Agriculture represents one of the most important opportunities for Nigeria to enhance non-oil revenues while simultaneously delivering inclusive socio-economic growth and addressing its current trade deficit. At every level of the value chain, opportunities exist for transformational investment. From integration of millions of farmers who survive on a subsistence level to filling the infrastructure and processing gaps that lead to significant post-harvest losses, there are opportunities to meet the needs of small localised communities, and enhance the livelihoods of the single largest segment of Nigeria’s working population.
At the bottom of the pyramid, one of the most critical challenges that small-scale and subsistence farmers face is access to information, and financial services. These are two pivotal building blocks that enable small-scale farmers to obtain the best prices for their products, and optimise productivity. This ensures that they can access inputs – seeds and fertiliser to increase both the quantity and quality of their yields; market pricing information to optimise the value they receive; and risk products that allow for more aggressive decision-making about levels of investment. In each of these cases, the underlying infrastructure required is the capability to distribute financial products, or simple information.
As outlined within the Economic Recovery Growth Plan (ERGP) for 2017 to 2020 the government has resolved to improve access to finance by strengthening the CBN’s schemes and recapitalising the Bank of Agriculture to provide credit to small farmers at minimal rates, through a network of micro-credit banks. These goals can only be achieved through a vibrant and dynamic financial services system with no limits to reach and adaptability, providing services at minimal costs to both providers and beneficiaries.
Unfortunately, Nigerian banks are increasingly unwilling to invest in physical branch infrastructure, and are actively looking for opportunities to increase their networks at lower costs to the business. This implies that communities that are underserved will continue to be excluded from the formal financial system unless new models for access are introduced, which this group of customers is incentivised to utilise.
A successful digital financial system provides access to credit, insurance and savings and eliminates the physical barriers to meeting the needs of people in distant rural communities in Nigeria. This also ensures an inclusive digital economy which will enable wider sustainable economic growth and development for Nigeria, delivering an estimated 12% boost to GDP by 2025, while reducing leakages by up to $2bn annually in the short term. Globally, there is irrefutable evidence of the ripple impact of a financially inclusive system on multiple sectors of the economy, especially agriculture. For example, in Kenya, farmers who obtain credit, using their crops as collateral, can access funds to purchase inputs at lower costs and sell produce at higher prices, thereby increasing farm profits.
There are three critical and interrelated factors that contribute to a successful digital financial system– partnerships, favourable regulation, and innovation.
Partnerships for financial inclusion are critical to creating a favourable regulatory environment and facilitating innovation. Farm Crowdy, an agric-tech company that focuses on connecting farms with interested sponsors, seeks to increase national food production and encourage youth participation in agriculture by sourcing capital from regular Nigerians, who are allowed to choose the kinds of farms they want to sponsor. Farm crowdy oversees the farming process from financing to harvest, while providing the sponsors with regular updates on farm progress and ensuring sponsors are paid interest for investments. On the other hand, AFEX Holdings – a multi-stakeholder partnership – focuses on improving Africa’s food and energy security through commodity exchanges, warehouse storage and engagement with governments to expand the agricultural sector. In 2013, working with the Nigerian Grain Reserve Agency and the Ministry of Agriculture, the group launched an electronic warehouse receipt system to link farmers and traders, as part of the back-end processes for establishing a commodities exchange.
The model employed by BabbanGona has successfully established a market aggregation mechanism that enables thousands of small-scale farmers, engaged in maize cultivation, to access inputs on credit at favourable terms. BabbanGona takes the intermediary risk, enabling the banks to provide financing without the need to fully grasp the creditworthiness of the farmer. Similarly, AACE Food Processing & Distribution Ltd. partners with microfinance providers to ensure that its farmer clusters have access to financing at the beginning of the planting season. This enables them to focus on cultivation, while AACE bears the financing risk, which is ultimately paid off in produce to the company.
While promising, these models are only scratching the surface of what must be achieved at scale to truly address the financing and information gaps that exist in communities in Nigeria. Clearly, we need many forms of the Farm Crowdy, AFEX, BabbanGona and AACE Foods models in every value chain and across the country. These models can only be unlocked through innovative cross-sector partnerships between off-takers, financing institutions and clusters of small farmers.
An enabling regulatory environment will allow the innovation required for bespoke financial products and services that support increased agricultural productivity. For example, a micro-credit scheme that combines an information-sharing solution tailored to farmers’ crops and farming seasons can potentially reduce the impact of price fluctuations on farmers’ livelihoods. Yet, to achieve such objectives at scale would require intentional, but flexible regulation.
Today, the provision of financial services is restricted to financial institutions strictly defined by the Central Bank of Nigeria. Disruptive financial technologies are increasingly pervasive, but they are emerging in spite of the regulatory environment, not because of it. An enabling environment that encourages investment in new and emerging technologies and partnerships, while ensuring a strong regulatory framework, could revolutionise this space, improving the outputs of thousands of smallholder farmers and enhancing their livelihoods.
Agriculture is the bedrock of the government’s economic diversification agenda. The increasing attention on financial inclusion and the efforts at developing a digitally financially inclusive economy, by both local and international players, must be intentional about designing interventions focused on agriculture. We must invest in innovations, partnerships, policy and processes that enable access to the funding and financial services required to boost productivity and ensure Nigeria’s food security, while enhancing the quality of life of our farmers and their children.
Ndidi Okonkwo Nwuneli
Ndidi Nwuneli is the co-Founder of AACE Food Processing & Distribution
