solid growth rate as early as 2010. Remittance inflow in US dollars are expected to

19

decreases during 2009-10, with sharp declines compared with recent years (Ratha et al, 2008). This is basically due to job losses in the United States and Europe.

2.10.2 Stability of Deposits

In a world where communications are global and news travels fast, bank failures in the United States and Europe could potentially lead to a loss of confidence in local banks. Microfinance banks in Eastern Europe and Central Asia, like other banks in the region, saw a steady withdrawal of deposits for several weeks following the announcement of the Lehman Brothers collapse. In Russia, monthly deposit withdrawals in the banking sector peaked in October 2008 at about 5-7% of the total deposit base, but the problem subsided soon afterwards (Littlefield and Kneiding, 2009).

2.10.3 Microfinance in 2009: The Road Ahead

Littlefield and Kneiding (2009) noted that MFIs will want to increase reserves and adjust growth plans to be more conservative in light of tighter credit. But they must honor their implicit contract to grant prompt follow-on loans to existing borrowers who have repaid faithfully. If they fail to do this, repayment motivation almost always suffers, and default rate grows fast.

2.10.4 Opportunity amid the Crisis

Some microfinance markets had become overheated in recent years with sensational growth rates, deteriorating underwriting standards and crumbling risk-return tradeoffs. Hence, slower growth, scarcer credit, more conservative policies, better products and even consolidation of weaker institutions into stronger ones may be beneficial in the long run. The crisis may

20

accelerate long overdue consumer protection measures that are part of responsible lending (Littlefield and Kneiding, 2008).

21

CHAPTER THREE 3.0

3.1 Study Area

METHODOLOGY

Chanchaga is one of the 25 Local Government Areas of Niger state. It lies on latitude 9037N and longitude 6033E. It is found in the southern guinea savannah vegetation zone of Nigeria with a population of 201,429 according to 2006 population census (Federal Government of Nigeria official gazette, 2007). Chanchaga has a mean annual rainfall of 1330mm with the highest monthly rainfall of about 300mm in September. The rainy season is normally between April and October. Temperature rarely falls below 220C. The peaks are 400C (February March) and 350C (November December).

The soil type of Chanchaga range from any sandy-loam to clay-loam, hence food crops such as yam, rice, maize, groundnut and vegetables like spinach, okra, tomato, pepper etc are widely cultivated. The major occupation of the inhabitants is agriculture either in full time or part time bases.

3.2

Method of Data Collection

The primary data for this study were collected using structured questionnaires and personal observation while the secondary data was obtained from text books, journals, seminar papers, proceedings and the internet. The internet provided access to relevant websites and WebPages.

22

3.3

Sampling Technique and Sample Size

A list containing names and addresses of beneficiaries of agricultural micro-credit was obtained from Nexus Micro finance bank located along Tunga Low cost road Minna from which 80 beneficiaries were randomly selected. The respondents were traced through their addresses and each was issued a questionnaire to fill.

3.4

Methods of Data Analysis

The data were analyzed using descriptive statistics and multiple regression analysis. The descriptive statistics include mean, percentage and frequency tables. Multiple regression analysis will be used to determine the contribution of Microfinance Banks to Agricultural development in the study area. One dependent variable and five independent variables were employed with the following relationship:

Y = f (X1, X2, X3, X4, X5, e) Where Y = value of output in Naira (N) of maize, rice and yam. X1 = Amount of loan received Naira (N). X2 = Interest rate on borrowed capital Naira (N). X3 = Technical assistance from Microfinance Bank (Dummy variable 1 yes or 0 otherwise). X4= Farm size in hectares X5= Labour in Naira (N) e = Error Term
23

CHAPTER FOUR 4.0 PRESENTATION AND DISCUSSION OF RESULTS

This chapter deals with the results obtained from the field and their analysis. A total of 80 questionnaires were administrated but only 72 were returned and thus analysed.

