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In today’s class, we will be talking about agricultural financing. Enjoy the class!
Meaning of agricultural finance
Agricultural finance is the act of acquisition and use of capital in agribusiness. It deals with the demand for and supply of fund order to carry out various projects on the field of agriculture. The main objective of financing is to increase and other productive factors, stocks available to farmers to expand production.
Meaning of agricultural credit
Agricultural credit refers to a refundable loan granted to a farmer to enable him to improve his farming activities. it can also be defined as a loan granted to a farmer by credit lending agencies for agricultural purposes.
Types of farm credit
There are three major classes of farm credit:
- Short term credit: This is a productive credit which the borrower is expected to pay back within a year. It may be used to purchase items that can easily be used up with the optimum output. Examples are improved seeds, fertilizers, chemicals, fuel etc.
- Medium-term credit: This is the type of credit which the borrower is expected to pay back within a period of two to five years. It can be used to purchase items that can be turned around or used within the time frame and yield high profit. Examples, purchase of a light-duty machine or simple farm implement, breeding livestock, building housing units for livestock, erecting farm structures etc.
- Long term credit: This is a productive credit which is repayable within a period of five to twenty years. It attracts the highest amount of money compared to short and medium-term credit. It can be used to purchase costly fixed assets such as farm buildings, land, heavy-duty machines etc.
Importance/significance of agricultural credit
- It enables the farmer to acquire necessary modern farm inputs to improve and increase their efficiencies.
- It helps farmers to maintain a large land area.
- It enables farmers to acquire storage and processing facilities.
- It improves the standard of farmers.
- It helps the farmer to take care of any prevailing condition in the farm such as pest and disease control.
- It helps the farmer to insure their farms against hazards surrounding farming.
This is a non-refundable aid granted to farmers to enable and encourage them in their production. It also refers to a discount given to farmers by agencies usually government agencies in the course of the farmer, purchasing agricultural inputs such as chemicals, fertilizers, improved seeds.
Sources of agricultural financing or farm credits
- Agricultural banks: Example Nigerian Agricultural and Co-operative Bank (NACB) established solely to grant loans to potential farmers.
- Commercial bank: Have departments that take care of loans given to farmers. Example of such banks is United Bank of Africa (UBA), Union Bank PLC, Wema Bank PLC, etc.
- Cooperative society: Members pool their resources together and whoever is interested in getting loans can obtain it from society.
- Credit and thrift society: Members contribute money in which they use in financing their farming business.
- Self-financing: Money saved by an individual to finance agricultural business.
- Individuals: Money borrowed from friends, relatives etc. to finance agricultural business.
- Moneylenders: People who lend money to farmers to enable them to produce. They charge a high-interest rate.
- Government agencies and government: These are a department in government establishment or ministries responsible for granting credit to potential farmers.
- Non-governmental organization: These are bodies set up by individuals or a group of people with the aim of rendering services or financial assistance to farmers.
In our next class, we will be talking more about Agricultural Financing. We hope you enjoyed the class.
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