BusinessDay 31 Oct 2017

Tuesday 31 October 2017
32 BUSINESS DAY
C002D5556
FEATURE
De-risking agro finance to increase lending to farmers
Nigerian smallholder farmers are lagging behind owing to their inability to access finance at lower interest rate. In this piece,
JOSEPHINE OKOJIE and STEPHEN ONYEKWELU, examines how de-risking agro finance will enable banks lend more to farmers
Nigeria’s expectations
from its agricultural
sector may
never crystallise if
banks remains unwilling
to lend to the sector.
Agriculture has long been
known to hold a great promise
and has historically been Nigeria’s
major source of revenue and
foreign exchange earner.
In the 60’s and 70’s Nigeria
attained extraordinary heights
from its agricultural production
which was not only limited to
the extinct groundnut pyramids,
cocoa house in Ibadan and a host
of other social and infrastructural
development supported
by revenue generated through
the sector.
Then it all happened that oil
was discovered in commercial
quantity and the agricultural
revenue ended and Nigeria abandoned
the sector.
But since the 2014 collapse
of global oil crude prices at the
international market, there has
been renewed focus on the agricultural
sector as the country
attempts to diversify its economy
away from oil.
The shift was necessitated by
the growing statistics of youth
unemployment and the vast agricultural
potentials that can drive
a more sustainable economic
development in Africa’s most
populous nation.
With the current economic
downturn the country is grappling
with, there is consensus
across board that there is no
better time to leverage the potentials
of the agricultural sector
than now, not just to pull out of
recession, but also to diversify
the economy and place it on the
path of sustainable growth and
development.
One of the factors that have
continued to impede the sector
is finance. Lack of access to
adequate financing by farmers
and other actors in the sector has
remained a major impediment
that prevents investments in
basic farm inputs needed to raise
productivity and sustain growth
of the non-oil sector.
As a result, yields have failed
to increase significantly, leading
to pervasive hunger and poverty.
Similarly, agro entrepreneurs
seeking to build businesses that
could boost food production,
agricultural productivity has
continued to remain at a subsistence
level in the country.
“Funding is the biggest problem
we have in Nigeria’s agriculture,”
Heineken Lokpobiri,
Minister of State for Agriculture
and Rural Development said at
a recent breakfast meeting with
banks CEO’s in Lagos.
“We need finance to put all the
factors of production together
to drive growth in the sector. We
know that banks are still finding
it difficult to fund agriculture but
until we have the money to fund
agriculture at the production,
processing and marketing level,
we would not achieve anything
from the sector,” Lokpobiri said.
Nigeria’s agricultural fundamentals
are robust and include
an estimated 84 million hectares
of arable land out of which only
40 percent is cultivated and only
0 percent of the 40 percent is
cultivated optimally.
Two of Africa’s largest rivers
(Niger and Benue) flow through
and within the borders of the
country. There is adequate annual
rainfall, large young workforce
and over 180 million consumers
that offer a domestic market to
support increase food production
and processing.
It is only the finance to unlock
all this potentials that is lacking.
Experts say the glorious days
of Nigeria’s agriculture could be
revived when banks starts lending
more to the sector.
To ensure that farmers across
the country have access to adequate
finance and also ensure
that money deposit banks lend
more to the sector, even as the
country realize its agricultural
potentials, the Nigerian Incentive
Based Risk Sharing System
for Agricultural Lending (NIR-
SAL) is offering a 75 percent
guarantee on all loans to the
sector by banks.
This will help banks hedge
against risks associated with the
sector.
“NIRSAL will give 75 percent
of the guarantee that banks need
to finance agriculture,” said Aliyu
Abdulhameed, managing director,
NIRSAL.
“Nigeria lacks the finance,
technology, mechanization and
human capital to drive agriculture,”
the managing director said.
NIRSAL also urged banks to
adopt science, technology and
aggregation to also hedge against
risks in financing the sector.
The managing director stated
that banks can use technology
such as drones and big data to
monitor farmers and other projects
in the agricultural industry,
stating that finance the sector is
still a misery to some bank CEO’s.
He said that the country needs
to globalize financing and investment
for agriculture through a
risk free model.
Despite efforts targeted at increasing
funding to the Nigeria’s
agriculture sector, the role of
commercial banks in financing
the sector still remains minimal
owing to the risky nature of the
sector, low financial literacy
among smallholder farmers and
difficulty in determining their
creditworthiness.
Successive governments and
the Central Bank of Nigeria have
introduced various financing
initiatives to encourage banks
to finance agric at lower interest
rates.
Some of such initiatives are
NIRSAL, Commercial Agricultural
Credit Scheme (CACS), Anchor
Borrower Program amongst
others.
But the government does not
have enough resources to lend to
all actors across the value chain,
so the need to encourage banks
to increase lending to the sector
can never be overemphasized.
The private sector needs to be
at the forefront while the government
support with the provision
of infrastructures needed for
production and productivity.
According to the National
Bureau of Statistics (NBS) banks
credit to the agricultural sector
rose to N50 billion in q2 2017
from N48 billion in q2 2016.
“The banks should work with
NIRSAL and design financial
products for the different value
chains; identify other ways of
securing the loans where title to
land is not available, reducing
interest rates and other charges
and providing long term financing,”
Lokpobiri who was earlier
quoted said.
“There are number of ways the
government can create incentives
for the private sector. For
instance, a bank that funds the
construction of a feeder road
linking a farm community to the
market would get tax breaks,” he
added.
Pascal Dozie, representing the
banks CEO’s during the breakfast
meeting on how to de-risk
the sector said that the country
needs to glamorise agriculture
so that it can become a viable
business and attract the youths.
We are trying to start a movement
of glamorising agriculture
in Nigeria so that it becomes a
business and youths will start
seeing it as a career. We are yet to
realise our potential in the sector
because we are yet to scale it up
owing to the fact that everybody
is working alone,” Dozie said.
Iyalode Alaba Lawson, national
president, NACCIMA said
that it is very imperative for the
country to ensure that the sector
attracts investments. “It has
resulted in a deep need not only
to exit the current economic
quandary but to prevent a relapse,”
she said.
“To bring about sustained
growth in food production, job
generation and economic growth
and development, agriculture
must attract finance and investments,”
Lawson added.