4.1 4.1.1

Socio-Economic Characteristics Age of Respondents

Age is the number of years a person has lived. The age distribution of respondent is presented in the table below.

Table 1: Distribution of Respondents by Age

Age Below 20 21 40 41 60 61 and above Total Source: Field Survey, 2009 Mean age =37

Frequency 0 47 25 0 72

Percentage 0 65.3 34.7 0 100

Table 1 above indicates that none of the beneficiaries is below 20years and above 61years of age respectively. 34.7% of the beneficiaries reported that they are between the ages of 41 and 60 while 65.3% of them indicated that they are between 21 and 40 years old. The high

24

percentage of this category of beneficiaries is that they are within economically active years of their lives and can take the risk of taking loans for production purposes.

4.1.2

Sex Distribution of Respondents

Sex or gender is the quality of being a male or female. The sex distribution of respondents is presented in the table below.

Table 2: Distribution of Respondents According to Sex

Sex Male Female Total Source: Field Survey, 2009

Frequency 45 27 72

Percentage 62.5 37.5 100

The above table indicates that about 62.5% of the respondents are male while 37.5% of them are female. The higher percentage of the male beneficiaries of agricultural microfinance may be attributed to the fact that female beneficiaries are prone to go into female oriented businesses or trades like tailoring, sewing, soap making and so on.

4.1.3

Marital Status of Respondents

Marital status of respondents single, married, divorced, widowed or separated. Table 3 below shows the marital status distribution of the respondent.

25

Table 3: Distribution of Respondents by Marital Status

Marital Status Single Married Divorced Widow/widower Total Source: Field Survey, 2009

Frequency 13 58 0 1 72

Percentage 18.1 80.6 0 1.3 100

The table above signifies that none of the beneficiaries is divorced while 18.1% and 80.6% of them are single and married respectively, marriage is regarded as a noble institution that uplifts the status of an individual whether male or female, that is why majority of the respondents are married.

Adegeye et al (1985) reported that consumption credit to small farmers helps to make farmers more productive, because of the fact that the farm is a social, political and economic entity and hence credit required for other purpose, such as marrying a wife.

4.1.4

Educational Level of Respondents

Education can be acquired formally i.e. with the four walls of the school in a structured manner or informally outside the school in an unstructured manner.

26

Table 4: Distribution of Respondents by Educational Level

Educational Level Primary Secondary Tertiary Arabic Adult None Total Source: Field Survey, 2009

Frequency 20 17 12 11 7 5 72

Percentage 27.8 23.6 16.7 15.3 9.7 6.9 100

Table 4 above indicates that about 16.7% of beneficiaries have tertiary education while majority (about 27.8%) have attended primary school. This can be attributed to the metropolitan nature of Chanchaga Local Government Area where western education is regarded as a necessary tool for survival in today world. Lack of education do not motivate people to approach financial institutions for loans due to the protocols involved like filling of forms that is why most of the beneficiaries are educated.

Adegeye et al (1985) also indicated that credit to small farmers in the absence of knowledge and use capability of technology can even prove harmful since the farmers can become hearty indebted and be unable to pay back.

27

4.1.5

Household Size Distribution of Respondents.

Household size is the number of people living in a particular household. Its a determinant of many things like adoption of innovation, availability of family, labour, etc. The household size distribution of respondents is as follows:

Table 5: Distribution of Respondents by Household Size

Household size 15 6 10 11 15 16 20 21 and above Total Source: Field Survey, 2009

Frequency 21 25 12 10 4 72

Percentage 29.2 34.7 16.7 13.9 5.5 100

Mean household size = 12 persons

About 29.2% and 5.5% of the agricultural microfinance beneficiaries reported that they have household sizes of between 1 and 5 and at least 21 respectively as indicated in table 5 above. Similarly majority of the respondents (about 34.7%) stated that they have household size of between 6 and 10.

