Category: Issues

Pension is important for employees to prepare for their old age when they must have retired from active service. In the past, pension administration was fraught with many challenges ranging from fraud to poor documentation. The reform to pension administration which began in 2004 has by and large brought succour to pensioners. MOSES EMORINKEN writes about the challenges facing pension.

The Contributory Pension Scheme (CPS) came as a beacon of hope to millions of pensioners and prospective retirees because it brought in its wake expectations of a safe and secured retirement life.

From its inception in 2004 and further amendments of the Pension Reform Act (PFA) in 2014, the CPS has not only surpassed expectations, but has contributed immensely to the economy of the country – pooling over N8.9trillion in pension assets.

According to the Acting Director-General of the Commission, Hajia Aisha Dahir-Umar, “This industry has assets worth about N8.9 trillion as at February this year. Registered membership as at February this year is also about 8.5 million.”

She revealed that one of the key purpose and intention of the Pension Reform Act 2014 was to ensure the domestication of the Contributory Pension Scheme (CPS) at the sub-national level in Nigeria.

Regulated by the National Pension Commission (PenCom), the CPS took over the old, dysfunctional and moribund Defined Benefits Scheme which was fraught with payment issues.

The sad reality is that, for a scheme as structured, monitored, and regulated as the CPS, a lot of states are yet to fully key into it in terms of compliance.

This failure to ‘completely’ embrace and engage the scheme leaves only a ‘factor of production’ at grave risk – labour (workers).

The hallmark of any pension scheme worth its weight is simply in its ability to pay workers entitlements in a timely, accurate, and seamless manner – the CPS has been able to provide these.

The big question now is: Are all workers in the federal, states, and local governments across the country adequately keyed into and covered in the scheme in order to ‘reap the fruits of their labour,’ especially when they are old, weak, and wrinkled?

Don’t be too hasty to jump into any conclusion until you have read the findings of this investigative report by the Nation.

Not all states in the country have keyed into the CPS, as some have their peculiar pension scheme they operate for their workers and pensioners.

However, if a state says it is engaging the CPS for pension payments, then it must be seen to have met certain parameters; else the prospective retirees and pensioners stand the grave risk of waiting tirelessly in line – under the sun and in the rain for a pension that proves elusive.

The quarterly report from PenCom on “status of implementation of the CPS by states and the FCT as at 31 March 2019” reveals nine (9) parameters for compliance with the CPS – these parameters are: enactment of law, administrative structure, registration of employees, choice of pension fund administrator, remittance of pension contributions, actuarial valuation, opening Retirement Benefits Bond Redemption Fund Account (RBBRFA), funding of accrued rights, and group life insurance.

 

What’s important to average worker?

Among the nine parameters by PenCom for a fully compliant state to the CPS, the remittance by the states for both employer and employee pension contributions takes a chief position because it goes a long way to not only ensure the payment of pensions, but also ensure that the contributors get dividends on their contributions.

These dividends, according to the Commission, can go as high as 150 per cent depending on the timely and accurate remittance of pension contributions by the states.

According to the Head of Corporate Communications at PenCom, Mr. Peter Aghahowa: “The Nigerian worker is very concerned about the timely and complete remittance of his or her pension contributions.

“Also, if a pension scheme fails to deliver on its promises of a safe and secured retirement future for pensioners, ultimately, it is the retirees that will bear the brunt. Hence, there is interest in the complete and timely remittance of their pension contributions.”

In carrying out this report, focus was on remittances – the number of states that are making complete remittances of both employer and employee contributions.

According to the report from PenCom, states that are remitting both workers and employer contribution up to date are Lagos, Kaduna, Edo, and FCT.

Ekiti State has remitted employer and employee pension contributions up till January this year.

Some states are however not under the CPS, but are operating other pension schemes like the Defined Benefit Scheme (DBS) and Contributory Defined Benefit Scheme (CDBS). These states are – Katsina, Kano, Jigawa, Adamawa, Bauchi, Gombe, and Yobe.

States such as Kebbi, Zamfara, Delta, and Rivers are remitting only employees portion of the contribution and some even have huge backlog of unremitted employer pension contributions.

