Role Of Commercial Banks In Financing Agricultural Co-Operative Societies

(A Case Study Of Union Bank Plc Enugu, Zonal Office)

5 Chapters
|
52 Pages
|
7,286 Words

Commercial banks play a crucial role in supporting the financial needs of agricultural co-operative societies, serving as key facilitators in the sustainable development of the agricultural sector. These banks act as financial intermediaries, channeling funds from depositors to borrowers, including agricultural co-operative societies. By providing loans and financial services tailored to the unique requirements of these societies, commercial banks contribute significantly to fostering growth and resilience in the agricultural domain. The synergy between commercial banks and agricultural co-operative societies is exemplified through the provision of credit for purchasing farming inputs, acquiring machinery, and investing in infrastructure. Additionally, banks offer advisory services, promoting financial literacy and sound financial management within these societies. This collaborative dynamic not only enhances the financial viability of agricultural co-operatives but also fortifies the agricultural sector as a whole, fostering economic prosperity in rural communities.

ABSTRACT

The researchers, researched on the project titled the Role of Banks in Financing Agricultural Cooperative societies in Enugu State (A Case Study of Union Bank Plc Enugu Zonal Office). In pursuance of this research, the researchers divided the work into five chapters, chapter one, dealt with the introduction of the study, background of the study etc. Among the objectives includes. To determine what can be done to enhance agricultural cooperatives. To appraise the contribution of Union Bank Plc to the profitability of agricultural development. Chapter two, the researchers reviewed past related literatures on the topic. Chapter three, deals with the design of the study, source of data, sample size, sample procedure returned or completed question and method of data analysis. In chapter four, the data from the research survey were analysed and interpreted using tabular method and chi-square methods. Finally chapter five deals with the summary of findings, conclusion and recommendations, (1) Government should create a more favourable condition to support all efforts of agricultural cooperative. (2) Banks should develop their farmers by allowing agricultural loans to cover all stages of agricultural production. (3) On the part of members of agricultural cooperative there should be adequate project planning and implementation of laid down proposal.

TABLE OF CONTENT

Title Page i
Approval ii
Dedicationiii
Acknowledgement iv
Table of contents v
Abstract vii

CHAPTER ONE
Introduction 1
Background of the Study 1
Associated Companies3
Statement of the Study4
Purpose of the Study 5
Significance of the Study5
Hypotheses 6
Limitation of the Study 6
Research Question8

CHAPTER TWO
Review of Related Literature9
Problem of Agricultural Finance and Credit in Nigeria  9
Agriculture Credit Policies in Nigerian13
The Role of Finance Institution in the Development
of Agricultural Finance15

CHAPTER THREE
Research Design 19
Source of Data19
Primary Data19
Secondary Data 20
Sample Size 20
Sample Procedure20
Method of Data Analysis21
Method of Testing Hypothesis21

CHAPTER FOUR
Data Analysis and Results Data Analysis 22

CHAPTER FIVE
Summary of Findings, Conclusion and Recommendation 37
Conclusion38
Recommendation 38
Reference40
Appendix41
Questionnaire 42