28

Educational enlightenment, availability of hired labour and bad state of the economy are some factors that may be responsible for most couples not wanting to have very large household size.

4.1.6

Years of Farming Experience

This is the length of time usually in years which an individual have been engaged in farming ranging from crop production, animal rearing, fishery etc. below is the distribution of respondents according to years of farming experience.

Table 6: Distribution of Respondents by Years of Farming Experience

Years of Farming Experience Below 5 5 10 11 15 16 20 21 above Total Source: Field Survey, 2009

Frequency 14 23 17 15 3 72

Percentage 19.4 31.9 23.6 20.9 4.2 100

Table 6 above shows that only about 4.2% of the respondents have farming experience above 20years while 20.9% of them have farming experience of between 16 and 20 years. But 31.9% of the beneficiaries reported that they had been farming for the past 6 to 10years the low

29

percentage of those with lots of farming experience (16years and above) may be because they are already customers and have taken loans from other financial institutions like the Nigerian Agricultural Co-operative and Rural Development Bank (NACRDB), hence they do not deem it necessary to approach Microfinance Banks for loans again.

Bede (1985) confirmed that in traditional agric, farm sizes ranges on averages of 0.10 to 5.0 ha per farm family.

4.1.7

Source of Labour of Respondents

Source of labour can be family, hired, communal or combination of some or all of these. It is a very important factor of production which is paid for by wages or salaries. Below is the distribution of respondents based on labour source.

Table 7: Distribution of Respondents by Source of Labour

Source of Labour Family only Hired only Family and hired Total Source: Field Survey, 2009

Frequency 27 15 30 72

Percentage 37.5 20.8 41.7 100

According to table 7 above, only about 20.8% of the respondents reported that they use hired labour exclusively while 41.7% of them claimed that they used a combination of family and hired labour. The use of hired labour only is quite expensive hence increasing the cost of
30

production, that is why most people do not take that option therefore majority of farmer will prefer a combination of family and hired labour.

CBN (1985) stated that family labour is probably still very important in agric but it is increasingly being supplemented by hired labour as a result of a variety of factors such as net emigration of youths.

4.2 4.2.1

Mode of Disbursement and Repayment Customer of Microfinance Bank

Being a customer of a bank entitles an individual to benefit from loans disbursement by it and at reasonable interest rate that may be lower than that of non-customers.

Table 8: Distribution of Respondents Based on Customership of Microfinance Bank

Customer of Microfinance Bank Yes No Total Source: Field Survey, 2009

Frequency 57 15 72

Percentage 79.19 20.83 100

Table 8 above indicates that 79.17% of the respondents stated that they were customer of microfinance bank while the remaining 20.83% responded otherwise. A bank has more confident and finds it safe to grant a loan to its customer than a non-customer due to ease of recovery of the

31

loan incase of default. Hence little wonder why majority of the respondents were customers of the bank.

4.2.2

Mode of Disbursement of the Loan

Mode of disbursement is the way and manner a financial institution in this case microfinance bank grants loans to the qualified beneficiaries. Below is the distribution of respondents based on mode of loan disbursement.

Table 9: Mode of Disbursement Distribution of Respondents

Mode of disbursement Individual Co-operative Total Source: Field Survey, 2009

Frequency 32 40 72

Percentage 44.4 55.6 100

According to table 9 above 44.4% of the respondents reported that they were given the loans on individual basis while the remaining 55.6% stated that they got the loans through their various co-operatives. That is to say, for increased security, banks may decide to give preference to co-operatives than individuals. In addition this save the bank transaction cost and lowers default rate.

4.2.3

Repayment Plan

Loans can be paid back either in full or installmentally i.e. in bits. Installmental repayments give more flexibility to the beneficiary and lowers default rate.
32

Table 10: Distribution of Respondents by Repayment Plan

Repayment Plan In full Installmentally Total Source: Field Survey, 2009

Frequency 0 72 72

Percentage 0 100 100

Table 10 above indicates that all the beneficiaries agreed that the loans are paid back in installments. Microfinance banks are meant to serve the poor and the less privileged in the society. For this reason, they normally demand for installmental repayment of loans since their beneficiaries may not be able to pay in full.

