With the vast majority of Nigerians living in the country’s massive rural areas, agriculture can be a key driver of both human and economic development. However, farming is seen as a risky business, especially where small and medium-scale farmers often have to contend with risks and uncertainties related to financing, among other challenges.
The Nation reviews efforts in the last 45 years to promote agricultural lending and insurance as a strategy to promote employment and higher levels of productivity
For 45 years, Nigeria has been grappling with how to solve one serious problem without creating another. For years, successive administrations have struggled to make access to finance easy for small and medium-scale farmers by de-risking rural agricultural finance or opening up access to credit in order to promote productivity; while at the same time assuring the banks that the credits they extend to farmers will not go down the drain.
To this end, many interventions were initiated by the government and the Central Bank of Nigeria (CBN) to make access to credit easier for farmers. However, the banks that were supposed to provide the credits were uncomfortable channelling credit to the farmers for several reasons. Top among the reasons was the risk and unpredictability that surrounds the practice of agriculture in Nigeria. Also, agricultural insurance was practically non-existent; so were the crisis of not having high-yielding seeds that are resistant to drought and negative vagaries of weather, weak debt recovery strategies and the mind-set of many farmers that bank loans are their share of the national cake and, as such, they did not factor in paying back the loans given to them by the banks.
To de-risk agriculture and make it attractive to the banks, the federal government and the CBN came up with two interventions. The Agricultural Credit Guarantee Scheme Fund (ACGSF) and the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc) were conceived.
The Agricultural Credit Guarantee Scheme Fund (ACGSF)
The Agricultural Credit Guarantee Scheme Fund (ACGSF) was established by Decree No. 20 of 1977 to guarantee agricultural credit facilities granted to farmers. The Federal Government and the Central Bank of Nigeria (CBN) both contribute to the fund in the ratio of 60 per cent and 40 per cent, respectively. The CBN doubles as the managing agent of the scheme and the secretariat of the ACGSF.
The scheme encourages deposit money banks and microfinance banks to lend to those engaged in agriculture by providing guarantee. It mitigates risks associated with banks’ lending to agriculture by guaranteeing to pay banks 75 per cent of the net amount in default in accordance with the provisions of the enabling Act. The ACGSF Amendment Act was assented to by President Muhammadu Buhari on June 24, 2019. In the Amendment Act, new strategies were introduced to repackage and reposition the scheme for greater effectiveness and efficiency with the aim of positioning Nigeria to become a self–sufficient food producer, creating millions of jobs, supplying key markets across the country and dampening the effects of exchange rate movements on local prices.
Under the new ACGSF Amendment Act 2019, the maximum for a non-collateralised loan has increased from N20,000.00 to N100,000.00 and the maximum for a collateralised loan rose from N10 million to N50 million. The ACGSF Amended Act 2019 ensured that agricultural value chain financing is now allowed under the scheme these includes; the financing of the production of farm machinery, implements and equipment for production, processing, storage and transportation as well as any purpose connected with activities within the agricultural value chain.
Speaking on the issue, Mr Stephen Okon, Chairman, Board of the ACGSF, said: “The Board in 2021 approved the increase of the interest drawback rebate for farmers and participants in the agricultural value chain from 40 per cent to 50 per cent to cushion the effect of the COVID-19 pandemic. The increase took effect from 1st January, 2022.
“The ACGSF scheme has proved relatively successful in de-risking the agricultural sector in Nigeria as evidenced in the number of loans guaranteed from inception to date. A total of 1,232,326 loans, valued at N130.903 billion, were guaranteed from inception to May 2022 out of which 973,646 beneficiaries had repaid a total of N98.91 billion.”
Narrowing the guarantees to the state level, Okon noted that the Federal Capital Territory (FCT) from January to May 2022 has guaranteed a total of 82 loan beneficiaries under the scheme, valued at N22.580 million. This brought the total guaranteed loans in the FCT from inception of the scheme in 1978 to May 2022 to 14,258, valued at N1.748 billion. In terms of loan recovery, 11,726 loans, valued at N801.058 million, were repaid under the scheme in the FCT from the inception of the scheme. These records, Okon said, show the level of “determination of the farmers to utilise the opportunities offered by the scheme to empower themselves and improve their lots.” He urged participants in the agricultural value chain in the FCT to take advantage of the opportunities provided in the Amended Act.
