Soon, Everyone Will Be A Farmer

Banks with eyes on the future know where to put their money. Many of them have identified the agric sector and its value-chain as a key area to play in this period of deposit drought and reduced profitability.

Already, farmers are seeking more credit to expand to meet the increasing needs of local consumers.

For the  Chairman, Tractor Owners & Hiring Facilities Association of Nigeria (TOHFAN), Alhaji Danladi Garba, now is the time for banks to grant more credit to farmers and see the impact of improved food production not only on employment market but on the economy.

At a media forum on agriculture financing in Lagos, tagged: “Agric Business: Diversifying the Nigerian Economy,” the farmer said Nigeria could produce food, noting that agric business is profitable.

He is probably right. Gone are the days when borrowers beg banks to lend to the agric sector. Today, the tides have turned. The buzz for agric financing is on, and no lender wants to be left behind.

Ten years back, no lender would give depositors’ funds to a farmer. Such loans would be considered lost from the date of approval. But today, the lenders have begun to scramble for agric businesses, having seen the potential, and knowing how much a well-priced loan can add to their profitability, many lenders are keying into the agriculture financing scheme.

Sterling Bank Plc has financed the purchase of tractors for members of the TOHFAN. 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 help in the adoption of mechanized agriculture, leading to additional hectare coverage, higher yields and enhance food security in the country.

“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 Nigerian agricultural value chain. This we have demonstrated again with the financing of the tractors which will add value to the sector,” he said.

Also, Group Managing Director/Chief Executive of First City Monument Bank (FCMB) Limited, Ladi Balogun, assured that the bank will intensify its support to the agricultural sector and its value chain including lending more to the subsector in the interest of the economy.

“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 chief said the lender is focused on being a strategic partner to the government and other stakeholders in the agric sector to ensure food sufficiency, employment and revenue generation.

Balogun assured that the lender will continue to provide credit to the sector and its value chain, including small and medium scale businesses. He said the 30 per cent of Nigeria’s Gross Domestic Product (GDP) come from the agricultural sector, and was 40 per cent before the economy was rebased last year.

“The agric transformation is real. It is not rhetoric. We built agric business that is at the centre of transforming the economy. If we really want to continue employing the growing population, we need to not only feed Nigeria, but feed the world,” he said.

He said the bank realises that there are millions of farmers across the country that need credit at affordable rates, considering the level of attraction the agric sector has garnered. That is why we are increasing our level of support.

Likewise, Group Managing Director, United Bank for Africa, Phillips Oduoza said the bank has continued to channel resources to the sector, given that it remains the mainstay of most economies in Africa. “UBA has a deliberate policy to continue to fund agriculture. Our lending to the sector is already above the industry average. We are doing about seven per cent of our total portfolio in agriculture,” he said.

He praised the fact that lending to agriculture is generally on the upward trend from Nigerian banks, disclosing that banking sector funding to agriculture has moved from just about 0.5 per cent of total industry portfolio prior to 2009 to about 4.9 per cent of banking industry loan book currently.

“Interestingly, the non-performing loans coming from agriculture lending is lower than most people would have thought,” he said.

Oduoza also said UBA is expanding its electronic banking products to improve the way it serves its more-than seven million customers. He said the bank has rolled out an array of electronic banking products, from cards to point-of-sale terminals, which is helping to reduce the cost-to-income ratio of the bank while making a positive impact on the bottom line.

Group Managing Director of Union Bank of Nigeria Plc Emeka Emuwa urged Nigeria and other African nations to make agriculture more productive in their fight to end poverty in the continent.

He spoke at the International Conference organised by the African Rural and Agricultural Credit Association (AFRACA) sponsored by the bank.

In his welcome address to the conference which was themed “propelling Economic Development through Functional Agricultural Value Chain financing models: lessons learnt and emerging opportunities, in Lagos, Emuwa advised the African nations to redouble their efforts  to make agriculture more productive.

“If you can get agriculture to become more productive, you will be better positioned to tackle the scourge of poverty in the continent. It is unfortunate that there has been a decline in the sector due to the emergence of other economic sectors in Africa,” he said.

CBN’s position

Central Bank of Nigeria (CBN) Governor, Godwin Emefiele said at a workshop on innovative agricultural insurance products, in Lagos 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 Gross Domestic Product (GDP).

Emefiele, who was represented by the Acting Managing Director of Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL), Edwin Nzelu, said the large import food products include wheat, rice, flour, fish, tomato paste, textile and sugar.

“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,” he said.

He said that Nigeria’s formal financial system is 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 is still low given the lingering perception by banks that agriculture is highly risky.