States such as Katsina, Sokoto, Benue, Adamawa, Borno, Gombe, Taraba, Benue, Kogi, Kwara, Nasarawa, Plateau, Ogun, Oyo, Abia, Ebonyi, Enugu, Imo, Akwa Ibom, Bayelsa, and Cross River have not remitted any amount for both employer and employee pension contributions.

Yobe State has done fairly well with DBS. They pay their pensioners as they retire; they don’t have huge arrears.

States such as Ondo, Osun, and Anambra are remitting contributions haphazardly, while Niger State stopped remittances since 2015 and is yet to resume.

It was also gathered that although, there are laws dovetailing from the federal laws which say remittances should be made within seven days of payment of salary; if that is  applied, compliance level by states may be zero.

However, the travesty of the real situation will be to focus on states that have enacted laws for the Contributory Pension Scheme (CPS), which at the moment stands at 24 states. This does not do justice to undressing the real situation of the scheme in the country.

The commission further explained that constitutionally, PenCom has no power to dictate the scheme that a state runs; it can only recognise their scheme and guide them accordingly.

“We will continue to engage states that are yet to key into the CPS on different levels; from the highest level in the state; the engagement is collaborative, labour is also involved.

“However, the implementation of the scheme in each state depends on the law the state has passed; once a state assembly has passed their pension law, we as a Commission are only going to supervise and guide them based on the law that has been passed,” he said.

 

 CDBS: old wine in new skin?

According to the quarterly report from PenCom, 15 states have made progress in the implementation of the scheme, eight have sent bills for its enactment.

However, following the CPS is the introduction of the Contributory Defined Benefit Scheme (CDBS) by some states – five states, namely, Katsina, Kano, Jigawa, Bauchi, and Gombe. Two states still operate the DBS. They are Adamawa and Yobe states.

A lot of Nigerians are aware of the embattled Defined Benefit Scheme (DBS) and how it operates, however, the novel scheme – CDBS, seems to have a lot of grey areas that industry experts and stakeholders are yet to fully understand.

Although more researches are being carried out into it, it seems to work in a similar fashion as the DBS does, maybe save for the addendum of the contributory to the DBS, and the fact that they make some contributions.

There are events to prove the sorry and pitiable state that the DBS put many  Nigerian pensioners and their families.

Still, some states seem not to take the exercise serious. The big question will now be – If you say you are running a DBS, are you running it well?

From findings, in the DBS, one doesn’t need to go to school to supervise it. But some of the new schemes that are coming up now like the Contributory Defined Benefit Scheme (CDBS), need to be properly understood and studied. Hence, states need to be weary in quickly embracing and latching upon it.

Information from the apex pension regulator revealed that it is currently studying the scheme and working out a framework for the CDBS because some states are already doing it. This the Commission intends to undertake in order to better supervise and regulate that type of scheme.

There are always exceptions to every rule, as Jigawa State seems to be doing well (100 per cent) with the CDBS and works closely with the PenCom for support and technical advice.

Information from the Commission revealed that the state, for instance, has been successful in operating the CDBS and it works 100 per cent closely with the state, even though the scheme is new to both the state and the Commission.

 

Worry over rate determination

One topic that continues to raise a groundswell of debate among stakeholders in the pension sector is whether or not the percentage contribution benchmark for the CPS or any other pension scheme is scientifically determined.

How do you know that 18 per cent will suffice to guarantee a pleasant retirement for the Nigerian worker?

Investigation revealed that there is a big question mark on the CPS and CDBS in terms of the proportion of contribution because it is largely not scientifically determined.

That is why some people are complaining that their benefits under CPS are not comparable to DBS.

The simple reason is that 7.5/7.5 per cent decided in 2004 was not a science. What makes anybody think that 7.5 percent was enough contribution that people will retire and be happy about?

No wonder in 2014 it was jacked up to 1 per cent . Even the 18 per cent, what is the science behind it?

The apex regulatory body for pension in Nigeria and other stakeholders seriously need to have this very important conversation for the collective good of the people.