Lack of collateral to secure the loans was identified as a major challenge, which the farmers and banks had worked around. However Okon noted that “the major challenge for the farmers was taken care of by the Central Bank through its credit register and de-risking of the loans thought its credit guarantee schemes. As a result, the scheme has recorded 85 to 90 per cent repayment success from the farmers.
Ogbu Onyeka Michael, Branch Controller, CBN, Abuja Branch, said the ACGSF is not only an important programme of the CBN, but the first development finance intervention scheme to be established by the bank. “In fact, the scheme heralded the birth of the Development Finance Department (DFD) of the Bank.” The success achieved under the ACGSF, he said, “has led to significant improvement in Deposit Money Banks’ (DMB) lending to the agricultural sector and has led to remarkable growth in agri-business value chain in Nigeria.”
The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL)
Launched in 2011 and incorporated in 2013, the CBN set up a $500million non-bank financial institution wholly-owned by it but operates with a private sector disposition to executing projects. That was how the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc) was born. NIRSAL was established and incorporated by the CBN to stimulate the flow of affordable finance and investment into the agricultural sector by de-risking the agribusiness finance value chain, fix agricultural value chains, build long-term capacity and institutionalising incentives for agricultural lending through five strategic pillars namely: risk-sharing, insurance, technical assistance, rating and incentives. Essentially, NIRSAL was created to deliver bespoke solutions to de-risking agriculture.
In 2018, the National Bureau of Statistics (NBS) released a report that Nigeria’s oil and gas sector received the highest allocation of private sector credit, around 22 per cent of the total credit. Second place was manufacturing with 14 per cent; while all other sectors received less than 10 per cent. Agriculture, which employed at the time around half of those working in Nigeria and contributed around a third of the country’s GDP, received only three per cent of total bank credits.
Commercial banks are set up purposely for profit-making. They are basically interested in short-term lending with high returns. Oil and gas companies fit perfectly into what the banks would like to do business with as they export crude oil and the import of its refined products – a short-term activity with high returns. Investment in agriculture, on the other hand, is a long tenured investment. It has a longer gestation period. Commercial banks don’t want to tie down their facilities. Added to this is the lack of sophistication, proper book keeping, and collateral, all of which characterised small holder agricultural ventures across Nigeria. These inadequacies made financing agriculture unattractive to the banks.
To bring finance to the farmers NIRSAL Plc came in to act as a guarantor for commercial banks. It will stand as a guarantor that lending commercial banks will go to should ‘something’ go wrong with the facility extended to an agro-businesses. In discharging this important mandate of creating linkage between segments of Nigeria’s agricultural value chain (AVC), NIRSAL has facilitated over N73billion into Nigeria’s agro processing industry from inception till date. NIRSAL does not give credit facilities to farmers; it mobilises funds from sources, including deposit money banks, development finance institutions, private equity investment firms and other financial institutions to lend out to farmers.
NIRSAL’s credit risk guarantee (CRG) in agriculture value chain contributes immensely to boosting federal government’s agricultural promotion drive. The CRG is the agency’s core item for sharing agribusiness-related credit risks with commercial banks and financiers by up to 75 per cent depending on the segment that the CRG applicants operate in. The riskier the farmer group or agribusiness operations, the higher the percentage of risk NIRSAL shares.
By protecting financiers and investors from possible losses when they facilitate credit to agricultural business, NIRSAL has built up their confidence to lend to players in the sector, a sector once widely considered as a no-go area in finance circles. With NIRSAL CRG now in place, farmer groups and agribusinesses, which hitherto before advent of CRG had difficulty securing loan approvals from commercial banks, now enjoy smoother approval processes for the loans they require to expand their operations, increase their profits and enhance their livelihoods.