4.3

Number of Farmers that have Benefited from the Banks

Based on the information gathered from Nexus Microfinance Bank Minna, micro credits are disbursed in four major areas, namely: commerce, small and medium scale enterprises, communication and agriculture. The table below shows the break down.

33

Table 11: Micro-credit Beneficiaries Based on Categories

Repayment Plan Commerce Small/Medium Enterprise Communication Agriculture Total

Frequency 115 205 37 138 495

Percentage 23.23 41.41 7.48 27.88 100

Source: Nexus Microfinance Bank, Minna, 2009

Table 11 above reveals that majority of the loans given out by microfinance banks are in favour of small and medium scale enterprises like tailoring, hair dressing and the like followed by agriculture. This implies that about 28% of loans disbursed by microfinance bank are for various agriculture purposes like crop production, fishery, animal husbandry and so on. Also, about 23.33% and 7.48% of beneficiaries were granted with loans in commerce and communication categories respectively.

4.4

Effect of Loan Disbursement on Output

The effect of loan disbursement on the output realized by farmers was examined using ordinary least square (OLS) multiple regression analysis. Various functional forms were fitted to the data and the lead equation (equation of best fit) was chosen based on.

34

i. ii. iii. iv. v. vi.

The explanatory power of the model Number of statistically significant explanatory variables. Magnitudes of estimates regression coefficient. Conformity of signs of estimated regression. Coefficients with a prior expectation as well as F statistic

A summary of the estimated regression parameters and the tried functional forms is presented in Table 12.

35

Table 12: Ordinary Least Squares Estimates of Factors Affecting the Output of Beneficiaries

Variable Constant

Linear -145920.0 (-3.533)

Double Log -0.675 (-0.668) 1.124 (2.062)*** -0.102 (-0.662) 0.258 (3.934)*** 0.070 (1.287) 0.959 0.951 112.262***

Semi log -3827830 (-5.101) 735722.76 (6.223)*** -465915.4 (-4.086)*** 163404.59 (3.355)*** -15725.144 (-0.388) 0.874 0.847 32.825***

Exponential 11.602 (77.522) 6.601E.6 (7.236)*** 8.93E.007 (0.497) 0.075 (0.651) 0.027 (0.773) -3.89E.007 (-0.543) 0.588 0.557 18.872***

Loan

3.204 (13.985)***

Interest

-0.413 (-0.831)

Technical Assistance

24538.772 (0.769)

Form size

16647.808 (1.708)*

Labour

-0.585 (-2.955)***

R2 R2 Adjusted F Statistic

0.835 0.822 66.800***

Source: Computed From Survey Data, 2009 *** Implies statistically significant at 1% ** Implies statistically significant at 5% * Implies statistically significant at 10% Note: Figures in parenthesis are the respective T-ratios. Also note that the technical assistance variable is a constant after logarithmic transformation and was therefore deleted.
36

Results in table 12 indicate that the lead equation is the linear functional form. It has an R2 value of 0.835. This implies that about 83.5% of the variation in the value of output (Y) is explained by variables (X1 X5) included in the model. The remaining 16.5% is as a result of non-inclusion of some important explanatory variables as well as errors in estimation. The Fstatistic (66.800) is also significant at 1% level. This indicates that the variables adequately explained the model.

Out of the five variables modeled only three, namely: loan, farm size and labour input had significant effect on value of output. The estimated regression coefficient for loan is 3.204% which is positive as expected and significant at 1%. This implies that amount of loan received by beneficiaries had significant effect on the total value of output. It also indicates that as the amount of loan received increases, the output also increases.