CHAPTER ONE

INTRODUCTION
BACKGROUND OF THE STUDY
Union Bank of Nigeria Plc was established in 1917 as a colonial Bank with first branch in Lagos. In 1925, Barclays Bank acquired the Colonial Bank, which resulted in the change of the Bank’s name to Barclays Bank (Dominion, Colonial and Overseas) following the enactment of the Companies Act in 1968 and the legal requirement for all foreign subsidiaries to be incorporated locally, Barclays Bank (DCO), in 1969 was incorporated as Barclays Bank of Nigeria Limited. The ownership structure of Barclays Bank remained un-changed till 1971 when 8.33% of the Bank’s shares were offered to Nigerians for public subscription. In the same year, the Bank was listed on the Nigerian stock exchange as one of the players. As a result of the Nigeria Enterprises Promotion Act of 1972, the Federal Government of Nigeria acquired 51.67% of the Bank’s shares, which left Barclays Bank Plc London with only 40%. By the enactment of the 1972 and 1977 Nigeria Enterprises Promotion Acts, Barclays Bank International disposed it’s shareholding to Nigerians in 1979. To reflect the new ownership structure and in compliance with the companies and Allied Matters Act of 1990, it assumed the name Union Bank of Nigeria Plc.
In consonance with the government’s programme of privatization and commercialization of public enterprises the Federal Government in 1993, sold it’s shares in Union Bank to private individuals. Thus, Union Bank became fully owned by Nigerian citizens and organizations.
In line with the Central Bank of Nigeria’s banking sector consolidation policy, Union Bank of Nigeria Plc acquired the former Universal Trust Bank Plc and Broad Bank Ltd and absorbed it’s erstwhile subsidiary Union Merchant Bank Ltd. The Bank also increased it’s shareholders funds through a public Offer/Rights Issue in the last quarter of 2005. With these development, Union Bank remains one of the most capitalized banks in Nigeria. It has a shareholders funds of N119.160 billion and operates through 405 network of branches that are well spread across the country, all of which are on-line, real time, etc.
The subsidiaries of the Union Bank Plc are thus:
(a) Union Homes Savings and Loans Plc
(b) Union Trustees Limited
(c) Union Assurance Company Limited
(d) Union Bank UK Plc
(e) Banque Internationale du Benin, Cotonou.
(f) UTL Communications Services Limited
(g) UBN Property Company Limited
(h) Union Capital Markets Limited
(i) Union Registrars Limited.
ASSOCIATED COMPANIES:
(a) Consolidation Discounts Ltd.
(b) HFC Bank of Ghana Limited
(c) Unique Venture Capital Management Co. Ltd.
Union Bank Group Operates an interlocking organizational structure whereby some Board Members of the Union Bank of Nigeria Plc act as External Directors in the subsidiaries and associated companies. This arrangement ensures effective oversight and participation in the decision –making process of these companies, thereby safeguarding the Bank’s investments.
Today, the Bank is a leading regional bank in Sub-Sahara Africa in terms of it’s diverse investments across the globe. A glance at the Bank’s Financial Summary as at 31st March 2008 reveals its solidity. For instance the Bank’s gross earnings was N112.988 billion; profit before tax was N33.012 billion; total assets showed N1.128.890 billion; and shareholders’ fund stood at N199.160 billion.
The Union Bank of Nigeria Plc created the “Union Homes” and “savings section” to grant holders. It’s objectives includes efficient and effective credit administration with target beneficiaries on rural poor farmers when loan is granted is 25%, maximum loan amounts are revised upward depending on timely repayment of previous loans and the cooperative investments.
Agricultural cooperative, also known as Farmers’ Cooperative Society is a cooperative society when farmers pool their resources in certain area of activity, Amahalu (2007) defines agricultural cooperative as those society which embrace all the cooperative activities which aim at helping farmers in professional capacities as producers. The inherent weakness of farming call for this type of cooperative society. The standard of planting tag techniques to seed procuring and farm financial subsidization to produce display in proper places are all what agricultural cooperative are seeking to uplift collectively.
Obodechi (2006), in his own contribution, stated that financial is the life-line of any organization. Cooperative as a business organization needs to raise fund for it to effectively and efficiently deliver it’s goals.

STATEMENT OF THE STUDY
Cooperative in Nigeria has always been focused with numerous problems caused by the stakeholders such as, the Federal Government, State Government, Local Government Authorities as well as the members of cooperative society. However, agricultural cooperatives inspite of all the efforts being made, still experience some problems that hinder their growth and development, especially in the area of collateral and high lending rates.

PURPOSE OF THE STUDY
The main purpose of this study is to discover the role Banks play in financing agricultural cooperative in Enugu State though with the Union Bank of Nigeria Plc as a case study and also to highlight the following:
(i) To suggest means of improving Bank involvement in financing agricultural cooperative in Enugu State.
(ii) To determine what can be done to enhance agricultural production
(iii) To suggest ways in which the problems identified could be rectified.
(iv) To appraise the contribution of the Union Bank of Nigeria Plc towards agricultural development.

SIGNIFICANCE OF THE STUDY
It is very useful to students in tertiary Institutions in Nigeria, studying cooperative economics. The various tiers of Government are also going to benefit from this work, because it would enable them adopt the right agro-business credit policies to enhance credit effectiveness and efficiency.
In Furtherance, members of the Agricultural cooperative are considered the major beneficiaries of this research work since it will enable them know the immense benefits of approaching Banks in the financing of agriculture. Also, all intending members of Agricultural Cooperative will know through this work that Bank credit is a major accelerator of development.
Finally, on the part of the masses, the modified outcome of this work shall contribute immensely towards the improvement of standard of living.

