CHAPTER ONE

INTRODUCTION

1.1. Background of the study          

The financial sector plays a very pivotal role in the functioning of the economy as there iss widespread believe that the proper functioning and development of the financial sector of any economy enhances productivity and thus promotes economic growth (Puatwoe., 2017). The banking sector is the heart of the financial sector of any economy. Banks performs various roles within the economy such as collecting of deposits and issuance of loans to the public. It is also in banks where money and valuable items are kept. Banks usually operate by collecting funds in form of deposits from individuals, businesses and government and on the other hand give out those funds as loans and purchase securities(Ezemenari, 2018). The microfinance sector, more specifically, is also part of the general banking sector in an economy. Just like the banks, the microfinance sector plays a huge role in economic development within most economies. Such as deposit mobilization, promotion of saving culture, extension of credit to customers, generation of employment and promotion of  entrepreneurship. (Ibrahim, 2013)

The availability of credit is an essential component of rural development and this helps to achieve rapid and sustainable growth of agriculture. To boost agricultural production and productivity, farmers have to use improved agricultural technologies. However, the adoption of modern technologies is relatively expensive, and smallholder farmers cannot afford to self-finance. As a result, the mainstreaming of sustainable agricultural practices is low. It is argued that enhanced provision of rural credit would accelerate adoption of sound technologies which will go a long way to improve agricultural production and productivity (chenaa et al,2018). In conventional banking, the bank charges the borrower’s interest on its loans and pays its depositors interest on their deposits. The Interest rates are predetermined and are guaranteed. The borrower is required to pay the Interest that applies to the loan and the lender will receive the promised Interest in addition to the return of their initial deposit. The interest rate is determined in advance regardless of the end results.  From this perspective the profit sharing systems seems to be most efficient than the interest based system because it is founded and operated on the principle of any additional result is compensated by an increasing amount of profits (Ben Amira, 2003)

Access to financial instruments closely influences farmers’ decisions to produce. Microfinance services in general and microcredit specifically has a very important role to play in today’s technical dynamic agriculture, that depends greatly on the use of purchase inputs, hired labor, machinery service and financial services. At the beginning of the production period agricultural loans may augment farmers’ initial endowment to help them face lump sum productive investments. Given the indivisible nature of some inputs need, lump sum expenses are required. Cash constraints could lead to a bad combination of inputs if the farmer is unable to purchase those inputs at all, causing inefficiencies (korlan, 2014). Agricultural loans reduces poverty, enhances productivity and promotes standard of living of small holder farmers. Availability and accessibility to loan by small holder farmers can alleviate capital constraints on agricultural production. (Alabi & Anekwe, 2022)

However one can argue that the mere provision of loans may help farmers operate at higher production frontier but might not necessary make them more efficient. The access of the loan not really considered but the experience with the loans over a relatively extended period of time. If he simple provision of loans does not help farmers improve their resource allocation, their experience with the loans over time can help them learn the best practices which will help farmers adjust their investment decisions to reach an equilibrium if efficiency. Farmers with more experience with loans are expected to be more efficient as they learned over time to choose right proportions of inputs to produce the most possible output. Most loan like IFAD program offer loans and training as well as educational support to Farmers to help them improve their management and financial skills to better conduct their funded activities (Sagbo, 2019)

Effective lending practices by financial institutions are hugely dependent on the type of loan policy they implement. These policies may include guidelines on credit provision, unsecured loan criteria, interest rates and repayment terms, loan review processes amongst others (FDIC, 2023). These loan policies ensure sound lending practices, risk management, and alignment with the institutions’ goals and regulatory requirements. Additionally, microfinance institutions focus on developing specific loan structures like short and long amortizing term loans. These policies play a vital role in promoting financial inclusion and supporting farmers in accessing essential funding for their businesses. (Kowa et al., 2023)

1.2. Statement of the problem

Agricultural financing plays a crucial role globally, empowering farmers through increasing their wealth, providing these farmers with the necessary means to purchase farm inputs, thus contributing in the facilitation of food value chains and sustainable development (Ngo, 2021). In Africa, 86% of the rural population depend on agriculture as a source of livelihood and as such access to finance is crucial for the growth of the agricultural sector as the shift from subsistence to commercial agriculture requires funds (Ruete, 2015).However, despite the important role agricultural credit plays in the development of the agricultural sector, there is still a lot of challenges in successfully financing small-scale agriculture especially in Sub-saharan Africa.

In Sub-Saharan Africa and Cameroon specifically, there is limited direct participation in the banking sector in providing credit to farmers despite the agricultural sector being the most important sector in this region (Adjognon et al., 2017). Apart from the limitation in involvement of the banking and microfinancial sector in Agricultural Credit Provision, other underlying issues exist with providing agricultural credit such as low traditional credit use as farmers are mostly drawn to informal sources of credit instead of accredited institutions such as banks and microfinances (Mapanje et al., 2023), small size of loans dedicated to funding agricultural activities (Sacerdoti, 2005), and fixed or stagnated loan policies microfinancial institutions not suitable for the needs of the individual farmers in (Shimeles, . et al., 2018).

These underlying issues in agricultural credit provision results in farmers’ negative perceptions about these loan policies. A negative perception about a loan policy may generate strong negative psychological reaction about obtaining loans thus leading to unwillingness of farmers to acquire these loans. (Qin, et al., 2023). Poorly formulated and unsuitable loan policies may lead tothe unwillingness of farmers to obain credit, which inturn may result to a lack of capital for their farm businesses and their inability purchase farm inputs and consequently low agricultural production. (Mushagalusa, et al., 2023). Furthermore, due to constraints in accessing agricultural loans by farmers result due to a number of reasons such as high interest rates, high penalty rates, farmers develop a negative loan perception thus becoming unwilling to take loans (Singh, et al. 2023). The consequence of this maybe analyzed both at the level of the institution and at the level of the farmer. At the level of the institution, it may lead to low return on assets (ROA) and low turnover while at the level of the individual farmers; this may lead to less capital available for investment and consequently low production.

This research seeks toevaluate farmers’ perception about the reliability and adaptability of the loan policies offered at Bapccul. The study argues that an understanding of farmers’ perception on loan policy may inform policymakers to improve on the policy to settle with the needs of farmers.

1.3. RESEARCH QUESTIONS

1.3.1. Main Research Question

What are farmers’ perceptions on the reliability and adaptedness of the agricultural loan policy at BAPCUL?

1.3.2. Specific Research Questions

• What are farmers’ perceptions on the reliability of loan policies offered at BAPCCUL Nkwen?
• What are farmers’ perceptions on the adaptedness of loan policies offered at BAPCCUL Nkwen?
• In what ways can these loan policies be improved to positively influence farmers’ perceptions on their reliability and adaptedness?

1.4. RESEARCH OBJECTIVES

1.4.1. Main Research objective

To examine farmers’ perceptions on the reliability and adaptedness of agricultural loan policy at BAPCCUL Nkwen.

1.4.2. Specific Research Objectives

• To examine farmers perceptions about the reliability of the loan policies offered at BAPCCUL Nkwen.
• To determine farmers’ perceptions on the adaptedness of the agricultural loan policies offered at BAPCCUL Nkwen.
• To propose ways in which these loan policies can be improved to positively influence farmers’ perceptions on their reliability and adaptedness.