The same can also be said of farm size which is significant at 10% with a positive regression coefficient of 16647.808. This shows that as the farm size of beneficiaries increases, their output also increases. But even though labour was significant at 1% it had a negative regression coefficient of -0.585, meaning that as the cost of labour decreases the value of output increases. In addition interest rate charged by microfinance banks and technical assistance provided by them does not in anyway affect the value of output obtained by beneficiaries (according to the lead equation).

4.4.1

Test of Hypothesis

The null hypothesis states that there is no significant relationship between amount of loan collected by beneficiaries and their output result in table 12 indicates that the estimated regression coefficient for loan is 3.204 which is positive and statistically significant at 1%. We

37

thereby reject the null hypothesis and accept the alternative which states that there is statistical significant relationship between amount of loan received and the output of farmers. 4.5 Problems Faced by the Beneficiaries The agricultural microcredit beneficiaries in Chanchaga Local Government Area are faced with a lot of problems that hinder their production. Below is the distribution of respondents based on their production constraints. Table 13: Production Problems Distribution of Respondents Problems Facing Farmers Inadequate credit facilities High interest rate Pest and disease In inadequate extension services Lack of storage and processing facilities Poor marketing systems Others Total Source: Field Survey, 2009 Table 13 above shows that poor marketing systems and inadequate extension service are the main problems facing 16.7% and 19.8% of the respondents respectively. But about 41% of the respondents reported that inadequate credit facilities is the major production constraint they are facing are available but they are quite expensive not to adopt them hence continuing with their old methods. Frequency 41 31 28 28 20 32 2 192 Percentage 21.4 16.1 14.6 19.8 10.4 16.7 1.0 100

38

CHAPTER FIVE 5.0

5.1

SUMMARY, CONCLUSION, AND RECOMMENDATIONS

Summary

This study aims at assessing the contributions of microfinance banks to agricultural development in Chanchaga Local Government Area of Niger State. The objectives are to determine the socio economic characteristic of farmers that benefited from credit facilities of microfinance banks, evaluate the mode of disbursement and repayment structures of the banks, identify the number of farmers who have benefited from the banks, determine the effect of loan collected on farmers output and examine the problems facing the farmers. It was hypothesized that there is no significant relationship between the amount of loan received by farmers and their output.

Random sampling technique was used to select 80 agricultural micro credit beneficiaries from list of beneficiaries obtained from Nexus Microfinance Bank, Minna. Structured questionnaires were used to collect the primary data which were analyzed using descriptive statistics and ordinary least square multiple regression analysis. Results showed that about 65.3% of the respondents were between the ages of 21 and 40 while the remaining 34.7% are within 41 and 60years of age. Also majority of the respondents (62.2%) were male. This indicated that female beneficiaries are likely to go into female oriented businesses like sewing. Furthermore, most of the farmers had one form of education or another with only about 6.9% of them reporting that they have none at all. A combination of family and hired labour is used by 41.7% of the respondents with 37.5% reporting that they use family labour only. In addition 79.17% of

39

the farmers indicated that they were customers of microfinance bank and all of the respondents agreed that they were to repay the loans installmentally.

Results of the multiple regression analysis indicated that the linear function was the lead equation with amounts of loan received and labour being statistically significant at 1% and farm size 10% cost of labour was negatively significant, meaning that the lower the cost of labour the higher will be the value of output. The R2 value was 0.835 indicating that about 83.5% of the variation in the value of output (Y) was explained by the five independent variables included in the model.

For the fact that the coefficient of loan (3.204) was positive and statistically significant at 1% the null hypothesis was rejected. This implies that there is a statistical relationship between amount of loan received and the output of farmers, problems faced by the beneficiaries includes inadequate credit facilities (21.4%), inadequate extension services (19.82) and poor marketing system (16.7%) among others.