HYPOTHESIS
In this research the following hypothesis shall be tested:
(i). Lack of adequate fund causes problems for agricultural cooperative in Enugu State.
(ii). Lack of adequate fund do not cause problems for agricultural cooperative in Enugu State.
(iii). Inadequate loan contributes to low productivity in agricultural cooperative.
(iv). Inadequate loan do not contribute to low productivity in agricultural cooperative.

LIMITATION OF THE STUDY
This research study is limited to the geographical and political boundaries of Nigeria in general and Enugu Metropolis in particular. This research study is to ascertain the role of banks in financing agricultural cooperative. How they have been able to facilitate the development of agricultural cooperative societies and to boast small stockholders and large scale inventors
Limitations: It would have been ideal to involve other financial institution but for constraint of time, finance and other resources, which makes it difficult as regards these projects only Union Bank Enugu Zonal Office were studied.
(i) Time: It’s certain that time waits for no man the period at hand is not enough to gather data from paper analysis and other academic responsibility and curriculum activities which has been an obstacle to this study.
(ii) Finance: In terms of finance, places could have visited to collect data materials were cut short due to lack of finance. A good project needs current and relevant information and they are just available in a place so, one need to search from one place to another which require a lot of money due to financial handicap as a student, one can afford to channel all resource to one base.
(iii) Limitation of Resource Material: Limited resource of material such as government and Bank’s Publications papers, journal are limited in supply as some Bank officials give little or partial cooperation. This result to limitation of acquisition of information.

RESEARCH QUESTION
The under listed are relevant research questions, which will help the researcher to actually evaluate the Role Commercial Banks in financing agricultural co-operative societies in Enugu State
1. What are the criteria for granting loan?
2. To what level do you consider banking loan facility toward agricultural financing?.
3. What level or capacity have your Bank been able to finance agricultural co-operative within the past five (5) years?
4. What impact has your Bank created towards the financing of agricultural co-operative society within this period?.

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Role Of Commercial Banks In Financing Agricultural Co-Operative Societies

Commercial banks play a crucial role in financing agricultural cooperative societies, which are formed by farmers to collectively address their financial and agricultural needs. These cooperative societies serve as intermediaries between farmers and financial institutions, and commercial banks have several roles in supporting their financial activities:

Provision of Loans: Commercial banks provide loans and credit facilities to agricultural cooperative societies to meet their various financial requirements. These loans can be used for purchasing agricultural inputs (seeds, fertilizers, pesticides), acquiring machinery and equipment, building infrastructure, and even working capital for marketing and distribution of agricultural products.

Working Capital Financing: Agricultural cooperatives often require working capital to manage day-to-day operations, such as purchasing crops from members, storing, processing, and marketing them. Commercial banks offer working capital loans to ensure smooth operations during the agricultural season.

Investment Financing: Cooperatives may need funds for long-term investments, such as setting up processing units, cold storage facilities, or irrigation systems. Commercial banks provide term loans to support such capital-intensive projects.

Technology Adoption: Modernizing farming practices through technology adoption is essential for improving agricultural productivity. Commercial banks can finance the purchase of advanced machinery, irrigation systems, and other technology-related expenses.

Risk Management: Banks can offer insurance products to cooperative societies to help them mitigate risks related to crop failure, natural disasters, or other unforeseen events. These insurance products can protect both the cooperative and its members from financial losses.

Financial Advisory Services: Commercial banks can provide financial advisory services to cooperatives, helping them with financial planning, budgeting, and investment decisions. This guidance can enhance the financial sustainability of the cooperative.

Capacity Building: Banks may offer training and capacity-building programs to improve the financial literacy and management skills of cooperative members and leaders. This education can help cooperatives manage their finances more effectively.

Payment and Collection Services: Commercial banks can facilitate payment and collection services for cooperative societies, making it easier for members to deposit funds and for the cooperative to pay expenses and distribute profits or dividends.

Government Schemes: In many countries, governments run various schemes and subsidies to support agricultural development. Commercial banks often act as intermediaries in disbursing these subsidies and loans to cooperative societies, ensuring that farmers benefit from government initiatives.

Monitoring and Compliance: Banks play a role in monitoring the use of funds to ensure they are used for the intended agricultural purposes. This helps maintain transparency and accountability in cooperative societies’ financial operations.

By providing financial support, expertise, and services to agricultural cooperative societies, commercial banks contribute significantly to the growth and sustainability of the agricultural sector. This, in turn, helps improve food security, rural livelihoods, and overall economic development in many regions.