Agriculture was the mainstay of Nigeria’s economy before the discovery of crude oil. From 1960 to 1969, the sector accounted for an average of 57 per cent of the Gross Domestic Product (GDP) and generated 64.5 per cent of export earnings. To sustain contributions of the agricultural sector to the GDP, the Central Bank of Nigeria (CBN) amended the Commercial Agriculture Credit Scheme (CACS) and encouraged more commercial banks to lend to farmers at a single digit interest rate but insisted that no loan under the scheme should exceed N2 billion, writes COLLINS NWEZE.
Agriculture was the mainstay of Nigeria’s economy before the discovery of crude oil. From 1960 to 1969, the sector accounted for an average of 57 per cent of the Gross Domestic Product (GDP) and generated 64.5 per cent of export earnings.
From 1970 to late 2000s, the sector’s contribution to the GDP and export earnings steadily declined because Nigeria’s focus shifted to petroleum exploration. Over the past five years, the sector has contributed an average of 23.5 per cent to GDP and generated 5.1 per cent of export earnings.
The recent fall in crude oil prices has triggered conversations around the role of agriculture in economic diversification. The agricultural sector requires massive investments to increase production and to create value addition across the most-profitable segments of the value chain.
Despite the challenges faced in the sector, there has been improved lending to the agriculture. For instance, before now, no lender would give depositors’ funds to a farmer. Such loans would be considered lost from the date of approval. But today, the lenders have begun to scramble for agric businesses, having seen the potential, and knowing how much a well-priced loan can add to their profitability, many lenders are keying into the agriculture financing scheme.
To make this happen, the Central Bank of Nigeria (CBN) has amended the Commercial Agriculture Credit Scheme (CACS) following which it pegged maximum loan intake for any project under the scheme at N2 billion.
It equally pegged the maximum interest rate to the borrower under the scheme at nine per cent, inclusive of all charges.
The apex bank also approved the participation of deposit money banks in the scheme, with the participating banks required to sponsor projects from any of the target areas in the guidelines, and bear all the credit risk of the loans they will be granting.
The CACS is being financed from the proceeds of the N200 billion, three-year bond raised by the Debt Management Office (DMO). The fund will be made available to participating bank(s), to finance commercial agricultural enterprises.
“The single obligor for any project from a participating bank under the Scheme shall be N2 billion while for state governments shall be N1 billion. However, for special schemes and programmes for agricultural development, state governments may be granted concessionary approval for more than N1 billion,” said the CBN.
The scheme is also expected to help fast-track development of the agricultural sector of through the credit facilities; enhance national food security by increasing food supply and effecting lower agricultural produce and product prices, thereby promoting low food inflation.
The CBN Governor Godwin Emefiele said agric financing is the way forward for the economy. He explained that part of its developmental role, the CBN has in collaboration with the Federal Government of Nigeria, represented by the Federal Ministry of Agriculture and Rural Development (FMARD) established the Commercial Agriculture Credit Scheme for promoting commercial agricultural enterprises in Nigeria, which is a sub–component of the Federal Government of Nigeria Commercial Agriculture Development Programme (CADP).
The fund, he added, will complement other special initiatives of the CBN in providing concessionary funding for agriculture such as the Agricultural Credit Guarantee Scheme (ACGS) which is mostly for small scale farmers, Interest Draw-back scheme, Agricultural Credit Support Scheme and other similar developmental initiatives.
Emefiele said there was no need to allocate scarce forex to rice importers when vast amounts of paddy rice of comparable quality produced by poor hardworking local farmers across the rice belts of Nigeria are wasted, and farmers are falling deeper into poverty while we export their jobs and income to rice producing countries abroad? Few decades ago, Nigeria was one of the world’s largest producers of palm oil but today we import nearly 600,000 Metric Tonnes while Indonesia and Malaysia combine to export over 90 per cent of global demand. Under these circumstances, I believe it is appropriate, and in fact, expected, that the CBN contributes to protecting the jobs and incomes of local farmers, using some of the same principles Western Economies use to justify the protection of their farmers through huge subsidies.