5.2

Conclusion

Microfinance banks contribute positively to agricultural development in Chanchaga Local Government Area of Niger State. This is because there is a positive and relationship between the amount of loan received and the output of farmers as indicated by the regression analysis results.

40

5.3

Recommendations

The findings and results of this study have led to the following recommendation.

1. Farmers should organize themselves into co-operatives so as to easily access credit facilities from microfinance banks. This gives the bank more confidence to disburse agricultural micro-credit and also reduce default rate. 2. The Agricultural Credit Guarantee Scheme of the government should be reviewed and made more functional. This will motivate microfinance banks to give out agricultural microfinance with minimal consideration of the risk involved. 3. Storage and processing facilities should be made available to farmers at subsidized rate by the government through collaboration with the manufacture of such equipment. This will ensure that farmers get maximum benefit from their product and not sell them at farm gate price immediately after harvest. 4. Extension service to farmers should be improved by motivating extension workers through better condition of service and increased salary/allowances. 5. Government in conjunction with the private sector and relevant partners should provide all sorts of agro-chemicals like herbicides pesticides and so on at subsidized rate. This will go a long way in increasing the output of farmers and ensuring food security in the nation. 6. To reduce the incidences of loan diversion by beneficiaries for purposes other than which they were collected, microfinance banks should disburse agricultural loans not only in cash but also in kind.

41

REFERECES
Adams, D.W., Douglas, H and Von Pischke, J.D (eds) (1984). Undermining Rural Development with Cheap Credit. Westview press, Boulder and London. Adegeye A.J. and Hoh, J.S.D (1985). Essential of agric economics. Impact publishers N.J limited Ibadan. Bede, N. Okgbo (1985). Strategies in research on improved farming systems to facilitate adoption and management by the Nigeria farmers. IITA, Ibadan Nigeria. Bradsma, J., and Chaouacli, R (not dated). Making microfinance work in the Middle East and North Africa. Human development group Middle East and North Africa Region World Bank. Bright, H (2006). Access for all: Building inclusive financial systems. Washington. C GAP/World Bank, pp 35-57. CBN (1985). Nigerian agric credit system: Analysis of operation and performance , Report by the National Agric credit study team VOL 1, macro-economic analysis and recommendations. Central Bank of Nigeria (2005). Microfinance policy, regulatory and supervisory frame work for Nigeria. Abuja. Cheryl, F (2001). Calmeadow Metrofund: A Canadian experiment in sustainable microfinance. Calmeadow Foundation. Deutsche Bank (2007). Microfinance: An emerging investment opportunity. Duflos, E and Gaehwiher, B (2008). Impact and implications of the food crisis on microfinance. CGAP presentation. Retrieved from www.cgap.org

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Eluhaiwe, P.N (2008) Policy initiatives for improved financial service provision in the rural area of Nigeria Being a paper presented at the AFRACA West African English speaking sub-regional workshop at Banjul, 31st March to 2nd April 2008. Retrieved from www.afraca.org Food and Agricultural Organization (2009). Rural finance. Retrieved from www.fao.org Food and Agriculture Organization (2000). The state of food and agriculture 2000 Rome. Retrieved from www.fao.org Food and Agriculture Organization (2009). Rural finance. Strengthening services in agrifood systems. Retrieved from www.fao.org Fruman, C. and Goldberg, M (1997). Microfinance practice guide for World Bank staff. World Bank, sustainable banking with the poor and consultative group to assist the poorest, Washington, DC. Hernando, S (1989). The other path: the invisible revolution in the third world. New York Harper and Row publishers, p 162. Justus, N (2009, January 23). CBN license 840 microfinance banks. Leadership Newspaper online. Khandiker, S (1998). Fighting poverty with microcredit. Washington, D.C World Bank p11. Ledgerwood, J (2000). Microfinance hand book on institutional and financial perspective. Washington D.C. World Bank. Littlefield, E., and Kneiding, C (2009). The global financial crisis and its impact on microfinance. Retrieved from www.cgap.org

