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THE AGRICULTURAL CREDIT GUARANTEE SCHEME: ITS
ROLES, PROBLEMS AND PROSPECTS IN NIGERIA’S QUEST
FOR AGRICULTURAL DEVELOPMENT
NWOSU, F. O; N.N.O. OGUOMA; N.G. BEN-CHENDO; A. HENRI-UKOHA
. Department of Agricultural Economics,
Federal University of Technology
Owerri, Imo state
ABSTRACT: The Agricultural Credit Guarantee Scheme Fund (ACGSF) is a policy instrument of the Federal
Government of Nigeria on Agricultural Credit. The Scheme was established by Decree Number 20 of 1977 but
started effectively in 1978. The Scheme was established to provide guarantee on loans granted by banks to
farmers for agricultural production and agro-allied processing. This paper, therefore, tried to review the scheme,
its roles since inception, problems and prospects in contributing towards the nation’s agricultural development. It
was concluded that since credit is needed for enhanced productivity and agricultural development, the three tiers
of government in Nigeria should give the scheme the necessary support and publicity so that farmers ( particularly
small farmers) can benefit from its laudable objectives. This will go a long way in ameliorating the seemingly
dismal output of our farmers. [Researcher.2009;2(2):87-90].(ISSN:1553-9865).
KEYWORDS: Agricultural Development; Credit Guarantee; Farm Productivity, Food insecurity.
INTRODUCTION
Agricultural development is a process that
involves adoption by farmers (particularly small
farmers) of new and better practices (Garba, 1987;
Orebiyi, 1999). This is due to the fact that most of
the new practices have to be purchased but few
farmers have the financial resources to finance it. It
was in recognition of this fact that the Federal
Government at various periods put in place credit
polices and established credit institutions and
schemes that could facilitate the flow of agricultural
credit to farmers. (Adegeye and Dittoh, 1985). One
of such laudable Schemes has been the Agricultural
Credit Guarantee Scheme Fund (ACGSF). The
ACGSF is not the first credit scheme that the
Federal Government put in place to encourage
agricultural development. According to CBN
(1986), other farm credit schemes included the
i. Nigerian Agricultural and Co-operative
bank (now known as the Nigerian
Agricultural Co-operative and Rural
Development Bank) established in
November, 1972;
ii. Establishment of rural branches of
Commercial banks throughout the country
following a mandatory Federal
Government policy directive in 1976;
iii. Creation of the River Basin Authorities in
1979 throughout the Country;
iv. Establishment of both enclave and state
wide. Agricultural Development Projects
throughout the Country between 1972 and
1980 to facilitate among other things the
provision of agricultural credit to farmers;
v. Development of State Ministry operated
and other government sponsored
agricultural credit programmes in the
second half of the 1970s;
vi. Development of technical support and agro
service establishments that would facilitate
the supply of Credit to farmers throughout
the country between 1976 and 1980.
However, the persistent failure of the above
institutions and conventional banks to adequately
finance agricultural activities in the mid 1970s was
a clear evidence that the country was in need of
further financial and institutional reforms that would
revitalize the agricultural sector by encouraging the
flow of institutional credit into it. Also, the
unpredictable and risky nature of agricultural
production, the importance of agriculture to our
national economy, the urge to provide additional
incentives to further enhance the development of
agriculture to solve the problem of food insecurity,
and the increasing demand by lending institutions
for appropriate risk aversion measures in
agricultural lending provided justifications for the
establishment of the Nigerian Agricultural Credit
Fund (ACGSF) by the Federal Government of
Nigeria in 1977 (Mafimisebi et al, 2009).