Emefiele said development and expansion of the agricultural insurance sub-sector will go a long way in mitigating against natural disasters and eventually encouraging banks to lend to agriculture.

Former Agricultural insurance has been proven to be instrumental in transferring risks and stabilising farmers’ income, but in Nigeria, agricultural insurance is one of the less developed line of business. Therefore, there is the need for insurance companies in collaboration with relevant stakeholders to develop innovative products that will cater for the needs of farmers in their provision of agricultural insurance,” he said.

He explained that over the years, only the Nigeria Agricultural Insurance Corporation (NAIC) was licensed to underwrite agriculture insurance in the country, until two years ago when NAICOM liberalized the insurance subsector for conventional insurers to underwrite.

“I urge private insurance companies to take advantage of this opportunity and consider extending insurance cover to the agricultural sector to create a competitive market which will eventually increase insurance penetration to rural areas,” he said.

Emefiele said expansion of agricultural insurance products has become imperative especially now that climatic reports have it that Nigerian farmers are prone to risks from natural disaster such as flood, draught as well as different crop and livestock diseases.

He said that NIRSAL was established to tackle both the financial and commodity agricultural value chains and that its Insurance pillar was created to facilitate the expansion of the agricultural insurance products for lending by encouraging the introduction of new products such as weather index insurance, yield index insurance, multi-peril among others.

He said the workshop was organized in collaboration with Alliance for Green Revolution in Africa (AGRA) which has garnered experience over time in introducing various insurance products in some African countries and was one of the major stakeholders in designing NIRSAL.

Bankers’ Committee

The CBN and deposit money banks, 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 can be produced locally.

The bankers also stated their resolve to explore large corporates as anchors to lend to participants across the value chain to improve the capacity of Nigeria’s agro-businesses 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.

“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,” it added.

CBN’s roles

The CBN set the tone when it introduced Nigerian Incentive-Based Risk Sharing Agricultural Lending (NIRSAL) to the banks. By that single policy, banks can lend to agricultural sector and its value chains without fear of losing such funds. The NIRSAL is already being implemented by the banks and is expected to drive agricultural revolution in the country.

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 also plans to double agriculture’s share of banks’ credit to 10 per cent in two years. The loans to agriculture as a share of total credit rose to N320 billion, or five per cent, at the end of last year from less than one per cent in 2011.

Agriculture Minister Akinwunmi Adesina said the Federal Government has made a fundamental shift that agriculture is not a developmental activity, but a business. “The CBN has shifted the mind-set of the banks. It’s a new agriculture sector in which they can actually invest money and make money,” Adesina said.

Agric potential

Already, banks and the CBN are discussing how to increase lending to the sector. For the apex bank, government needed to pay more attention to agriculture, which still has one of the greatest potentials in growing the economy.

CBN Deputy Governor, Economic Policy, Dr. Sarah Alade said that one way of achieving this, is by collaborating with the banking system to fix the value-chain problems in the agricultural sector. She said 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.

Speaking at an international conference on agricultural value-chain financing held in Lagos, she said the CBN has so far committed about N1.169 trillion to different intervention schemes being promoted by the Federal Government.

Alade said the funds were committed by the CBN in collaboration with the Federal Government into key economic schemes for economic development.

She listed the schemes as the Agricultural Credit Guarantee Scheme (N69 billion); Commercial Agricultural Credit Guarantee Scheme (N200 billion); the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (N200 billion); Small and Medium Enterprises Credit Guarantee Scheme (N200 billion).

Others are the SMEs Restructuring and Refinancing Scheme (N200 billion) and Power and Airlines Intervention Fund (N300 billion). Alade, who was represented by CBN Director of Research, Charles Mordi said schemes were meant to address the challenges confronting agriculture and agric business in the country.

She said the Federal Government and CBN instituted the intervention programmes to enable key players in the economy have access to finance adding that access to credit remains important to agricultural value-chain.

Speaking further, she said the Agricultural Credit Guarantee Scheme was introduced in 1978 to encourage lending to the agric sector. Alade said the scheme has up to date, supported the sector by guarantying loans to over 800,000 beneficiaries.


NIRSAL performance

According to the CBN, NIRSAL is also expected to be a catalyst for innovative risk management strategies, long-term financing for agribusiness and significant job creation by new entrepreneurs.

“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,” the CBN said. Under NIRSAL, there are five pillars to be addressed by an estimated $500 million that will be invested 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. There is equally 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 was linked to access to credit through the new policy on increasing private sector participation, 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 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.

“The agric transformation is real. It is not rhetoric. We built agric business that is at the centre of transforming the economy. If we really want to continue employing the growing population, we need to not only feed Nigeria, but feed the world”


Source:  Nation Online

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