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Mayoux, L (1999). Womens empowerment and microfinance programmes: approaches, evidence and ways forward. Milton Keynes, U.K, development policy and practice working paper no 41. Microfinance Gateway (2009). What is microfinance? Retrieved from

www.microfinancegateway.org Marguerite, R (2001). The microfinance revolution: Sustainable finance for the poor. Washington. World Bank pp 199-215. Ratha, D., Mohapatra, S. and Xu, Z (2008). Outlook for remittance flows 2008-2010. Migration and development brief no. 8 Washington DC; CGAP. Robert, P.C., Richard, R and Venna, J (2004). Financial institution with a double bottom line: Implication for the future of microfinance. CGAP occasional paper pp 2-3. Schuler, S., Hasheni, S and Riley, A (1997). The influence of womens changing roles and status in Bangladeshs fertility transition. World Development, 25 (4). Sirajul, I ( 2006). Can microfinance halve poverty by 2015: A review. Retrieved from www.countercurrents.org Womens World Banking (1995). The missing links: Financial systems that work for the majority. Paper prepared for the Global Policy Forum. New York. Zaman, H (1999). Assessing the poverty and vulnerability impact of microcredit in Bangladesh: A case study of BRAC. Background paper for the WDR 2000/2001 Washington D.C. World Bank. Zaidi, S., Farooqui, M. and Naseem, A (2008). The impact of inflation on microfinance clients and its implications for microfinance practitioners. Micronote No.4 Pakistan Microfinance Network.

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APPENDIX QUESTIONNAIRE
FEDERAL UNIVERSITY OF TECHNOLOGY, MINNA DEPARTMENT OF AGRICULTURAL ECONOMICS AND EXTENSION TECHNOLOGY PROJECT TOPIC: Contribution of Microfinance Banks to Agricultural Development in Chanchaga Local Government Area of Niger State Dear Respondent, You are requested to kindly answer the questions below as objectively as possible by ticking the appropriate options or by writing short and direct answers as the case may be. Any information you give will be treated confidentially as they will be used strictly for this research purpose. SECTION A 1. AGE 2. SEX: (a) Male [ ] 3. Marital Status: (a) (b) (c) (d) Single [ ] Married [ ] Divorced [ ] Widow/widower [ ] (b) Female [ ]

4. Highest Level of Education: (a) (b) (c) (d) (e) Primary [ ] Secondary [ ] Tertiary [ ] Arabic [ ] Adult [ ]

45

(f) None [ ] 5. Years of Farming Experience: (a) (b) (c) (d) (e) <= 5 [ ] 6 to 10 [ ] 11 to 15 [ ] 16 to 20 [ ] >= 21 [ ]

6. Household Size: (a) (b) (c) (d) (e) <= 5 [ ] 6 to 10 [ ] 11 to 15 [ ] 16 to 20 [ ] >= 21 [ ]

7. Source of Labour: (a) Family only [ ] (b) Hired only [ ] (c) Family and hired [ ] 8. Are you a member of co-operative farmers association? (a) Yes [ ] (b) No [ ]

9. Are you a customer of any commercial bank? (a) Yes [ ] (b) No [ ]

10. Are you a customer of microfinance bank? (a) Yes [ ] (b) No [ ]

11. For how long have you being in operating with them? (a) (b) (c) (d) 1 year [ ] 2 years [ ] 3 years [ ] 4 years [ ]
46

(e) >= 5 years [ ] SECTION B: MODE OF DISBURSEMENT AND REPAYMENT STRUCTURE OF BANKS 12. What was the amount of loan you applied from the bank?.................................................... 13. 14. (a) 15. 16. 17. How much was giving to you?............................................................................................... Was interest charged? Yes [ ] (b) No [ ]

What was the interest rate?.................................................................................................... Which crops did you take loan for?....................................................................................... How much loan did you take for (a) (b) (c) Maize?.......................................................................................................... Rice?............................................................................................................. Yam?............................................................................................................