The Scheme was established by Decree 20 of
March, 1977 and as amended on 13th June, 1988. It
provides for a fund of N100 million subscribed to
by the Federal Government (60%) and Central Bank
Researcher 2010;2(2) Nwosu et al. Agricultural Credit Guarantee Scheme
88
of Nigeria (40%). The fund was enhanced to N1
billion on the 8th December, 1999 and later to the
present level of N4 billion as at early 2006 (CBN,
2007). All these are aimed at solving the problem of
inadequate funding of farm operators by banks and
to cushion these financial institutions against the
effects of high risks associated with investments in
farm enterprises as well as to raise the productivity
and earnings from farm investments so that the
incidence of loan repayment default among the
farmers will be minimized (CBN, 1977; Ogwuma,
1985; Eyo, 1985; Oguoma, 2002).
Role of the Scheme
Various Studies have shown that Credit plays
an important role In enhancing agricultural
productivity of the farmer (Okorji and Mejeha,
1993; Nweze, 1991; Mafimisebi et al, 2008). The
general purpose of the Nigerian Agricultural Credit
Guarantee Scheme Fund is to encourage banks to
lend to those engaged in agricultural production and
agro – processing activities. Thus, the specific
objectives of the scheme is the stimulation of total
agricultural production for both domestic
consumption and export; and the encouragement of
financial institutions to participate in increasing the
productive capacity of agriculture through a capital
lending programme. The scheme is expected to
provide guarantee on loans granted by financial
institutions to farmers for agricultural production
and agro-allied processing. The fund’s liability is
limited to 75% of the amount in default net of any
amount realized by the lending bank from the sale
of the security pledged by the borrower. Since the
inception of the scheme in 1978, there has been a
continuous aggregate increase in the number of
loans to agriculture from a paltry 341 loans
amounting to N11,28 million in 1978 to 3,571 loans
amounting to N218.60 million as at May, 2006.
Also, data at the Central Bank of Nigeria show that
a total number of 453,748 loans valued at N11.28
billion were guaranteed from the inception of the
scheme in 1978 to May, 2006. This translates to an
average of 16,205 loans valued at N402.86 million
per annum. The agricultural activities that can be
guaranteed under the scheme include the:
a. Establishment and / or management of
plantation for the production of rubber, oil
palm, cocoa, cotton, coffee, tea and other
cash crops.
b. Cultivation and production of cereals,
tubers, and root crops, fruits of all kinds,
beans, groundnuts, peanuts, beniseed,
vegetables, pineapples, bananas and
plantains;
c. Animal husbandry that covers poultry,
piggery, rabbitry, snail farming, rearing of
small ruminants like goats, sheep and large
ruminants like cattle.
The scope of (c) above was expanded in the
amendment decree of 1988 to include fish culture,
fish captures and storage. The scheme guarantees
loans to farmers from lending institutions up to the
tune of 5 million naira for individual farmers and 10
million Naira for group /cooperative farmers (CBN
2007). In the event of default in loan repayment, the
lending bank will serve the guarantor (the CBN), a
notice of default. Afterwards the lending bank is
expected to make further effort as it deems fit to
recover the amount in default from the borrower. If
any balance remains after the above steps and the
default persists after 6 months of notice of default,
the lending bank could realize the pledged security
and there after put a claim on the scheme fund so as
to realize 75% of the balance outstanding as at the
time of application for claim to the bank.
Problems of the scheme:
In the course of the fund’s operations, a
number of problems have been identified as
militating against its smooth performance.
According to Akinleye et al (2005), some of the
problems are:
(a) Increasing incidence of loan defaults. The
rate of loan repayment by ACGS
beneficiaries is very low. This view is also
held by Njoku (1986) and Ojo (1986).
Reasons adduced to this are natural
disasters, poor farm management, low
product prices, loan diversion, deliberate
refusal to pay and the inability of farmers
to assess loan requirements properly
leading to farmers receipt of inadequate or
excessive loans;
(b) Bank related problems:- Participatory
banks in the ACGS do not cooperate fully
in lending to farmers. Because of the high
cost of processing loans relative to the
actual loans and the high default rate of the
farmers, many banks prefer to pay penalty
to risk lending their funds to agriculture.
