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Home Editorial

Boosting the development of agriculture

17th August 2019
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A sweet breeze across the land
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The administration of President Muhammadu Buhari has never hidden its desire to diversify the economy through agriculture. Consequently, the Central Bank of Nigeria (CBN) has boosted the development of agriculture sector with various financial interventions. But despite these efforts, available data has shown that commercial banks’ lending to the agric sector has fallen short of CBN’s lending target of seven per cent.

The implication is that the government’s effort to break the overdependence on oil revenue and diversify the economy through agriculture and solid minerals development may not be realised as planned. The CBN had in 2011 unveiled a 10-year target of 7 per cent credit allocation to agricultural sector. To achieve this target, the apex bank introduced some measures which included the establishment of the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and intervention funds like the Commercial Agricultural Credit Scheme (CACS) and the Anchor Borrowers Programme (ABP).

However, data from the National Bureau of Statistics (NBS) on banking sector credit to the various sectors of the economy from the first quarter of 2015 (Q1’2015) to first quarter of 2019 (Q1’2019), revealed a sluggish growth rate of 5 per cent per annum in the agric sector’s share of total banks’ credit during the period. This is against the projected 40 per cent annual growth rate required to meet the CBN’s target for 2021. In real terms, the N638.5bn credit allocation to agric sector as at Q1’2019 was N461.5bn below the target of N1.1trn, or 7.0 per cent of the N15.2trn total bank credit during the period.

This implies that banks should increase their lending to agric sector by about N1.2trn in the next two years in order to meet the CBN’s target.

While this seems a tall order, it is not impossible. But it can only be achieved if the CBN and the Federal Government collaborate with the banks to bridge the credit lending gap to the sector. However, the CBN should provide the necessary incentives to commercial banks to grant affordable, long-term bank credit at low interest rate to small holding farmers. A low interest rate will undoubtedly boost farming. Under the CBN’s Anchor Borrowers Programme, farmers are given loans at an interest rate of 9 per cent. Nevertheless, we believe that a lower interest rate of not more than 5 per cent will be ideal for the sector.

Therefore, the government should strengthen its agricultural policy in such a way that it will enhance lending to the farmers. Government should enable farmers and others in the sector meet the Minimum Risk Acceptance Criteria (RACs) to access available loans. In its effort to diversify the economy through agriculture, government must ensure that all stakeholders are carried along. It is unfortunate that the agric sector has not contributed as much as it should to the nation’s Gross Domestic Product (GDP) largely due to insufficient support and other impediments. This is why we welcome the recent ban on the importation of some agric products that can be produced locally.  Good enough, the apex bank has been doing much to boost the development of the sector and make it the mainstay of the economy. That notwithstanding, there is need for radical fiscal policy measures, including import substitution policies, that will make the sector attractive to the banks.

Although intervention funds in the agricultural sector has not been as efficient as it ought to be because of high rate of default, access to capital to farmers at single-digit interest rate is a necessary step towards achieving this lofty objective. Therefore, we urge the banks to find a way to provide interest at reasonable rate to those in the sector. Current efforts to attract private investment to the agric sector should be pursued, and government should pay its counterpart funding to the sector. To achieve government’s objective of self-sufficiency in food production and boost exports, commercial banks should review their lending policy to the sector.

Rapheal

Rapheal

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