18. Crops Yam Maize Rice 19.

Total farm size in hectares Size

Did you applied for the loan directly as an individual or through a cooperative? (a) (b) Individual [ ] Cooperative [ ]

20.

How are going to payback the loan? (a) (b) In full [ ] Installment ally [ ]

47

21.

How long will it take you to fully repay the loan? (a) (b) (c) (d) (e) 1 year [ ] 2 years [ ] 3 years [ ] 4 years [ ] >= 5 years [ ]

22. Which of the following technical assistance did you get from the bank? (a) (b) (c) (d) (e) Information on the source of input [ ] Extension services [ ] Marketing [ ] All of the above [ ] Others:

48

23.

Please kindly complete the table below, the number people employed and the total number of Man-day or Man-hours spent in each for operation.

Note: AM=Adult Male, AF=Adult Female, CH= Child Table: How much did you pay on Labour for Maize Production?
AM FAMIL
S/NO

AF HIRED FAMIL Y (=N=) (=N=) (=N=) HIRED

CH FAMIL Y (=N=) (=N=) HIRED

TOTAL FAMIL Y (=N=)

TOTAL HIRED

OPERATION

Y (=N=)

(=N=)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Land clearing Ploughing Ridging Planting First fertilizer application Second fertilizer application First weeding Second weeding Hand weeding Harvesting Processing threshing

11.

winnowing bagging
12.

Transportation

49

24.

Please kindly complete the table below, the number people employed and the total number of Man-day or Man-hours spent in each for operation. Note: AM=Adult Male, AF=Adult Female, CH= Child Table: How much did you pay on Labour for Rice Production?
AM FAMIL HIRED AF FAMIL Y (=N=) (=N=) (=N=) HIRED CH FAMIL Y (=N=) (=N=) HIRED TOTAL FAMIL Y (=N=)

TOTAL HIRED (=N=)

S/NO.

OPERATION Land clearing Ploughing Ridging Planting First fertilizer application Second fertilizer application First weeding Second weeding Hand weeding Harvesting Processing threshing winnowing bagging

Y (=N=)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

12.

Transportation

50

25

Please kindly complete the table below, the number people employed and the total number of Man-day or Man-hours spent in each for operation. Note: AM=Adult Male, AF=Adult Female, CH= Child Table: How much did you pay on Labour for Yam Production?
AM FAMIL HIRED AF FAMIL Y (=N=) (=N=) (=N=) HIRED CH FAMIL Y (=N=) (=N=) HIRED TOTAL FAMIL Y (=N=)

TOTAL HIRED (=N=)

S/NO.

OPERATION Land clearing Ploughing Ridging Planting Stalking First fertilizer application Second fertilizer application First weeding Second weeding Hand weeding Harvesting Processing threshing

Y (=N=)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

12.

winnowing bagging
13.

Transportation

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26 27
28 29

Wage table for yam Wage table for rice Wage table for maize The output of maize/rice S/NO. Items 1. How many bags did you realized after production? 2. 3. How much did you sell a bag? How many bags did you sell? The output of yam Items How many tubers did you realize after harvest? How much did you realize from the sale of 100 (1 korya)? How many korya did you sell? Yam Maize Rice

30.

S/NO. 1. 2. 3.

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SECTION C: Problem Facing Farmers 31. Which of the following do you think are the major problems facing Agricultural Acquisition of loan in Chanchaga Local Government Area? (you can thick more than one). (a) (b) (c) (d) (e) (f) (g) Inadequate credit facilities [ ] High interest rate [ ] Pest and diseases [ ] Inadequate extension services [ ] Lack of storage and processing facilities [ ] Poor marketing systems [ ] Others .. SECTION D: Solution to Problems 32. What solution will you recommend to tackle the problems identified above? (a) ..
(b) ..

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