The slow pace of socio-economic transformation in Nigeria can be attributed to the neglect of the agricultural sector as an engine of growth.
Amongst some of the key roadblocks identified by the team of experts assigned some years back by the Central Bank of Nigeria to dig out the problem of the sector was access to finance to the sector. Reason
being that the Nigerian banks were wary of extending loans to farmers while the farmers are not willing to take the loans even if they were offered by the banks due to the many risks associated to the farming
activities in the country.
There are good reasons for the focus on agriculture. First, it is a sector with high growth prospects, particularly if value chains can be developed that turn raw commodities into processed goods for domestic consumption or export.
Second, although agriculture already employs more than 70 percent of the population, there are opportunities to expand both the number and variety of jobs in the sector by making it easier and more attractive to farm.
Experts have also noted that, by diversifying the agriculture sector, it can be made more appealing to a vast youth population that is turned off by farming but might be attracted to processing, marketing, and other business opportunities along the value chain.
The CBN researchers, recommended at the end of the work that in order to promote more lending to the agriculture sector, there should be an initiative that would de-risk the sector in order to give both the farmers and banks confidence in investing into the sector. Notably, they recommended the creation of the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL).
NIRSAL was launched by the CBN in 2013, which guarantees loans extended to farmers and offers rebates to recipients who pay back the money on time.
As part of its focus on taking business-driven agriculture to the grassroots, NIRSAL has been quietly enabling the flow of affordable financing to all players along entire agricultural value chains.
NIRSAL essentially reduces the risks of financing institutions while granting agricultural loans by building the capacities of both banks and value chain actors on good practices in agricultural financing,
loans utilization and repayment.
In furthering this objective, The Managing Director, NIRSAL, Aliyu Abdulhameed, recently said: “NIRSAL has facilitated the flow of N77.4bn from commercial banks’ balance sheet into agric businesses, trained over 700,000 farmers on beat agronomy practices and financial education and directly facilitated high quality agricultural inputs to more than 500,000 smallholder farmers.
“As a non-bank financial institution mandates to de-risk agriculture and facilitate agribusiness, NIRSAL with me at the helms of affairs is dedicated to abiding by good procurement principles to achieve these
NIRSAL seeks to address the causes of low funding levels in the agriculture sector, including lack of understanding of the sector, perceived high risks, complex credit assessment processes/procedures,
and high transaction costs.
Its approach goes beyond the use of Credit Risk Guarantee to Fixing the agricultural value chain, so that banks can lend to the sector with confidence; and encouraging banks to lend to the agricultural value chain by offering strong incentives and technical assistance.
To achieve this, NIRSAL designed five pillars to ‘de-risk’ the agricultural financing value chain, build long term capabilities and institutionalize agricultural lending using its seed capital of USD 500 Million.
The funds are allocated across NIRSAL’s five pillars as follows:
Risk-sharing Facility (USD300 Million). NIRSAL uses this facility to address banks’ perception of high-risks in the sector by sharing losses on agricultural loans.
Insurance Facility (USD30 Million). The facility’s primary goal is 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 etc.
Technical Assistance Facility (USD60 Million). NIRSAL uses this facility to equip banks to lend sustainably to agriculture, producers to borrow and use loans more effectively and increase output of better
quality agricultural products.
Holistic Bank Rating Mechanism (USD10 Million). This mechanism is used by NIRSAL to rate banks based on two factors, the effectiveness of their agricultural lending and the social impact and makes them
available for the public.
Bank Incentives Mechanism (USD100 Million). This mechanism offers winning banks in Pillar four, additional incentives to build their long-term capabilities to lend to agriculture. It will be in terms of cash awards.
The faithful implementation of the NIRSAL will lead to increased income, GDP, foreign exchange earnings and the ability of the Central Bank of Nigeria to manage the value of local currency, lower food
inflation and maintain monetary robust external reserves as well as monetary stability.
In addition, the project will absolve the Bank of the need for endless and voluminous subsidies to the agricultural sector.
Similarly, NIRSAL will strengthen the Nigerian financial sector because it presents an opportunity for the banks to capture latent profits in agricultural lending, maintain long term human, institutional and cultural capacity for value chain financing capacity and enjoy lower loan origination and distribution costs.
Between 2012 and 2015, while operating as a Project Implementation Office within the Development Finance Department of the CBN, NIRSAL was able to achieve the following:
Provision of Credit Guarantees for over 454 Agricultural projects valued at N61.161 billion, Pay out of over N753.36 million as interest rebate to borrowers who paid back their loans in good time.
Training of over 112,000 farmers across the country on best practice farming techniques and business management.
Since the appointment of its Executive Management Team by the CBN in December 2015, NIRSAL has facilitated the purchase of 1,000 tractors worth billions of naira for lease to smallholder and large scale
farmers at affordable rates.
NIRSAL was able to do this by defining an end-to-end tractor financing model that was addressed the risk concerns of banks and attractive to tractor manufacturing companies.
The scheme has recorded success with zero defaults on payment and an increase in mechanized farming.
All the players within the agric value chain who have relevant parameters are eligible to apply for a NIRSAL credit risk guarantees.
They include: Input suppliers, Smallholder Farmers & Farmer Groups, Large Scale Primary Producers, Agric Processors, Integrated Farms, Agric Logistics Providers, Agro-dealers, Input and Equipment Suppliers.
It is imperative to note that NIRSAL does not deal with individual farmers. The smallest unit of engagement for NIRSAL are Agric Cooperatives.
Prospective borrowers can apply for a NIRSAL credit guarantee through the agric desk of their banks or through the NIRSAL office.