One of NIRSAL’s N73bn Credit Risk Guarantee Support to Agro Processing
Also critical in the creation of NIRSAL CRG-backed loans is NIRSAL Plc’s constant engagements with commercial banks and training of their officers. Over 4,250 bank officials have been trained on NIRSAL CRG guidelines and efficient agriculture lending, resulting in a better understanding of the two, an improvement of banks’ disposition towards agriculture lending and an increase in bank lending. With the introduction of the NIRSAL Plc’s CRG scheme, banks’ lendings to agriculture have jumped from 1.4 per cent pre CRG to 5.4 per cent as of Q3 2021. As at the time of this report, NIRSAL’s CRG portfolio now stands at N152,859,549,314.5
Speaking recently on NIRSAL’s role as a credit guarantor, Managing Director/CEO Mr. Aliyu Abdulhameed, said that as a guarantor, its support positively impacts financiers, borrowers and the nation’s economy. According to him, “while financiers are now able to confidently invest in profitable agribusiness ventures, agribusinesses who borrow from them can improve productivity and profitability, all of which generate much-needed local economic activity.”
The agency’s finance facilitation efforts have generated around US$2.5 billion worth of economic activity through agricultural products/outputs and other value chain economic activities, created 360,000 direct jobs and positively impacted the lives of 1.8 million Nigerians. As a result of the success of NIRSAL’s risk-sharing model, commercial banks have pledged a combined US$500 million to fund agriculture and agribusiness. Furthermore, NIRSAL has been approached by other African countries to provide support for the establishment and implementation of risk-sharing facility models in their respective jurisdictions.
In specific terms, NIRSAL issued 50 per cent Credit Risk Guarantee (CRG) and 20 per cent Interest Drawback (IDB) on respective loans of Gbagolo Integrated Farms Limited – a livestock producer and TOAJ Nigeria Limited a cocoa dealer. Leveraging on its CRG, NIRSAL facilitated the approval and disbursement of N81.8 million and N150 million from Union Bank Plc and Sterling Bank Plc respectively to Gbagolo and TOAJ. While Gbagolo Integrated Farms Limited will use its N81.8 million Term Loan to finance the purchase of 25,000 point of lay birds, 25,000 capacity battery cages and feeding compliments, TOAJ Nigeria Limited will channel its N150 million Export/Trade Finance facility towards the sourcing and purchase of cocoa for export.
The injection of these finances will create a positive knock-on effect for players along each segment of both value chains and the agribusinesses’ host communities at large. Another element for de-risking agriculture is the provision of insurance coverage. Abdulhameed, at an event in Lagos, once disclosed that NIRSAL had provided insurance cover worth N6.5 billion to protect farmers in the country. He said NIRSAL had developed and launched the Area Yield Index Insurance product and protected over 37,399 farmers, with over N121 million paid out as compensation.
In another development, NIRSAL, in collaboration with the Royal Exchange General Insurance Company (REGIC), recently developed the Hybrid Multi-Peril Crop Indemnity-Index Insurance (HM-II).
The new product is designed to protect farmers from losses during a planting season caused by bad weather (low and high rainfall, early and late season dry spells, lightning, hailstorms and thunderstorms), pest outbreak, disease outbreak, fire outbreak and permanent disability or death of the farmer. A key advantage of the HM-II is that in cases where such risks happen, benefits paid out to the farmer would be up to the maximum loan or the insured amount after confirmation by advanced satellite technology, an assessment by an agriculture expert, or both.
Despite these interventions to de-risk agricultural financing, many banks are still sceptical when it comes to lending to the sector. What this means is that the banks still consider agriculture to be a high risk venture to finance. The fears being exhibited by the banks are justified considering wide-ranging socio-economic/structural issues like insecurity in many parts of the country, inadequate infrastructure characterised by almost non-existent power, poor rural roads to facilitate the evacuation of farm products. Also, lack of sophistication, that is the adoption of modern technology to boost agriculture and poor booking methods, is bound to scare away the banks.
However, NIRSAL and ACGSF appear determined to bridge the gap between farmers and finance to change the narrative from mere farming or agriculture to a full-scale commercial enterprise with all the trappings of a modern business enterprise.
