Introduction
One of the most reliable strategies that a government can use in boosting its economy and encourage its citizens in participating in agricultural practices and farming is the creation of avenues that allows access to grants and loans for the purpose of agriculture.
Agricultural funds, which can also be referred to as agricultural credit are loans provided to farmers strictly for agricultural purposes and are a great source of expansion for farmers.
Sources of Agricultural Funding in Nigeria
Sources of agricultural funds can be categorized into formal and informal
Formal sources include the following
- Bank of Agriculture: this is the main channel by which the government provides loans and grants and disburses said loans and grants to farmers. The bank is owned by the Federal Government, with the Central Bank of Nigeria and the Federal Ministry of Finance incorporated as shareholders. It provides credit or loans to both small and medium-scale farmers within rural areas. This is the first source of agricultural funds for potential farmers.
- Commercial Banks: commercial banks such as zenith bank, Stanbic Bank, and First bank are all sources of funds to both individuals and cooperatives for agricultural purposes. It is worth noting however that it is considerably more difficult to acquire funds from commercial banks as more stringent requirements such as collaterals are often put in place to reduce the risks of defaulting on loan payments.
- Agricultural Co-operatives: this is one of the cheapest forms of agricultural credit especially in rural areas. Agricultural cooperatives usually involve a group of farmers pooling their resources for greater economies of scale or better market representation and power. Such cooperatives usually serve as a means for acquiring loans for their members. Agricultural cooperatives can also act as middlemen and acquire funds from commercial banks for their members. Other such uses of agricultural cooperatives involve the marketing of the produce of its members.
4. Bank of Industry
Bank of Industry is the oldest and largest Development Finance Institution currently operating in Nigeria.
The bank of Industry has funds available for the different value chains. From production to processing, etc and their payment terms are quite flexible. The Bank of Industry funds ensure that anticipated risks are dimensioned and mitigated by its transaction structure. It enhances goodwill by supporting agricultural production and rural development and create employment.
Informal sources include the following:
Savings: this involves savings from farm revenue, surplus, or income to reinvest into the farm. This is a cheap and interest-free source however the farmer is limited or relegated to whatever amount he or she was able to save which is usually small in the case of small-scale farmers or farmers in rural areas.
- Money Lenders: these are people who provide short term to medium term loans to farmers and non-farmers alike especially in rural areas. Credit acquired from money lenders however usually have absurd interest rates attached to them and harsh repayment conditions which usually discourage farmers from acquiring this sort of credit.
- Traders and Produce buyers: provide short to medium term credit to farmers for productive purposes before harvest is ready on condition that the said farmers would sell their produce to them at pre-determined prices which are usually low compared to the prevalent market prices at the time of harvest.
- Family: families of sources can be a good source of interest-free credit to farmers however the amount of credit that can be obtained from this source is dependent on the affluence and willingness of the family to support.
Importance of Agricultural Funds
Agricultural funds are of utmost importance in the establishment and running of agricultural enterprises. Agricultural funds can be used for the following:
- Purchase or lease of farmlands.
- Purchase of farm inputs like fertilizer and insecticides.
- Hiring and recruitment of farm labor.
- Payment of incidental and recurrent expenses like fuelling of machines.
- Procurement of farm machinery and equipment like tractors and irrigation facilities.
- Expansion of farm activities
Conclusion
In conclusion, there are numerous sources of credit for farmers with some being more preferable and less costly than others. Therefore, the choice of source of agricultural funds should be carefully made by the farmers. To read more on how to access agricultural funds for your agribusiness ideas click here
References
https://www.informationhive.com.ng/sources-of-agricultural-finance-in-nigeria/
https://en.m.wikipedia.org/wiki/Bank_of_Agriculture
https://www.informationhive.com.ng/sources-of-agricultural-finance-in-nigeria/
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