It is the same extension to CDBS. You determine a rate of contribution, and it wasn’t scientifically determined; there was no actuarial valuation at the point that decision was taken. So, you cannot say whether or not that 20 per cent or 25 per cent that is put in that pool and is being managed, whether it can guarantee the payments that are embedded in a DBS.

Because in a DBS the payments are straight forward. What gives you the comfort that the contributions that are being made in those proportions can pay these people out when the time comes?

There is a risk imbedded in the CDBS that one-day people will retire and there will be no money to pay them because the contributions that are being made now are based on per head contributions of workers.

If anything that is happening in the country is anything to go by, take a case like Kaduna State, its workforce between 2016 and 2018 have dropped by close to 40 percent because at one time in 2017, the governor decided to retire everybody that has two years to go; all people that are 33 years in service, and those that were 58 years old were sent on forceful retirement.

Meanwhile, if Kaduna were doing CDBS the total pool of contributions was based on per head of workers contribution, the number has dropped. This means that the amount that will aggregate in the pool will drop. So, a day will come that somebody will retire and there is no kobo to pay him or her, because the number of workers that are contributing to it has dropped. This is a risk that the system runs.

You don’t need science to know the likely implication of running a scheme like the CDBS – a rate of contribution that is not scientifically determined, and some of the inner workings of that scheme, the scheme runs itself, meaning the cost of running that scheme is borne by the scheme.

Unless that is checked, there are tendencies that the cost of running the scheme will increase significantly in years ahead.

A time may come when the returns made from the investments of that scheme are all taken up by the operating cost. It may mean that the N1 you put in today remains N1 for the next five years. That is a diminution of the scheme.

This is not an outright condemnation of the scheme, but a sign of caution on the need for both the PenCom and states doing it to study it well before rubber-stamping it.

The CDBS can never be the same as the CPS because of the differences in its structures, framework, processes, and workings.

Therefore, states that are doing CDBS cannot be regarded as compliant states because they are introducing other pension schemes aside the CPS.

Also, some states that are committed to DBS are doing well. Yobe State, for example, has done fairly well with DBS. They pay their pensioners as they retire; they don’t have huge arrears.

The pension stratosphere changed from DBS to CPS because it wasn’t working, but if Yobe is working, our only prayer is that it is not person-dependent.

If it works well because of the governor there today, when he is no longer there, they will be like any other state and that leads to the challenges that DBS had; they will start to be experiencing it.

Aghahowa said: “The Commission is mandated to supervise all pension schemes, so, whatever you call your pension scheme, if you pass it and drag the commission into it, how do you drag the commission – see what we are doing. If you offer your law to our Commission to review it, then you have brought yourself to our court.

“Constitutionally, we have no right to say you must put in A,B,C,D, because constitutionally you have the powers to design your pension scheme the way it suits you, but what we do, is that our parameter for compliance are what helps us select our babies.

“If you say you are running a contributory pension scheme, we expect to find all the nine parameters (characteristics); if we don’t find those parameters, yes you are running a pension scheme but we won’t call it contributory.

“We have model state laws for contributory pension scheme; we expect you to adopt the major ingredient of that law in your law, and those major ingredients include many or all of those parameters that we have there.

“If you have a law and invite us to take a look at it, we will do. You may tell us you want to continue with define benefits scheme, but look at it, it is fine we will take a look.

“We want to expect that when people retire, you pay them their benefits based on the dictates of the scheme you run; how much of their gratuity do you pay, do you pay on time, or as the practice is all over the country.”

 

Impact of haphazard remittances 

Aghahowa said the effect of haphazard remittances by states on the Commission is tertiary, the primary effect is that it is affecting the contributor directly.

“It is not good enough for you to tell me ‘don’t worry we will pay’, that is not the way this scheme is designed to work; it is designed to work in a manner that seven days after you pay salaries, you remit complete pension contributions (employer/employee).

“Once remittances by states are done in a timely and complete manner, the workers, in turn, will reap very good dividends and returns on their investments.

‘’It is obvious then that the labour force in the states will either benefit from or suffer the consequences of partial remittances.

