SS2 Lesson Note on the Agricultural Finance

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TOPIC: AGRICULTURAL FINANCE

CONTENTS:

1. Meaning of Agricultural Finance
2. Importance of Agricultural Finance
3. Sources of Agricultural Finance

Sub-topic 1:

MEANING OF AGRICULTURAL FINANCE

It should be noted that all agricultural activities requires fiscal cash for effective farming activities. In most cases the cash has to be raised by the farmers, and where he cannot, he source for them.

The loans which can be: Short, medium or long terms are paid by the farmers with interest. Farmers face a lot of problems in order to obtain the loan as they are required to provide collateral security or to pay high interest rate.

Due to the nature of agricultural activities, such as

(a) The risk involve

(b) The long period it takes for maturity and

(c) The yield at times not encouraging most financial institutions do not give loans to the farmers

Definition:  This is the process of sourcing, acquiring and application of capital in agricultural business. OR

Agricultural financing can also be defined as the acquisition or procurement and use of capital for the purpose of production, processing and marketing of agricultural products.

It deals with the supply and demand of fund in agricultural sector economy

A farmer must have money to carry out his farming activities.

Importance of Agricultural Financing

1. it enables the farmers to carry out production on a daily basis
2. it helps the farmers to pay wages and other expenses
3. it enables the farmers to adjust to changing economic conditions
4. it increases the efficiency of production
5. it ensures timeliness of operation
6. it facilitates the purchase and increased the use of farm machinery
7. it enables the creation of maintenance of an adequate farm size
8. it protects against adverse conditions and crop failure
9. it enables farmers to adjust to seasonal and annual fluctuations in income and expenditure

SOURCES OF AGRICULTURAL FINANCING

Farmers can source for finance to carry out agricultural activities from the following sources

1. Persona Saving or Self Finance: This refers to the money saved by an individual which can be used to finance his farming activities
2. Commercial Banks: Commercial banks are sources through which famers can source or obtain money. E.g First Bank, UBA, Union Banks, etc.
3. Micro Finance: They also provide the farmers with credit/loan , although the credit granted is usually small and inadequate to meet the need of the farmers
4. Agricultural Banks: Agricultural Banks such as the Nigeria Agricultural and Cooperative Banks (NACB) was established in 1973 to grant loans to all potential farmers
5. Supervised Agricultural Credit Scheme: This scheme was set up with the purpose of granting loans to farmers. The scheme is supervised by the Central Bank of Nigeria
6. Money Lenders: These are individuals or group of people engage in the business of giving loans to people with interest. Most rural farmers borrow from them since they find It difficult to get from commercial banks
7. Family Sources: The farmers borrow from immediate and extended family members to finance his farming business. This family source may be in form of gift or in form of inheritance from the family.
8. Cooperative Societies: These are the people who come together to pull their resources (money) together for agricultural production. Members can easily get loans from the society. Commercial Banks prefer to give loans to cooperative society then individual farmers.
9. Government Agencies: Farmers can easily get loans from certain government agencies like National Directorate for Employment (NDE), Agricultural Development Projects(ADP) for their farming activities.
10. International Agencies: Government in collaboration with foreign government and financial bodies obtain financial assistance for agriculture like joint management of agricultural development projects. An examples of such bodies is the Food and Agricultural Organization(FAO)
11. State Government : The State Government sets up units in Ministry of Agriculture which manages and enhances lending or provides credits to small scale farmers. They also finance Agro-service centres where farmers obtain subsidized inputs such as improved seeds, herbicides, insecticides, fertilizers and other inputs.
12. Non-Governmental Organization: The non-governmental organizations assist in rural development by producing social amenities like roads, improved crops varieties, improved breeds of animals and funding of extension works. They carry out these activities through the following bodies:

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