He said that agriculture remains the largest employer of labour in Nigeria and contributes about 24.2 per cent of our GDP. In addition, a good share of the demand for forex today go directly to importing agricultural produce. So, the CBN has both a direct and indirect rationale to ensure that this sector is revived in a significant way. In this regard, we are gratified that the CBN’s Anchor Borrowers’ Programme, together with other initiatives like the Commercial Agriculture Credit Scheme and NIRSAL, are proving to be successful in several states.
He explained that in Kebbi State alone, over 78,000 smallholder farmers are now cultivating about 100,000 hectares of rice farms. It is expected that over one million metric tonnes of rice will be produced in that State alone this year.
And this is the bedrock of the recently-launched Lake rice, which is an innovative partnership between the Governments of Lagos and Kebbi States. The CBN remains committed to do more in the identified crops such as rice, maize, sorghum, tomatoes, cassava, cocoa, cotton, dairy, and groundnut.
“We also need to find ways to make land titling much easier especially for smallholder farmers. In this regard, the Nigeria Incentive-based Risk Sharing System for Agricultural lending (NIRSAL) can assist with technical knowledge and deployment of relevant GIS and Satellite imaging that will realize this within a short period of time,” he said.
Emefiele said at a workshop on innovative agricultural insurance products, in Lagos that the agricultural sector provides up to 70 per cent of employment in Nigeria and accounts for about 42 per cent of the country’s Gross Domestic Product (GDP).
Emefiele said the large import food products include wheat, rice, flour, fish, tomato paste, textile and sugar.
“We are confronted, as a nation with a wide range of development challenges especially with the dwindling global crude oil prices and the nation’s dependence on it as its major source of revenue. There is the need to diversify the mono-cultural tendencies of the economy by developing other sectors of the economy especially agriculture,” he said.
He said that Nigeria’s formal financial system is lending about four per cent of all formal credit to the agricultural sector compared to three years ago when only about one per cent of all credit went to agriculture. He insisted that lending is still low given the lingering perception by banks that agriculture is highly risky.
Emefiele said development and expansion of the agricultural insurance sub-sector will go a long way in mitigating against natural disasters and eventually encouraging banks to lend to agriculture.
Bankers’ Committee
The CBN and deposit money banks, under the aegis of the Bankers’ Committee also restated its commitment to expanding bank lending in agro-business in order to discourage importation of goods can be produced locally.
The bankers also stated their resolve to explore large corporates as anchors to lend to participants across the value chain to improve the capacity of Nigeria’s agro-businesses so as to create sustainable jobs and inclusive growth.
The bankers also affirmed their commitment to financial deepening of the economy, improving financial access to key sectors of the economy, innovative solutions for the critical finance of generation, provide finance for small and medium enterprises, among others.
“We note that four basic commodities that are consumed by Nigerians – rice, wheat, fish and sugar jointly account for a significant amount of the country’s annual import bill. We are convinced that the nation has the capacity to produce these consumables in required amounts to meet our domestic consumption needs. With its attendant impact on Gross Domestic Product (GDP) and job creation, agriculture remains a critical focus sector of the financial system,” it added.
CBN’s roles
The CBN set the tone when it introduced Nigerian Incentive-Based Risk Sharing Agricultural Lending (NIRSAL) to the banks. By that single policy, banks can lend to agricultural sector and its value chains without fear of losing such funds. The NIRSAL is already being implemented by the banks and is expected to drive agricultural revolution in the country.
The CBN explained that NIRSAL, unlike previous schemes which encouraged banks to lend without clear strategy to the entire spectrum of the agricultural value chain, emphasises lending to the value chain and to all sizes of producers.
The Federal Government also plans to double agriculture’s share of banks’ credit to 10 per cent in two years. Also, the Federal Government has made a fundamental shift that agriculture is not a developmental activity, but a business. “The CBN has shifted the mind-set of the banks. It’s a new agriculture sector in which they can actually invest money and make money,” the bank said.
