Breaking the Jinx on Agric Financing

The collaboration between the Central Bank of Nigeria and the Bankers Committee to de-risk agriculture in the country is gathering momentum with the renewed enthusiasm of banks for agric financing, writes Festus Akanbi As campaign for economic diversification gathers momentum, there are indications that the nation’s money deposit banks are increasingly showing interest in agricultural sector.

And in order to break away from the past when enthusiasm for investment in agriculture was trending downwards, a conscious effort is being made by banks to commit their resources into agriculture sector.

This was underscored by the collaboration between the bankers’ committee and the CBN in the establishment of the Nigerian Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), which seeks to de-risk agriculture in Nigeria by ensuring that those in the business have access to loans on a concessionary basis.
When President Goodluck Jonathan was elected four years ago, he pledged reforms that would transform the lives  the Nigerians farmers. Oil remains the main source of foreign currency and state revenues, but agriculture is by far the biggest contributor to GDP, making up 40 percent of  the nation’s economy.

With 170 million mouths to feed and a growing food import bill thanks to the disarray in the farming sector, agriculture ministry officials say there’s no time to lose
Analysts said it productivity does not improve could face a food crisis within a decade, its current account surplus would be wiped out and its credit worthiness would be under threat.

CBN-Bankers, Committee Partner
According to the CBN records, credit to the agricultural sector almost doubled in 2012 compared to the previous year as central bank and the bankers’ committee established risk sharing mechanisms to reduce the risks banks face when lending to farmers.
In the period preceding 2012, banks had shied away from investment in agricultural sector owing to a number of risks and long gestation period required for investment in agriculture.

However, the apex bank disclosed that the banking industry in 2012 built incentives across the agric value chain which resulted in more banks’ lending to farmers as more agric businesses sought loans from banks.

Data released by the central bank said credit to the agric sector as a share of volume to the private sector rose to 3.7 percent from two percent it hovered in the past five year period leading to 2011.

However, analysts have commended the performance by Nigerian banks as demonstrating their fate in the capacity of agriculture to transform the economy. That takes cognizance of the fact that the paltry agric credit pre-2012, was despite the economic importance of the sector and its historic contribution of over 40 percent of the nation’s gross domestic product (GDP).

For many years, crude oil remained a has stood as major export earner for Nigeria even though it hasn’t been effective in creating employment opportunities for the nation’s over 170 million people with a ballooning youth population.
Analysts said with the credit trend emanating from the banks, Nigeria might be close to winning its economic diversification objectives and look real to cut dependence on oil.

The renewed interest of banks in the agricultural sector was justified by the Minister of Agriculture, Mr. Akinwumi Adesina at the World Economic Forum on Africa, in Cape Town recently.
Adesina said Nigeria is positioning itself to become a key player in global food production, reflecting on the increased tempo in agric credit and the strength of a crop of farmers ready to jumpstart production.

``We have 84 million hectares of land of which no more than 60 percent of it is cultivated. In terms of optimal cultivation, no more than 10 percent of it is in high quality seed, fertilisers, mechanisation and good irrigation. But we see beyond the gloomy picture given our collective efforts. The federal government hopes that through ongoing Agricultural Transformation Agenda and stakeholder support, it can create 3.5 million  jobs and add 20 million tonnes to domestic food supply by 2015,’’  Adesina said.
Leading the campaign for a robust agric financing, Governor of CBN, Mallam Sanusi Lamido Sanusi said recently in Lagos that for Nigeria to diversify its economy and achieve sustainable development, agriculture has to be given a pride of place as largest employer of labour.

According to Sanusi, funding is important for the agric sector but for that to be effective the sector needs to be stripped off inherent risks that impair bank lending.
To show its commitment, the CBN floated a N200 billion agriculture credit scheme. The apex bank also launched the N600 billion NIRSAL funding programme meant to guarantee up to 75 percent of bank loans to various businesses in the agric value chain.

  It was gathered that the regulator plans to spend an estimated $500 million to create further incentives for the banks to sustain the flow of agric credit. Industry watchers said the manner NIRSAL was structured made it a winning formula from inception.
The initiative, which is brainchild of the CBN, the Bankers Committee and the Federal Ministry of Agriculture & Rural Development (FMARD), seeks to create incentives and catalyse processes to encourage the growth of formal credit, direct and indirect, for the agriculture value chain, as a mechanism for driving wealth creation among value chain participants.

According to the central bank, 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.

NIRSAL Mandate
``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,’’ according to the central bank.

Under NIRSAL, there are five pillars to be addressed by an estimated $500 million that will be invested by the CBN, as the programme document indicated.

There is 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.  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.

Drawing from the mouthwatering statistics reeled out earlier, stakeholders in the agriculture and finance sectors believe  NIRSAL has worked or is working and is one single programme that has brought banks back to their role of intermediation for national economic development. Some other fallouts of the programme further testifies the contribution of the banks.

The Bankers Committee also disclosed that between July and  November last year, banks issued over N6 billion in credit guarantees to farmers with the following broad parameters: Average loan guaranteed amounting to N397 million, with a range of N4 million to N1.5 billion and average duration of loans at 285 days. It was anticipated that under NIRSAL, collaboration between banks and counterparties will push loans under guarantee in excess of N20 billion by end of the first quarter of this year. The facts on ground indicate the target might have been exceeded.

Private Investments in Agric
Notable investments by the private sector recently include PZ Cusson’s US$56m palm oil refinery joint venture with Wilmar International, Transcorp’s investment in a fruit concentrate plant and the Dangote Group’s planned US$1.9bn greenfield fertiliser plant. The list keeps expanding.

Recently, the World Bank announced that it would commit $1 billion to support agriculture in Nigeria, while the Bank of Agriculture has also stated that it will fund the sector to the tune of N25 billion over the next two years.
Although Nigeria’s reform agenda for the agric sector still have significant milestones to cross, there is no denying the fact that remarkable progress has been made by banks in that direction.