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Question

Difficulty: MediumAgriculture Sector: Roles, Problems, and Development Policies

A commercial bank in Nigeria hesitates to extend loans to smallholder farmers due to high default risks and lack of acceptable collateral. Which government initiative was specifically established to encourage bank lending by guaranteeing a substantial percentage of agricultural loans against default?

  1. Agricultural Credit Guarantee Scheme Fund (ACGSF)Answer
  2. B
    Import Substitution Industrialization (ISI) Program
  3. C
    Privatization and Commercialization Policy
  4. D
    National Development Rolling Plan System

Answer

Agricultural Credit Guarantee Scheme Fund (ACGSF)
The Agricultural Credit Guarantee Scheme Fund (ACGSF) was jointly established by the Federal Government of Nigeria and the Central Bank of Nigeria to pledge financial guarantee support (up to 75% of principal and interest in default) to commercial banks, mitigating the risk of lending to smallholder agricultural producers.

Step-by-Step Solution

1
Identify the primary economic bottleneck described in the stem.
The bottleneck is commercial banks' reluctance to grant loans to agricultural smallholders due to high default risks.
Agricultural production in Nigeria faces natural hazards, crop failures, and low collateral capacity, making banks risk-averse.
2
Evaluate the matching government intervention policy.
The Agricultural Credit Guarantee Scheme Fund (ACGSF), established in 1977, guarantees up to 75% of the net amount in default to lending banks.
By absorbing part of the risk, the policy directly addresses credit access challenges for farmers.

Key Concept

Agricultural Credit and Policy Interventions in Nigeria
Estimated Time:1m 0s
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Topics

Agriculture Sector: Roles, Problems, and Development Policies