‘’On the larger economic scale, it also means we are not having so much funds coming into the system; because the more funds you have coming into the system, the more funds you have to invest in infrastructure, and other things that can help economic growth in different ways,” he said.

Therefore, not funding the RSA affects both the retirees and the economy of the country.

According to findings, between 2011 and 2017, a number of PFAs returned 100 per cent double of what was given to them in 2011.

‘’We also found out that, as at February this year, the amount of uncredited contributions from Akure was over N1.2billion (that is, funds still hanging somewhere). Port Harcourt figure for December 2018 was N1.4billion. When the Commission raised the issue, few states appeared to have done some reconciliations and there was a token reduction.

‘’More states and PFAs have started to take the matter seriously now,” PenCom said.

The President, Pension Fund Operators Association of Nigeria, Mrs. Aderonke Adedeji spoke on the issue, saying that the “non-remittance and, or irregular remittance has several implications. The most important and of greatest concern is the impact on contributors as they run the risk of lower than expected pension at retirement.”

She explained that this shortfall in funding means the PFAs cannot invest such funds, thus denying the contributors income on their RSA. “The income element of an RSA is a critical part of the funds that make up the pension at retirement. Consequently, the country’s objective of eliminating old-age poverty becomes challenging,” she said.

Mrs. Adedeji listed other implications of delayed, or non-remittances as the slower growth in the nation’s pool of long term funds which is necessary to drive economic development, saying Pension funds, if given the right legislative and executive government support, as well as an effective regulatory environment, have the potential to transform the economy.

She said the impact of pension funds on nation-building is evidenced in many countries. In South Africa, she said, the pension assets are almost the same size as the GDP, whereas in Namibia, it is over 80 per cent as against Nigeria where it is estimated at on a paltry seven per cent.

Granted that the pension scheme in Nigeria is relatively younger, the fact remains that we still have a long way to go, she said, adding though that there is room for improvement in the funding.

 

Access to finance is a huge problem for farmers. Many of them, particularly smallholders, find it difficult to get credit from banks for large-scale projects. Yet, the World Bank estimates the potential of Africa’s crowdfunding market at $2.5 billion by 2025. To get a chunk of this and surmount the challenge of funding, farmers have turned to crowdfarming. It is an ingenious and technology-driven way of raising money to fund agric projects. DANIEL ESSIET writes on how the innovation is changing the face of farming in Nigeria.

JORDAN Farms Chief Executive Officer, Tunji Olowookere, is riding on the crest of technology to push the frontiers of his farming business. His resolve to turn to a pool of internet-based donors, creditors and investors, operating a crowdfunding market gave him the leverage to grow his agric business by 50 per cent. Crowdfunding, in a simple term, is a form of Internet-based pool of donations, loans and investment capital for small scale business operators, who have difficulty in raising funds from commercial banks. One of such operators, which Olowookere joined, is EZ Farming platform, a crowdfarming platform.

Crowdfarming, essentially an aspect of crowdfunding, is a digital platform of donations, loans and investment capital for farmers and agro-entrepreneurs looking for funds to set up and expand their businesses.

Since joining the EZ-Farming platform, a digital marketplace that helps farmers to finance their business and sell their produce, Olowookere, a cucumber farmer, has seen his business grow by at least, 50 per cent. Essentially, EZ-Farming connects local smallholder farmers to a network of micro-lenders and produce buyers worldwide. With it, farmers have been scaling their farms, accessing better market and earning more income. Olowookere confirmed this much, saying the platform made his farming easy via the provision of access to finance.

He added that the platform also helped with top-of-the-range advisory that enabled him and indeed, other farmers scale their operations and provide employment to youths. “Apart from providing finance, the advisory services improved my business as a farmer. They helped me in developing a sustainable and inclusive growth trajectory for my business,” Olowookere said.

The cucumber farmer admitted that the tremendous growth he has achieved so far may not have been possible if he had relied on conventional options from financial institutions. “I got my funding in less than three weeks after documentation. It was not tedious and can’t be compared to what financial institutions offer. I have grown by over 50 per cent after getting the support,” he said.

