By Jennifer Daniel
Before the coming on board of the present leadership of the Central Bank of Nigeria (CBN) headed by Mr. Godwin Emefiele, banks hardly lend to farmers, particularly, small holder farmers. In fact lending to the Agricultural sector at the time was like throwing the money away because it was perceived as a high risk area. As a result, lending to the agric sector was a paltry 1.4 per cent of the country’s total lending. This is far below the lending ratios that apply in other high performing developing countries such as Brazil, Mali and Burkina Faso that lend over 10 per cent to agriculture as a percentage of their total loans.
Over the years, successive Nigerian governments have developed policies and programmes aimed at making financing available to the agriculture sector. Unfortunately, these policies and programmes failed to have the desired impact because they did not take into cognizance the full scope of the Agricultural value chain. They failed to see as one whole linked process the agricultural challenges which range from underfunded research and development and financial risks for farmers who do not understand talk less of adopting best practices.
Reports show that agriculture is by far the largest sector of the Nigerian economy with the potential to become the main driver for more equitable income growth. According to a UN Report, the sector has enormous potential – with an opportunity to grow output by 160 per cent, from $99 billion to $256 billion by 2030. However limited access to finance has prevented the sector from unleashing this potential.
Emefiele, justifying CBN’s interest in agricultural financing said it was in line with the vision of President Muhammadu Buhari to guarantee food security. According to him, “The CBN has created several lending programmes including the Anchor Borrowers Programme (ABP) and provided hundreds of billions of naira to smallholder farmers and industrial processors in several key agricultural produce.” These policies according to the CBN governor, are aimed at positioning Nigeria to become a self-sufficient food producer, creating millions of jobs and supplying key markets across the country. “So the CBN has both a direct and indirect rationale to ensure that this sector is revived in a significant way,” the CBN governor said. “In this regard, we are gratified that the CBN Anchor Borrowers Programme (ABP), together with other initiatives like Nigerian Incentive-Based Risk Sharing for Agricultural Lending (NIRSAL) are proving to be successful in many states.”
Just recently, the Managing Director of NIRSAL, Aliyu Abdulhameed revealed that as at the end of 2020, NIRSAL had facilitated over N148 billion in finance and investments for agriculture and agribusiness, a pointer to the volume of funds now going into the agric sector. This speaks to the vision and foresight of the leadership of the CBN which reactivated NIRSAL. Though established in 2011 based on learnings from the gaps that were noticed while implementing earlier credit guarantee programmes, NIRSAL had remained largely dormant.
NIRSAL was designed to encourage the growth of bank lending to the agricultural sector by providing risk mitigation, financing, trading and strategic incentives and technical assistance to Agribusiness with a start-up capital of N75 billion provided by the Central Bank of Nigeria in partnership with the Alliance for a Green Revolution in Africa (AGRA).
The agency is structured to reduce significantly the risk of banks’ lending to the Agricultural sector through its risk sharing vehicle. It guarantees up to 75 percent of agriculture bank loans. It pays about 50 percent of losses incurred to large farmers and roughly 75 percent to small and medium scale farmers.
These were just what were needed to ensure seamless flow of funds to the agric sector, an opportunity the CBN saw and latched on to. The NIRSAL boss, Abdulhameed while giving a scorecard recently, said NIRSAL had also aggregated over 3,000 Agro Geo-Cooperatives with 500,000 farmers on nearly 800,000 hectares of land. According to him, “We are taking these strides towards the short term target of eight million smallholder farmers on four million hectares of land.” He revealed that over 1.4 million persons have utilised NIRSAL’s innovative index-based insurance products which protect farmers from risks posed by nature. “Our efforts so far have been more about gainfully engaging the majority of smallholder farmers who are predominantly in rural areas, boosting and optimising production, as well as building a reliable supply chain for Nigeria’s industries,” he said.
A cursory look at the NIRSAL’s five year performance show that over 26 financial institutions are using the NIRSAL Credit Risk Guarantee (CRG) instrument to minimise possible losses in financing agribusinesses.
Prompted by the CBN through the Bankers’ Committee, commercial banks have pledged to provide an additional N160 billion to fund agriculture, provided the NIRSAL guarantee and its structured approaches are in place.
The agency has also trained over 2,600 staff of financial institutions and engaged with 17 Bank Management Credit Committees for capacity building, joint product development, and bottom-up and top-down engagements for financing commitments.
The rate of bank lending to agriculture has risen from 1.4 per cent at inception to 4.49 per cent as at December 2020. National President, All Farmers Association of Nigeria, Arc Kabir Ibrahim who commended CBN for its bold initiatives in the agric sector, said there has been a remarkable improvement in flow of lending to agriculture over what was obtainable in the past.
According to him, “CBN has through NIRSAL drawn some reasonable funding to agriculture. You know before now, commercial banks will not lend to farmers because of the perceived high risk, but that perception is changing now with the intervention of NIRSAL.”
He however believes that NIRSAL will do better if some observed bottlenecks bordering alleged sharp practices by some of its staff could be addressed.
The Anchor Borrowers Programme which the CBN is facilitating through NIRSAL has so far, according to CBN, financed over 3.1 million farmers to the tune of over N492 billion for the cultivation of 3,801,397 hectares across 21 commodities. This was done through 23 Participating Financial Institutions in the 36 states of the federation and the Federal Capital Territory (FCT), from the inception of the programme till date. NIRSAL has introduced Agro Geo-Cooperative concept for structuring of farmers with proper governance structures and aggregating their farmlands into contiguous stretches of 250 hectares each.
So far, 2,743 Agro geo-cooperatives have been formed by NIRSAL covering 600,000 hectares and over 408,000+ farmers which are being presented to the Central Bank of Nigeria and other financiers for funding of primary production (farming) activities.
Over 700,000 farmers have been trained by NIRSAL on good agronomic practices (GAP) and financial literacy.
The CBN through NIRSAL has moved the Nigerian agriculture sector from indemnity-based to Index-based Insurance as a major sector risk management strategy.
Within two years of intervening in agricultural insurance, from 2017 to 2019, the number of smallholder farmer subscriptions to agricultural insurance rose exponentially to 1.8 million with the NIRSAL Area Yield Index Insurance (AYII) accounting for 70 per cent of total subscriptions. This it said is attributable to the influx of the private sector with up to nine private insurance companies adopting NIRSAL’s innovative index-based agricultural insurance products whereas, agricultural insurance was previously handled mainly by NAIC only given the dearth of viable and innovative products.
Sixteen innovative agribusiness models have been developed for optimised value chain operations on various agricultural commodities and are being demonstrated by NIRSAL and adopted by the private sector and other actors.
Daniel is an agricultural Economist based in Kaduna