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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 (NIRSAL) 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.
