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The amendment of the Commercial Agriculture Credit Scheme (CACS) and the pegging of the maximum loan intake for any project under the scheme at N2 billion are some of reforms being introduced by the Central Bank of Nigeria (CBN) to stimulate activities in the agricultural sector. More commercial banks are also being encouraged by the apex bank to lend to farmers at single digit interest rate. COLLINS NWEZE writes on the renewed drive by the financial institutions and its implication on the economy.
IN times past, any credit facility granted to a farmer was considered lost from the date of approval. Ten years ago, no lender would give depositors’ funds to farmers as loans. But, things are changing. Today, the lenders scramble for agribusinesses, having seen the potential, and knowing how much a well-priced loan can add to their profitability. Many lenders are buying into the agriculture financing scheme.
To make this happen, the Central Bank of Nigeria (CBN) has amended the Commercial Agriculture Credit Scheme (CACS). The apex bank has pegged the maximum loan intake for any project under the scheme at N2 billion. It has equally pegged the maximum interest rate to the borrower under the scheme at not more than nine per cent, inclusive of all charges.
Besides, the apex bank has approved the participation of all Deposit Money Banks (DMBs) under the scheme. The banks have a mandate to sponsor projects from any of the target areas indicated in the guidelines and bear all the credit risk of the loans they grant.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 given to the participating bank to finance commercial enterprises agriculture.
“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”, the CBN said.
The scheme is expected to help fast-track growth in the agricultural sector of the economy by providing credit facilities to farmers at a single digit interest rate; enhance national food security by increasing food supply; and effecting lower agricultural produce and product prices, thereby promoting low food inflation.
CBN Governor Godwin Emefiele, said that agric financing is the way forward for the economy. He explained that the CBN has, as part of its developmental role and in collaboration with the Federal Government of Nigeria, represented by the Federal Ministry of Agriculture and Rural Development established the CACS for promoting local commercial agricultural enterprises, which is a sub–component of the Federal Government’ Commercial Agriculture Development Programme (CADP).
The fund, Emefiele 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 (IDS), Agricultural Credit Support Scheme (ACSS) and other similar developmental initiatives.
The CBN chief said: “It makes no sense to allocate scarce forex to rice importers when vast amounts of paddy rice of comparable quality locally produced by hardworking farmers across the rice belts of Nigeria are wasted, and the 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.”
“Agriculture remains the largest employer of labour in Nigeria and it contributes about 24.2 per cent of our GDP (Gross Domestic Product). 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 CACS and NIRSAL, are proving to be successful in several states.”
He explained that in Kebbi State alone, over 78,000 smallholder farmers cultivate about 100,000 hectares of rice farms. It is expected that over one million metric tonnes of rice would be produced in that state alone this year.
Emefiele said: “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 tilling 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 realise this within a short period of time.”
Speaking in Lagos at a workshop on innovative agricultural insurance products, he said 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 GDP.
Emefiele said the large import of food products, include: wheat, rice, flour, fish, tomato paste, textile and sugar.
He said: “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.”
Nigeria’s formal financial system according to Emefiele, was 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 remained low given the lingering perception by banks that agriculture is highly risky. Emefiele said the development and expansion of the agricultural insurance sub-sector would go a long way in mitigating against natural disasters and eventually encouraging banks to lend to agriculture.
The CBN and DMBs, 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 that can be produced locally.
The bankers stated their resolve to explore large corporate bodies as anchors to lend to participants across the value chain to improve Nigeria’s agro-businesses capacity 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.
The committee said: “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.”
Apex bank’s roles
The CBN set the tone with its introduction of NIRSAL to the banks. By that single policy, commercial banks can lend to the agricultural sector and its value chains without fear of losing such funds.
The NIRSAL, expected to drive agricultural revolution in the country, is already being implemented by the banks. 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 plans to double agriculture’s share of banks’ credit to 10 per cent in two years. It has made a fundamental shift that agriculture is not a developmental activity, but a business.
“The CBN has changed the banks’ mindset. It’s a new agriculture sector in which they can actually invest money and make money”, the bank said.
The agric potential
Already, banks and the CBN are discussing how to increase lending to the sector. To the apex bank, the government needed to pay more attention to agriculture, which still has one of the greatest potentials to grow 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.
It said the 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.
According to the CBN, NIRSAL will be the catalyst for innovative risk management strategies, long-term financing for agribusiness and significant job creation by new entrepreneurs.
It said: “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.”
Under NIRSAL, there are five pillars to be addressed by an estimated $500 million investment 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.
It also has 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 has been linked to access to credit through the new policy on increasing Private Sector Participation (PSP) with 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 that 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.
Chairman, the Tractor Owners & Hiring Facilities Association of Nigeria (TOHFAN), Danladi Garba, said Nigeria could produce food, noting the profitability of agribusiness. He said the era when borrowers beg banks for loans to the agricultural sector was gone for good. “Today, the tides have turned. The buzz for agric financing is on, and no lender wants to be left behind”, he said.
Some banks have also bought into agriculture. For instance, Sterling Bank Plc has financed the purchase of tractors by TOHFAN members. 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 promote mechanised agriculture, leading to additional hectare coverage, higher yields and enhance food security in the country.
Adeola said: “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 agricultural value chain. This we have demonstrated again with the financing of the tractors which will add value to the sector.”
First City Monument Bank has also renewed its pledge to intensify support to the agricultural sector and its value chain, including lending more to the subsector in the interest of the economy.
It said: “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.”
The bank said it remained is focused on being a strategic partner to the government and other stakeholders in the agricultural sector to ensure food sufficiency, employment and revenue generation.