Also banks fault the farmers for submitting
incomplete application forms. In some
cases where loans are approved, it arrives
too late for it to fulfill the purpose for
which it was intended. This delay seems
more of administrative than any other.
Another problem that militates against the
smooth operation of the scheme is on “Personal
guarantee” as a security that may be offered to a
bank for the purpose of a loan. “Personal guarantee”
as a condition was not explained in the decree. This
therefore makes it almost nothing as its
interpretation rests on the bank officials. Also the
Researcher 2010;2(2) Nwosu et al. Agricultural Credit Guarantee Scheme
89
N20,000 loan which the scheme allowed to be
collected through “Personal guarantee” can not do
much for any farmer in his farming activities. Also,
the other securities recognized by the decree that
could be offered to the bank for the purpose of any
loan under the scheme pose problems in the smooth
operation of the scheme. The securities are legal
title to land, and a life assurance policy. It is a
common knowledge that most people especially in
the rural areas do not have clear titles to their land
which could serve as collateral for loan under the
scheme (Okorie, 1998).
Finally, the ACGSF has the problem of
publicity. Oguoma (2002) noted that there is a low
turn out of farmers in most states of the federation
in patronizing the scheme because of lack of
awareness.
Prospects of the Scheme
From various studies on the Agricultural Credit
Guarantee Scheme Fund in Nigeria, it is evident that
the scheme has increased the flow of funds to
agriculture. However, stakeholders in the scheme
viz: the farmers, lending institutions and
government must show greater commitment and
dedication for the scheme to achieve its laudable
objectives. Farmers should be encouraged to be
applying for loans form the participating banks to
enhance their agricultural activities and
productivity; and also to repay the loans as and at
when due.
The lending institutions should make efforts to
grant agricultural loans at the appropriate time to
farmers who met the conditions. Late release of loan
to a farmer leads to loan diversion / misuse which
has been established to be a major cause of poor
loan repayment. Secondly, it behooves on the
lending institution to ensure that the loan being
granted to a farmer is “quite adequate” for the
purpose, as granting of an inadequate loan for a
purpose is a prelude for loan diversion and its
consequence on the loan repayment ability. The
government should take a second look at the
securities that may be offered to the bank for the
purpose of a loan under the scheme. There is the
need for government to review the idea of a farmer
using a certificate of occupancy on a land as
“Security” before any amount above N20,000 is
approved. It is a common knowledge that small
farmers (especially in the rural areas) do not have
legal title on their farmlands. Therefore, there is the
need to review this subsection so that the traditional
ruler or President-General of the applicant’s
community or a civil servant of a particular category
could stand as surety for loans under the scheme.
The scheme still needs publicity as most farmers
especially in the rural areas are oblivious of the
scheme’s objectives. It therefore behooves on the
government (Federal, State and local Governments)
to use its agencies like National Orientation Agency
(NOA), Agricultural Development Programme
(ADP) extension officers and other relevant bodies
to organize lectures on the scheme in the farmers
locality.
Finally, government should ensure that bank
claims as a result of default and borrowers’ interest
draw backs are paid without delay. This will not
only motivate both participating banks and farmers
in the scheme but will also attract others who are
skeptical. The end result is the nation reaping the
dividend of adequate credit into our agricultural
sector and that is increased productivity, which is a
sine qua non in agricultural development
AUTHORS INFORMATION
1. F.O.NWOSU M.Sc
Lecturer/ Research Fellow
Department of Agricultural Economics,
Federal University Of Technology
Owerri, Nigeria
2. N.N.O OGUOMA Ph.D
Professor
Department of Agricultural Economics
Federal University of Technology
Owerri, Nigeria
3. N.G. Ben-Chendo M.Sc.
Lecturer/ Research Fellow
Department of Agricultural Economics,
Federal University of Technology,
Owerri, Nigeria
4. A. Henri-Ukoha M.Sc
Lecturer/Research Fellow
Department of Agricultural Economics
Federal University of Technology
Owerri, Nigeria
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