AN EXAMINATION OF THE ROLE OF FINANCIAL INSTITUTIONS IN FINANCING AGRICULTURAL PROJECTS

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Agriculture may be described as the science or practice of farming, which includes the cultivation and manufacturing of raw materials for industries (Harris & Fuller, 2014). Farming is generally recognized as the world's oldest vocation, and it continues to be one in which the greatest number of people participate. Agriculture is primarily concerned with the production of food, which is a basic need of life for the great majority of the world's population.

Because of the large amount of money involved, the difficulties of capital security in agricultural production in most emerging countries are causing worry. As a result of this evolution, subsistence agriculture now cultivates crops only for themselves and their immediate families, necessitating the active participation of commercial banks in agricultural financing materials for key industries and a major foreign exchange earner, further enhancing its primacy among all human occupations (Harris & Fuller, 2014).

It is impossible to operate a firm successfully without finances available for maintenance, capital equipment acquisition, and other needs, thus the commercial banks will come into play in such circumstances. Because banks, as middlemen in the financial sector, deploy funds from the savings or surplus sector to the borrowing or deficit sector, an efficient flow of funds within financial institutions is a stimulant for economic growth (Solomon, 2010). An efficient and long-term financial system acts as a force multiplier in economic growth by mobilizing resources and assigning them to various productive purposes. It lowers the economy's transaction costs by providing an efficient payment method, assists in risk pooling, and makes long-term capital accessible via maturity transformation (Manasseh, Asogwa & Agu, 2014). A well-functioning financial system helps relieve poverty both directly and indirectly by making cash accessible for entrepreneurial activity and by impacting economic efficiency and development. To improve the efficiency of the financial system, the Central Bank, as the primary regulator and supervisor, employs a variety of tools and policies targeted at accomplishing this admirable objective. Due to the need for investment in many dynamic areas of the economy, development finance institutions and other financial vehicles were established to offer loans at below-market rates for the acquisition of capital (Adesoye and Atanda, 2012).

1.2       STATEMENT OF THE PROBLEM

In this era of globalized economic activity, particularly in Nigeria, to fulfill the growing demand for food production, agriculture now more than ever requires financial support in the form of a bank loan. Farmers, on the other hand, have found it difficult to get such loans due to collection security, a lack of good accounting records and administration, and other restricting issues. Despite the significance of oil in the economy today, agriculture remains the backbone of the Nigerian economy since it offers the most opportunities for work and food for the Nigerian people. Agricultural credit is therefore an essential component of agricultural practices and farm output, particularly when it is available in adequate quantities and utilized properly. Credit, on the other hand, is merely one of the "essential" elements for development and modernization; credit, in and of itself, is not fully inevitable, but it is a crucial component of a more affluent future. The role financial institutions play in the financing of agricultural projects will be examined in this study.

1.3       OBJECTIVE OF THE STUDY

The primary aim of this research is to examine the role of commercial banks in financing agricultural projects. Thus, the following objectives;

1. To determine the challenges Entrepreneurs faces in executing agricultural projects.

2. To determine the role financial institutions play in financing agricultural projects.

3. To examine the effects of this financing on the completion of agricultural projects.

1.4       RESEARCH QUESTIONS

The following questions guide this study;

1. What are the challenges entrepreneurs are facing executing agricultural projects?

2. What is the role financial institutions play in financing agricultural projects?

3. What are the effects of this financing on the completion of agricultural project?

1.5       SIGNIFICANCE OF THE STUDY

This study will be helpful to the agricultural sector as it would create awareness on the challenges the sector faces and it will also create awareness on the role financial institutions play in financing agricultural projects. It will also be helpful to commercial and micro finance banks in understanding the role they play in financing the agricultural projects. This study will be an addition to the academic world as it will provide materials for researchers who want to undertake a research on the same topic or diversify into another research.

1.6       SCOPE OF THE STUDY

This study will only cover the role financial institutions play in financing agricultural projects. It will also look at the various challenges entrepreneurs face in executing agricultural project and the effects of financing on the completion of agricultural projects. Selected agricultural entrepreneurs in Enugu will serve as enrolled participants for this study.

1.7       LIMITATION OF THE STUDY

The only limitation faced by the researcher while undertaking this study was insufficient funds to delve deeper into the subject matter.

1.8       DEFINITION OF TERMS

1. COMMERCIAL BANK: A financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products

2. AGRICULTURE: the science or practice of farming, including cultivation of the soil for the growing of crops and the rearing of animals to provide food, wool, and other products.

3. PROJECTS: Simply a sequence of tasks that must be completed to attain a certain outcome.

4. FINANCING: The act of sponsoring or supporting a particular cause or project with funds or the necessities required.