The Jordan Farms boss noted that with the support he got from EZ-Farming, he has been able to engage more farm hands. According to him, with such support, farmers can now focus more on production, which would in turn, lead to increased productivity and ultimately, impact positively on the nation’s overall economy.

The EZ-farming platform was a child of the resourceful brain of Dr. Adewale Oparinde, Chief Executive Officer and founder of E-Farms Nigeria, which created the online platform known as EZ-Farming platform. Oparinde said the online platform allows investors to fund smallholder farmers.

He explained further: “We connect local African smallholder farmers to a network of micro-lenders and produce buyers worldwide. We use data and industry analysis to identify smallholders who have potential to go to scale. We provide them with financial resources, other production inputs and technical expertise.”

Oparinde also said the platform focuses on creating more commercial farms across countries in Africa. “We are already in Nigeria, Sierra Leone and Ghana. More countries are currently in the pipeline. We believe that for African agriculture to grow, we need to empower smallholder farmers to create more commercial farms in the continent. This is how we can better meet our local food demands and access export market more effectively,” he said.

He stated further that the start-up was focused on providing investors, who are passionate about the agricultural sector, but without the skills and/or the time required to effectively manage a farm with viable investment options, with returns on investments (RoIs) ranging from 15 to 35 per cent and investment cycles ranging from six months to 18 months.

“Our model is based on identifying the best farmers that can build commercial farms and take advantage of efficient use of technology, professionalism, and economies of scale to maximise profit,” Oparinde said, adding that as a part of the partnership, farmers are required to provide paid internship opportunities to unemployed youths, who are recruited at boot camps conducted periodically by EZ-Farming.

He said the start-up, which started pilot operations in September last year, has an ambitious mission to pull funds to boost the operations of promising smallholder farmers to become commercial farmers and provide a competitive RoI, build a cluster of apprentice commercial farmers among the youth, and ultimately, boost productivity in the countries where it has operations.

Oparinde, a Cambridge-trained agricultural and resource economist, with field experience working with a Washington DC-based international agricultural research organisation, said the platform was aimed at building an army of commercial farmers on the African continent through an incentive-driven community effort.

He explained that the start-up has different packages, which include irrigated chili farms, piggery farms, poultry farms, cassava farms, and soybean farms. According to him, its revenue model is based on taking a negotiated share of profit from the farms and giving a share of this to investors.

EZ-Farming, he added, also connects farmers with land and facility owners thereby improving access to resources required to grow their farms. According to him, the platform provides 3-layered protection on investor’s money through farm insurance, planned credit insurance, and video monitoring.

“What EZ-Farming is doing is basically redefining agriculture as we know it, and at the same time, building a new generation of commercial farmers that are tech savvy and who will benefit from investment from others in the agribusiness space.

“What we are doing is to pull funds on our platform, get them to upcoming commercial farmers to expand their farms or set up a new farm unit, where a number of unemployed youth would learn the ropes, after which they also set up their own farms,” Oparinde added.

He said the inspiration for the start-up came with an extensive work in international agricultural research and non-profit sector during which he visited more than 10 developing countries and engaged with farmers trying to scale their operations.

“With a deep knowledge of working with farmers, extension agents, development organisations and private sector companies, I believe what we are doing will change the game in the African agricultural sector,” the expert said.

The Nation, however, learnt that Olowookere is not the only Nigerian farmers benefiting from this new-found way of getting round the challenges of funding by conventional banks and other business support services to farmers. A poultry farmer in Lagos, Mr. Yusuf Oyolu, has also leveraged the innovation to expand his business.  “I have approached other financial institutions operated by the government in the past, but it wasn’t this smooth. At the time, they were not so focused on agriculture. To them, agriculture takes a longer gestation time, but EZ-farming is making access to finance easier and more attractive to people,” Oyolu said.

According to him, it takes longer time to obtain a loan from banks, but with EZ-Farming, it takes less than three weeks. “The documentation is straightforward. We get the funding to get on with the work in a timely fashion, which helps decision making and other issues that affect our output,” he said.

Essentially, the EZ-Farming platform, which so much excites Olowookere, Oyolu and indeed, others farmers, particularly smallholder ones, revolves around crowdfunding. The Nation learnt that with bank loans hard to come by, many farmers are now looking at it as an alternative source.

