A PERSPECTIVE ON PARTIAL CREDIT GUARANTEE SCHEMES IN DEVELOPING COUNTRIES: THE CASE OF THE NIGERIAN

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A PERSPECTIVE ON PARTIAL CREDIT GUARANTEE
SCHEMES IN DEVELOPING COUNTRIES THE CASE OF THE
NIGERIAN AGRICULTURAL CREDIT GUARANTEE SCHEME
FUND (ACGSF).

• Mafimisebi, T.E
• Department of Agricultural Economics Extension,
• The Federal University of Technology, Akure,
  Nigeria

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Outline of Presentation

• Introduction
• Structure and Mandate of the ACGSF
• Methodology for Performance Appraisal
• Discussion of Selected Results
• Problems and Prospects of the ACGSF
• Summary and Recommendations

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INTRODUCTION

• Before 1970
• Agriculture has been a vital and dominant sector
  in the economy of Nigeria till the early 1970s.
• Early 1970s to now
• Importance of agriculture began to wane with
  crude exploitation.
• Reliance on petrol dollars for importation (food
  raw materials).
• Faulty policy and poor policy implementation.
• Agriculture showed poor performance resulting
  from low investment especially by the
  smallholders.
• Late 1970s
• Public policy to enhance capital injection put in
  place.
• Failure of policy to led to the Agricultural
  Credit Guarantee Scheme Fund (ACGSF) in 1978

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Justification for ACGSF

• Unpredictable and risky nature of agricultural
  production,
• Importance of agriculture to the national
  economy,
• Provide additional incentives to further enhance
  the development of agriculture and
• Demand by lending institutions for appropriate
  risk aversion measures

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Structure, Organization And Mandate Of The ACGSF

• Federal Government Act N0. 20 of 1977.
• Persuade banks to increase and sustain lending
  to agriculture.
• Loans guaranteed 75 against default.
• Authorized capital N 100 million (actual N 85.5
  million).
• 4 administrative zones with no additional
  infrastructures.
• Until 1986, concessionary interest rates

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General Activities

• Establishment/management of plantations for
  rubber, oil-palm, cocoa, cotton, coffee, tea and
  other cash crops
• Cultivation/production of cereals, tubers and
  root crops, fruits, beans, groundnuts, sheanuts,
  beni-seeds, vegetables, pineapples, bananas and
  plantains
• Animal husbandry poultry, piggery, rabbitry,
  snail farming, small and large ruminants.
• Fish farming (since 1981)

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THE NIGERIAN ACGSF A PERFORMANCE APPRAISAL

• Selected indices.
• Statistical tools used were exponential growth
  function, coefficient of variation, index of
  instability, instability coefficient, correlation
  analysis and multiple co-integration model.
• Co-integration model used to test presence of
  long-run relationship between Agricultural GDP
  and nine credit-related factors.
• Non-stationarity was tested using the Dickey
  Fuller and the Augumented Dickey Fuller class of
  unit root tests

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Analysis

• The DF test is applied to the regression of the
  form below.
• 8
• ? first difference operator
• Pit variable which series is being investigated
  for stationarity
• t time or trend variable
• The null hypothesis that d 0 implies existence
  of a unit root in Pit or that the time series is
  non-stationary. The number of lagged difference
  terms in equation 8 was increased. DF test
  changes to ADF test and equation 8 modifies to
• 
  
• 9

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Analysis

• The null hypothesis of a unit root or
  non-stationarity is still that
• d 0.
• The critical values are called ADF statistics
  rather than t-statistics.
• If the value of the ADF statistics is less than
  (i.e more negative than) the critical values, it
  is concluded that Pit is stationary i.e Pit ?
  I(0).
• When a series is found to be non-stationary, it
  is first-differenced (i.e the series ?Pit Pit
  Pit-1 is obtained and the ADF test is repeated.
• If the null hypothesis of the ADF test can be
  rejected for the first-differenced series, it is
  concluded that Pit ? I(1).
• The maximum number of lags used in the
  stationarity test was six (6) and the optimal lag
  for each time- series was selected using the
  Akaike Information Criterion (AIC).

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Analysis

• Two variables co- integrated if each is
  individually non-stationary but there exists a
  linear combination of the variables that is
  stationary.
• The maximum likelihood procedure preferred to the
  two-step Engle and Granger procedure owing to
  simultaneity problem.
• One-step vector auto-regression (VAR) method
  avoids this and allows hypothesis testing on the
  co-integration vector, r.
• The maximum likelihood procedure relies on the
  relationship between the rank of a matrix and its
  characteristic roots.
• The Johansens maximal eigenvalue and trace tests
  detect the number of co- integrating vectors that
  exist between two or more time-series.

