With more than 73 billion naira mobilized so far in the agricultural value chain while acting as guarantor of facilities for commercial banks, NIRSAL Plc is reinventing banks interest in agricultural loans, reports ABDULWAHAB ISA
Previously, banks were wary of extending credit facilities to agricultural enterprises. It was an area classified as a credit risk area. The Central Bank of Nigeria has started the process of changing the narrative by courting banks to direct their credit portfolio towards agriculture and its value chain. He designed the Nigerian Incentive Based Risk Sharing Scheme for Agricultural Lending (NIRSAL Plc) as a risk reduction agency, a guarantor of depository money banks. Launched in 2011 and incorporated in 2013, CBN created a non-banking financial institution of 500 million dollars, 100% owned by it. NIRSAL was established to redefine, size, measure, reassess and share credit risk related to agribusiness in Nigeria.
Dread agricultural loans
A 2018 report by the National Bureau of Statistics (NBS) found that at N3.58 trillion, Nigeria’s oil and gas sector received the largest credit allocation to the private sector – 22% of the total pot. By comparison, manufacturing came in second with 14%, while all other sectors received less than 10%. Unfortunately, the agricultural sector, which at the time employed about half of Nigeria’s workers and contributed about a third of the country’s GDP, received only 3% of total bank credit. The figures were nauseating considering the importance of agriculture for the development of the economy. These figures were quite surprising for such a vital sector; the one the government sees as its only hope. But then the oil and gas sector and manufacturing took the lion’s share of the credit.
Banks’ favorite oil and gas
Commercial banks are purposely created for profit. They are mainly interested in short-term loans and high yields. Since most oil companies are primarily involved in the export of crude oil and the import of its refined products – a short-term activity, this fits perfectly with the business preference of banks. Investing in agriculture is a long-standing investment. It has a longer gestation period. Commercial banks will not want to tie up their facilities. Added to this is the lack of sophistication, which characterizes the smaller nature that makes up the Nigerian agricultural sector. It is mainly about persistence in nature – small-scale farming. Added to the farmers’ problem is their lack of accounts and guarantees. All the cues that have prompted banks to extend credit facilities to formal enterprises are lacking in the agriculture sector, mainly the subsistence segment.
Assessment of the role of NIRSAL
One of the reasons for the establishment of NIRSAL by the Central Bank of Nigeria is to act as a guarantor for commercial banks. Because commercial banks were wary of extending credit facilities to agricultural enterprises, the CBN, in its informed opinion, felt that it was necessary to have an agency that would stand surety, an agency to which the banks commercial lenders would have recourse in the event of a problem. facility lent to agricultural enterprises. In carrying out this important mandate of creating linkages between segments of the Agricultural Value Chain (AVC) in Nigeria, NIRSAL has facilitated over ₦73 billion in Nigeria’s agro-processing industry since its inception till nowadays. NIRSAL does not have facilities at its disposal to advance farmers. The agency has mobilized various sources including banks, development financiers, private equity investment firms and other financial institutions to lend. It acts as a guarantor with lending commercial banks. NIRSAL’s support comes at a time when developing economies are increasingly shifting from commodity production to both production and value addition for increased economic activity, bolstering foreign exchange earnings and social development. generalized. Other beneficiaries of financial facilitation from NIRSAL Plc include upstream, upstream and downstream AVC operators who are involved in production and supply of inputs, provision of mechanization services, primary production and logistics. NIRSAL CRG in the agricultural value chain contributes immensely to boost the agricultural promotion campaign of the federal government. The CRG is the backbone of the agency to share agribusiness credit risk with commercial banks and financiers up to 75% depending on the segment in which CRG applicants operate. The riskier the farmer group or agribusiness operations, the higher the risk percentage NIRSAL shares Plc. By protecting financiers and investors from potential losses in a credit transaction, NIRSAL Plc has boosted their confidence to lend to players in the agricultural sector, a sector once widely considered a no-go zone in financial circles. With the NIRSAL CRG now in place, farmer groups and agribusinesses, which until now before the advent of the CRG had difficulty obtaining loan approvals from commercial banks, now benefit from more fluid for the loans they need to expand their operations, increase their profits and improve their livelihoods.
Interests recede as a game changer
NIRSAL support to farmers and the agricultural value chain comes in various forms. The agency provides additional support to Nigerian farmers and agribusinesses through its interest repayment scheme. A loyal and diligent borrower who performs well and meets the terms of the loan facility is eligible for discretionary discounts of up to 40% of interest paid on NIRSAL CRG-supported agribusiness loans. To date, NIRSAL Plc has paid out over £1.64 billion, reducing the effective interest rate for borrowers with good credit histories. NIRSAL’s ongoing engagements with commercial banks and the training of their agents are also critical to the origination of NIRSAL CRG guaranteed loans. More than 4,250 bank officers have been trained in NIRSAL CRG guidelines and agricultural lending efficiency resulting in a better understanding of both, improved bank readiness for agricultural lending and increased bank loans.
It should be recalled that when NIRSAL Plc was established, bank lending to agriculture amounted to 1.4 percent. The invention of NIRSAL CRG boosted the figure to 5.4% in Q3’21. Speaking recently on NIRSAL’s role as a credit guarantor, its Managing Director/CEO, Mr. Aliyu Abdulhameed, said that as a guarantor, his support had a positive impact on financiers, borrowers and lenders. national economy. “While financiers are now able to confidently invest in profitable agribusinesses, agribusinesses that borrow from them can improve productivity and profitability, generating much-needed local economic activity,” he said. . He happily noted that the injection of finance into the agricultural sector through NIRSAL Plc has resulted in broad socio-economic growth. Agribusinesses, he said, have been able to expand their operations and increase their workforce, with NIRSAL CRG recipients reporting a 20-60% increase in capacity utilization, productivity, number of markets served and value of sales. The agency’s financing facilitation efforts generated an additional $2.5 billion in economic activity through agricultural products/outputs and other value chain economic activities, created 360,000 direct jobs, and had a positive impact on the lives of 1.8 million Nigerians. Following the success of NIRSAL Plc’s risk-sharing model, commercial banks pledged a total of $500 million to finance agriculture and agribusiness. In addition, NIRSAL Plc has been approached by other African countries to provide support in establishing and implementing model risk sharing facilities in their respective jurisdictions. NIRSAL Plc’s latest achievement also coincides with the development of the Nigeria Special Agro-Industrial Processing Zones (SAPZ) program across the country to which NIRSAL Plc is offering support. With NIRSAL’s financial facilitation mandate, SAPZ is committed to mobilizing private sector investment in selected areas to improve productivity and integrate agricultural production, processing and marketing.
NIRSAL’s role as a credit guarantor for commercial credit banks undoubtedly eliminates the fear of credit loss that banks have had so far. As a risk reduction agency, NIRSAL’s presence in the agricultural value chain is an asset for both commercial banks and agribusinesses.