“One of the new sources or models is crowdfarming, which is an aspect of crowdfunding. It is a form of Internet-based pool of donations, loans and investment capital for farmers and agro-entrepreneurs looking for funds to set up and expand their businesses.

Indeed, farmers especially smallholder ones, struggle to raise sufficient capital for their farms, as the banking system is difficult for them to access. This is due to most banks requiring collaterals and having a lengthy and complicated application process and unfavorable rates,” he said.

Justifying the resort to crowdfunding or crowdfarming (as it relates to farming), Tech Circle Founder, Mr. O Nwoye told The Nation that the growth of Nigeria’s agricultural sector has been constrained by a myriad of factors, especially those relating to inadequate investment capital.

According to him, crowdfarming is fast becoming the easiest means of investing in agriculture. This, he said, entails sourcing funds from several individuals to invest in smallholder agricultural enterprises. He, however, pointed out that the concept is new, almost untouched, unlike other industries.

Nwoye explained that agri-tech start-ups are launching crowdfunding platforms to tap into a large pool of financial investors to support farmers. According to him, the emergence of digital platform-enabled crowdfarming is providing poor farmers access to scalable and sustainable financing, giving the nation’s sluggish agric sector the needed boost.

The Tech Circle founder also said individual and organisational investors in Nigeria and the rest of the world are supporting such start-ups to improve the lives of farmers while growing the investors’ Return on Investment (RoI) through net profit sharing scheme. He said returns are made in less than six months and range from 3-30 per cent.

More importantly, the resort to crowdfunding by Nigerian farmers, The Nation gathered, was aimed at cornering a large chunk of the overall market potential of the crowdfunding market in sub-Saharan Africa estimated at $2.5 billion by 2025, according to the World Bank.

As far as farmers, who have thrown their hats into the crowdfunding ring are concerned, Nigeria, Africa’s largest and most populous nation, is strategically positioned to exploit the opportunities offered by the bourgeoning crowdfunding market. For one, the country has abundant fertile soil.

Also, her agriculture industry is one of the main contributors to the economy, accounting for more than 13 per cent of Gross Domestic Product (GDP) and employing 65 per cent of the workforce. It also provides income for the majority of the nation’s households.

While these are not in doubt, promising indices for various operators and stakeholders in the agric sector, have shown that Nigerian farmers are more than four times poorer than the general population.

But an aggressive push to change the narrative via crowdfunding has taken the centre stage. Those behind this new and strategic push are not only encouraged by the favourable outlook as enunciated by the World Bank, but the need to give farmers a new lease of life in a lending environment that does seem to encourage conventional banks to look their way.

Other agri-tech platforms weigh in

EZ-Farming has recorded significant progress, growing from over 50 active investors, who have committed more than $330, 000 to support several farmers in Nigeria in the first two months of business. It has operations in Nigeria and Sierra Leone and will be launching operations in a host of other African countries soon.

However, it is not the only agri-tech platform in the crowdfunding or crowdfarming space focused on enabling users to access funds to invest, own, and manage farms. Farmcrowdy, another crowdfunding company, launched in Nigeria in 2016, currently boasts over 11, 000 small scale-farmers across Nigeria.

To-date, the platform has amassed an active sponsorship base totalling over 1,000. Its total investments from outside Nigeria is also in excess of £1,620,000, with a growing number of sponsors located in the United Kingdom (UK).

Its CEO and Co-founder, Onyeka Akumah, said Nigerians in the Diaspora have the option to not only send money home to their families for their up keep, but also build their personal investment portfolios through investing in one of the country’s largest sectors: agriculture.

Another agri-tech company, ThriveAgric,  connects small scale farmers with sponsors who invest in crop cycles. It uses a crowdfunding platform to provide farmers with the finance they need to grow their businesses and offer ordinary people the chance to invest in agriculture.

ThriveAgric works with smallholder farmers in Africa to give them access to finance, best practices, and linkages to big buyers upon harvest. It gives individual investors the opportunity to fund a farm, empower farmers, learn practical agricultural tips and share in the harvest.