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Analysis

• The multi-variable systems were modeled as a VAR
  as follows
• .10
• where
• Xt is a n x 1 vector containing the series of
  interest (time-series of agricultural
  credit-related variables)
• and ? are matrices of parameters
• K number of lags and should be adequately
  large enough to capture the short-run dynamics of
  the underlying VAR and produce normally
  distributed white noise residuals.
• ?t vector of errors assumed to be white noise.
  

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RESULTS AND DISCUSSION

• Paid-up Share Capital and Total Asset of the
  Scheme.
• Paid-up capital at commencement increased to N
  147.4 million ten years later-- growth rate
  7.24.
• December, 1998, Schemes paid-up capital N 1.78
  billion growth rate 18.34
• December 2005, paid-up capital, N2.5 billion,
  growth rate 5.06.
• Growth rate of fund comparable to other
  programmes.
• CBN fully paid own share of N1.33billion.FGN
  owing Scheme N0.75b.
• Inadequate resources led programme to source
  funds

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Results and Discussion

• Changes in Loan Ceilings under the Scheme.
• Maximum loans guaranteed increased
• 1978 N 5000,N 100,000 and N 1.0 million.
• 1998 N 20,000, N 0.5 million and N 5.0 million.
• 2002 limit raised again for last two categories
  N 1.0 m and N 250m.
• increased number of loans guaranteed at annual
  growth rate of 34.6

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Table 1 Indices of Growth Rate and Instability
in Number of Guaranteed Crop Sub-sector Loans
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Table 2 Indices of Growth Rate and Instability
in Number of Guaranteed Livestock Sub-sector
Loans.
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Table 3 Indices of Growth Rate and Instability
in the Value of Guaranteed Crop Sub-sector Loans.
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Table 4 Indices of Growth Rate and Instability
in the Value of Guaranteed Livestock Sub-sector
Loans.
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Table 5 Correlation Coefficient Between Value
and Number of Loans Guaranteed by ACGSF
Significant at 1, significant at 5
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Results and Discussion

• Distribution of Loans by Geographical Location,
  Activity and Size
• Disparity between zones sectors.
• 1988, Kano Zone 39.4, Bauchi Zone 31.1 Ibadan
  Zone 16.6 and Enugu Zone 12.9
• Grains, roots and tubers and poultry accounted
  for 44.8, 28.9 and 12.9 respectively of loan
  volume.
• Ibadan, Enugu, Kano and Bauchi zones received
  46.4, 25.7, 14.5 and 13.4 respectively of
  poultry loan.
• Tuber/root crop loan distributed 48.4,34.9,11.9
  and 4.6.
• Bauchi and Kano received 54.7 and 24.8 of cattle
  loan and all of cotton and groundnut loans.
• Small-scale farmers dominate lending (over 85)
• Short-term loan preponderate (about 97)

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Table 6 Dickey Fuller and Augumented Dickey
Fuller Statistic
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Table 7 Co-integration Likelihood Ratio Test
Based on Eigen Value of the Stochastic Matrix
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Table 9 Results of the long-run Restricted Model
The effects of these two independent variables on
agricultural GDP manifested a year after. The
output of agriculture represented by the GDP of
the sector is influenced to varying degrees by a
number of factors. In the restricted model, the
total number and volume of loans guaranteed to
the agricultural sector by commercial and
merchant banks were found to be the only
significant factors determining GDP.
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THE PROBLEMS OF THE ACGSF

• Lag between authorized and paid up capital
• Stagnation of loan ceiling for smallholders
• Rapid inflation
• High default
• Non-passage of bill to amend Act establishing
  Scheme.
• Unsettled claims.
• Low participation in the TFM.
• Other generic problems of agriculture

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PROSPECTS OF THE ACGSF

• Increase in the number people taking to farming
• Increase in supply of credit to agriculture
  following liberalization of interest rate
• Evolvement of innovative products by DMBs
• Continued public enlightenment on the Scheme

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SUMMARY

• ACGSF cheaply run, covers a wide range of
  agricultural activities
• Scheme is achieving target of making fund
  available for agriculture.
• opportunities exist to expand its overall
  activities.
• TFM needs to be sold to more stakeholders.
• Positive growth rate in indices of performance.
• Differential growth rate in indices in some
  sub-sectors.
• A long-run relationship between agriculture GDP
  and variables enhanced by scheme justifies
  continued existence

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RECOMMENDATIONS

• FGN should pay up debt owed scheme and make
  extra financial contributions to it from excess
  crude revenue account.
• More State and Local Government and multinational
  corporations to adopt the TFM
• Need to increase the number and value of
  guaranteed loans to the livestock sub-sector
• Use reward system to encourage farmers to utilize
  loans for stipulated purposes and repay promptly.
  

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