Meaning of Agricultural Finance
Agricultural finance is the act of acquisition and use of capital in agribusiness. It deals with the demand for and supply of fund order to carry out various projects on the field of agriculture. The main objective of financing is to increase and other productive factors, stocks available to farmers so as to expand production.
Table of Contents
Meaning of Agricultural Credit
Agricultural credit refers to a refundable loan granted to a farmer to enable him improve in his farming activities. it can also be defined as loan granted to a farmer by credit lending agencies for agricultural purposes.
Types of Farm Credit
There are three major classes of farm credit:
- Short term credit: This is a productive credit which the borrower is expected to pay back within a year. It may be used to purchase items that can easily be used up with optimum output. Examples are improved seeds, fertilizers, chemicals, fuel etc.
- Medium term credit: This is the type of credit which the borrower is expected to pay back within a period of two to five years. It can be used to purchase items that can be turned around or used within the time frame and yield high profit. Examples, purchase light duty machine or simple farm implement, breeding livestock, building housing units for livestock, erecting farm structures etc.
- Long term credit: This is a productive credit which is repayable within a period of five to twenty years. It attract highest amount of money compared to short and medium term credit. It can be used to purchase costly fixed assets such as farm buildings, land, heavy duty machines etc.
Importance/ Significance of Agricultural Credit
- It enables the farmer to acquire necessary modern farm inputs to improve and increase their efficiencies.
- It helps farmers to maintain large land area.
- It enables farmers to acquire storage and processing facilities.
- It improves the standard of farmers.
- It helps farmer to take care of any prevailing condition in the farm such as pest and disease control.
- It helps the farmer to insure their farms against hazards surrounding farming.
AGRICULTURAL SUBSIDY
This is a non-refundable aid granted to farmers to enable and encourage them in their production. It also refers to a discount given to farmers by agencies usually government agencies in the course of farmer, purchasing agricultural inputs such as chemicals, fertilizers, improved seeds.
SOURCES OF AGRICULTURAL FINANCING OR FARM CREDITS
- Agricultural banks: Example Nigerian Agricultural and Co-operative Bank (NACB) established solely to grant loans to potential farmers.
- Commercial Bank: Have departments that take care of loans given to farmers. Example of such banks are United Bank of Africa (UBA), Union Bank PLC, Wema Bank PLC etc
- Cooperative society: Members pool their resources together and whoever is interested in getting loans can obtain it from the society.
- Credit and thrift society: Members contribute money in which they use in financing their farming business.
- Self-financing: Money saved by individual to finance agricultural business.
- Individuals: Money borrowed from friends, relatives etc to finance agricultural business.
- Money lenders: People who lend money to farmers to enable them produce. They charge high interest rate.
- Government agencies and government: These are department in government establishment or ministries responsible for granting credit to potential farmers.
- Non-governmental organization: These are bodies set up by individuals or group of people with the aim of rendering services or financial assistance to farmers.
Problems associated with farm credits
Reason why farmers find it difficult to procure loans from banks includes the following:
- High interest rate: The percentage of interest charged on principal sum by banks is usually high and this discourages borrowing.
- Lack of collateral security. Most farmers do not have items of value that they can present as collateral to secure loans from financial institutions
- High level of loan defaulters. Farmers default in paying back the loan as at when due.
- Diversion of loan. Some farmers divert the loan to areas for which the loans are not originally meant for.
- Lack of proper farm records and Accounts. Most farmers lack accurate farm records and account that can lead be used to access their credit worthiness.
- Unpredictable climate which can lead to crop failure. Due to various climate factors, farmers may invest so much to their farms and have very low yield.
- Lack of insurance policy. Most farmers do not insure their farms against unforeseen occurrences such as fire outbreak.
- Long Gestation period of plantation crops.
EVALUATION
- What is agricultural finance?
- What is agricultural credit?
- State three type of farm credit.
- Outline 5 significance of agricultural credit. What is interest?
- Outline 5 reasons why farmers fail to procure loans from banks.
WEEKEND ASSIGNMENT
- Financial assistance from the government to the farmer is usually in the following forms except (a) loan (b) credit (c) tax (d) subsidy.
- The assistance given to a farmer by the government in form of reduction in price is a, input b, credit c, loan d, subsidy.
- The following are sources of agricultural credit except a) agricultural bank b) cooperative society c) commercial d) mortgage bank.
- Short term credit can be used to purchase the following except a) improved seed b) fertilizer c) herbicides d) tractor.
- Investment with long life span in agricultural economics are otherwise known as a) labour b) capital c) profit d) savings deposit.
THEORY
- Explain the meaning of agricultural finance and agricultural credit
- Name six sources of agricultural credit available to small scale farmers
- Mention six problems associated with agricultural credit WASSCE 1990 question 10, 2014 question 10b
- Briefly explain each of the following types of credit in agricultural production
- Short term credit
- Medium term credit
- Long term credit
- List four sources of agricultural credit
- Explain briefly four reasons why farmers find it difficult to loans from banks (WASSCE 1997 question 9).
ONLINE ACTIVITY
- Briefly explain (a) Agricultural finance (b) Agricultural credit
- Explain four significance of agricultural finance
- Mention one problem farmers encounter in obtaining credit from the following credit sources
- Commercial banks
- Community banks
- Money lenders
- Family sources (WASSCE 2001 question 10).
- Explain the term farm credit
- List five sources of farm credit (WASSCE 2011 question 9a).
- Distinguish between the terms loan and subsidy as used in agricultural financing (WASSCE 2012 question 9a).
- A farmer borrowed 6kg of maize during the dry season at N150/kg. Six months later, he paid back with 8kg of maize at N125/kg. What will be the interest charged on the maize borrowed by the farmer? (NECO 2018 question 10a)
See also