The platform was founded in September 2016, and launched publicly early 2017. Since inception, it has worked with over 1, 000 farmers directly and 2, 800 farmers indirectly. ThriveAgric crowdfund investments for smallholder farmers and provide those inputs, tech-driven advisory and access to markets.

Farms are listed on the platform, complete with details of what it takes to fund a unit, such as an acre of rice or 100 chicks, the length of time until return, and the returns themselves. Subscribers can then fund these units by paying online and receive regular updates on what is happening on the farm, from planting to harvest.

They can receive their funded sum and any returns after harvest. The funds are used to purchase inputs, buy insurance, and market the produce. ThriveAgric raised funding from the Abuja-based Ventures Platform accelerator in 2017 and is now actively working on expanding to other markets.

It has a 40:40:20 profit-sharing model, with 40 per cent of profits going to farmers, 40 per cent to subscribers, and the start-up taking the remaining 20 per cent. However, its big challenge has been building out its farmer clusters and then getting trained extension service workers.

There is also Farmkart, another agric-tech platform, where people can invest in livestock farming to increase local food production, support farmers and get returns on their investment.

The goals of Farmkart is to make an impact on food security, support local farmers by creating capital and jobs, as well as promote youth inclusion in agriculture.

How crowdfarming operates

To invest in these online farms, users are required to sign up on the site and choose from short-term or long-term investment options. They can then use their virtual wallet to pay for these investments. Once the payment is complete, resources are given to the farmers, and the wait begins.

After the harvest is sold, investors get a share of the profits in addition to the money they invested. This share varies depending on the crops and risk conditions. But the platforms appeal to a variety of investors, Nigerians within and outside the country.

Stakeholders speak

Aje farms Chief Executive, Mr. Adegbami Samuel, said the role of agri-tech start-ups in creating crowdfunding platforms is crucial as they open viable options for access to finance to farmers.

He said because of digital platform penetration, especially in rural markets, rural-based farmers can stay clear of liquidity crisis. According to him, many farmers own land, which they are currently unable to use due to lack of investment.

According to Samuel, this is because financial institutions are reluctant to invest in the agricultural sector, as they judge the risks to be too high. But through digital platforms, farmers can access funds, which they could potentially invest in agriculture. The benefits generated are then shared among the farmers, crowdfarming digital platforms and investors.

To Nwoye, crowdfunding is an impactful way to serve the low-income market. According to him, each individual investor can choose how much he wishes to invest based on the available resources.

He said there is an additional social pressure to run the project effectively and this improves the chances of success because the owner of the project knows the investors involved are likely to keep tabs on its outcome. .

The challenges

However, as exciting and hugely rewarding as the emerging crowdfunding space appears, it is not without challenges. For instance, agri-tech platforms still face roadblocks in terms of market, weather and harvest uncertainties and other risks associated with farming.

Also, investors in a crowdfarming projects are generally passive, limited partners, while the land-owner is the active partner, making all the decisions, including what to grow, when to plant, and where to sell the harvest.

Niji Group Chief Executive, Kolawole Adeniji, said one challenge with the concept of “funded farm” implemented by digital enabled crowdfarming platform is the fact that investors do not have the opportunity to visit their funded farms and see things for themselves.

He said they only view their funded farms as a transaction entry on the page. This, according to him, implies that the investor is essentially in the dark throughout the tenure of the investment. Investors are not allowed to visit the project site to see the progress of their investments.

However, the greatest obstacle to the successful operation of sustainable and profitable farms remains inadequate access to finance. This, ultimately leads to cash-flow related problems, which are believed to be the prevailing reason for the failure of farms and other agro businesses.

Traditional financial institutions are generally reluctant to serve farms and farmers due to the high costs associated with the business. This lack of financing for farmers has exposed the gap in the nation’s lending and borrowing market, and has encouraged development in the sphere of social lending, also known as crowdfunding.

Experts, therefore, believe that crowdfarming or crowdfunding eliminates the need for traditional financial institutions in the context of farm financing, providing farmers with a convenient and flexible online funding platform, which offers low fees and charges, and advantageous terms and conditions.