THE IMPACT OF MONEY DEPOSIT BANKS ON THE DEVELOPMENT OF AGRICULTURAL SECTOR IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Money deposit banks are resident depository corporations and quasi-corporations which have any liabilities in the form of deposits payable on demand, transferable by cheque or otherwise usable for making payments.The banking sector in Nigeria in 2010 financial year was oligopolistic in structure as only ten banks 11.1% of the 90 operation accounted for 54.5% of total assets, 52.4% of total deposit liabilities and 46.1% of total deposit liabilities of deposit money bank as at 31/12/2006 amounted to #2,705 billion. Whilst aggregate credit to the domestic economy amounted to #1,302.2 billion. In 2006, sectoral allocation of deposit money banks credit continued to favour the less productive sector of the economy as only 40.9% of the total credit went to agriculture, solid minerals, exports and banking down from 46.2% in 2001.In the year 2007, the general performance of banks was not significantly different from what happened in the previous year.

Economic growth has been a major objective of successivegovernments in Nigeria. In performing the financialintermediation role, it has been argued that by virtue of thisfunction that banks generate economic growth by providingneeded resources for real investment (Shaw, 1973; Mckinnon,1973). Economic growth is one of the important factors that improve living standards in developing countries. It is an indispensable requirement for economic development among other factors. It is believed that the main factors affecting economic growth are labour, capital and exogenouslydetermined technology. Subsequently the new growth theoriestry to incorporate technology and human capital as indogenous factors. The role of finance in terms of money deposit bank was well acknowledged by researchers. The function of these banksas financial intermediation involves channeling funds from thesurplus unit to the deficit unit of the economy, thustransforming deposits into loans or credits. The role of money deposit bank in economic development has been recognized ascredits are obtained by the various economic agents to enablethem meet investment operating expenses. For instance,business firms obtain credit to buy machinery and equipment,farmers obtain credit to purchase machines such as tractors,seeds, fertilizers, and erect various kinds of farm buildings.Government bodies obtain credits to meet various kinds of recurrent and capital expenditures. Individuals and familiesalso take credit to buy and pay for goods and services(Adeniyi, 2006). According to Ademu (2006), the provision of credit with sufficient consideration for the sector’s volume andprice system is a way to generate self employmentopportunities. This is because credit helps to create andmaintain a reasonable business size as it is used to establishand/or expand the business to take advantage of economy of scale. It can also be used to improve informal activity andincrease its efficiency. While highlighting the role of credit,Ademu (2006), further explained that credit can be used toprevent economic activity from total collapse in the event of natural disasters such as flood, draught, disease or fire. Thebanking sector helps to make these credits available bymobilizing surplus funds from savers who have no immediateneeds for such funds and thus channels such funds in form of credit to investors who have brilliant ideas on how to createadditional wealth in the economy but lack the necessarycapital to execute the ideas.

1.2   STATEMENT OF THE PROBLEM                       

It is instructive to note that the banking sector has stood out inthe financial sector as of prime importance because in many developing countries of the world the sector is virtually the only financial means of attracting private savings on a large scale. According to Adekanye (1986) in making credit available, money deposit banks are rendering a great social service because through their activities, production is increased, capital investment are expanded and a higher standard of living is realized. However, in Nigeria as in many other developing countries, the ratio of bank credit to the private sector to agricultural GDP has not increased significantly. This has made it necessary to examine the impact of money deposit banks on the agricultural development of Nigeria.

1.3   OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1. To examine the activities of the money deposit banks.
2. To examine the impacts of money deposit banks on the agricultural development of Nigeria.
3. To examine the relationship between money deposit banks and agricultural development of Nigeria.

1.4   RESEARCH QUESTIONS

1. What are the activities of the money deposit banks?
2. What are the impacts of money deposit banks on the agricultural development of Nigeria?
3. What is the relationship between money deposit banks and agricultural development of Nigeria?

1.5   HYPOTHESIS

HO: There is no significant relationship between money deposit banks and agricultural development of Nigeria.

HA: There is significant relationship between money deposit banks and agricultural development of Nigeria.

1.6   SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1. The result of this study will educate the general public on the relationship between money deposit banks and agricultural development of Nigeria.
2. This research will be a contribution to the body of literature in the area of the effect of personality trait on student’s academic performance, thereby constituting the empirical literature for future research in the subject area.

1.7   SCOPE OF THE STUDY

This study will cover the impacts of money deposit banks on the agricultural development of Nigeria.

1.8   LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work