Agric potential
Already, banks and the CBN are discussing how to increase lending to the sector. For the apex bank, government needs to pay more attention to agriculture, which still has one of the greatest potentials in growing the economy.
The CBN said that one way of achieving this, is by collaborating with the banking system to fix the value-chain problems in the agricultural sector. She said economic development was about enhancing the productive capacity of an economy by using available resources to reduce risks, remove impediments, which otherwise could hinder investment.
NIRSAL performance
According to the CBN, NIRSAL is also expected to be a catalyst for innovative risk management strategies, long-term financing for agribusiness and significant job creation by new entrepreneurs.
“The mandate of NIRSAL is to act as the custodian of all credit guarantee schemes, interest draw back schemes, and commercialisation initiatives related to an integrated value chain approach to agriculture and agribusiness in Nigeria,” the CBN said. Under NIRSAL, there are five pillars to be addressed by an estimated $500 million that will be invested by the CBN, according to the programme document.
There is also a Risk-sharing Facility of $300 million, planned to address banks’ perception of high-risks in the sector by sharing losses on agricultural loans. There is equally an insurance Facility of $30 million intended to expand insurance products for agricultural lending from the current coverage to new products, such as weather index insurance, new variants of pest and disease insurance. Besides, there is also a Technical Assistance Facility amounting of $60 million meant to equip banks to lend sustainably to agriculture, producers to borrow and use loans more effectively and increase output of better quality agricultural products, among others.
The improvement in the sector was linked to access to credit through the new policy on increasing private sector participation, emphasis on the entire agriculture value chain, and using agriculture to boost employment, wealth creation and food security.
Analysts have commended the performance by the banks as a demonstrating of their belief in the ability of agriculture to transform the economy. The CBN said with the credit trend in the banks, Nigeria may be close to realising its economic diversification objectives that will lead to less dependence on oil.
Stakeholders speak
Chairman, the Tractor Owners & Hiring Facilities Association of Nigeria (TOHFAN), Alhaji Danladi Garba,
said Nigeria could produce food, noting that agric business is profitable. He said that gone were the days when borrowers beg banks to lend to the agric sector. Today, the tides have turned. The buzz for agric financing is on, and no lender wants to be left behind.
Also some banks are also supporting agriculture. For instance, Sterling Bank Plc has financed the purchase of tractors for members of the TOHFAN. The bank noted that its involvement in the agricultural sector was based on the need to reposition the sector as the main stay of the economy given the dwindling oil revenue.
The bank’s Managing Director, Yemi Adeola, said it finances the purchase/acquisition of tractors from reputable manufacturers such as Massey Ferguson, Mahindra, New Holland, John Deere and Tak Tractors, who will also provide basic training on utilisation and offer after-sales maintenance services.
The tractors which have been distributed to members of the association following the first disbursement would help in the adoption of mechanised agriculture, leading to additional hectare coverage, higher yields and enhance food security in the country.
“Sterling Bank Plc has continually restated its commitment to the strategic growth of the agricultural sector by providing adequate funding in alignment with the ongoing reforms in the sector aimed at repositioning it as an attractive business proposition, an input provider for the manufacturing sector and a key foreign exchange earner.
“The best bank in Agric Award was conferred on the Bank in recognition of its critical role in the dispensing of financial services to actors in the Nigerian agricultural value chain. This we have demonstrated again with the financing of the tractors which will add value to the sector,” he said.
Also, First City Monument Bank said it will continue to intensify its support to the agricultural sector and its value chain including lending more to the subsector in the interest of the economy.
“We note that four basic commodities that are consumed by Nigerians – rice, wheat, fish and sugar jointly account for a significant amount of the country’s annual import bill. We are convinced that the nation has the capacity to produce these consumables in required amounts to meet our domestic consumption needs. With its attendant impact on GDP and job creation, agriculture remains a critical focus sector of the financial system,” it said.
The bank said the lender is focused on being a strategic partner to the government and other stakeholders in the agric sector to ensure food sufficiency, employment and revenue generation.
