Nigeria’s new agric financing rules raise fresh hopes
Time:2018-08-24 14:11  Click:

Commercial banks got a marching order from the Central Bank of Nigeria (CBN) at the last Bankers’ Committee meeting – to give loans to agriculture and manufacturing concerns at single digit interest rate. The directive followed the CBN’s amendment to the Commercial Agriculture Credit Scheme (CACS) and the pegging of maximum loans for projects at N2 billion. COLLINS NWEZE writes on the renewed drive by banks to lend to farmers and its implications for the economy.

In times past, farmers were the least that banks would consider for loans. Such loans, if approved, were deemed lost from the outset. But, the tide has turned as banks scramble for agric businesses. The lenders have seen the potential of how much a well-priced loan can add to their balance sheets and profitability.

The Central Bank of Nigeria (CBN) has, in a move to sustain the trend, amended the Commercial Agriculture Credit Scheme (CACS), pegging the maximum loan intake for any project under the scheme at N2 billion.

Besides, the CBN-led Bankers’ Committee bought into the agric-financing project, making various promises to banks that show interest in the scheme.

It has promised banks that lend to agriculture and manufacturing at nine per cent a refund of part of their Cash Reserve Ratio (CRR), which a portion of banks’ deposits (22.5 per cent) kept with the apex bank.

The Director of Banking Supervision at the CBN, Ahmad Abdullahi, said the regulator will refund banks that fund projects in agriculture and manufacturing with CRR refund.

Speaking at the end of the Bankers’ Committee meeting in Lagos last week, Abdullahi said the outlook for the economy in 2018 is much better than 2017. The CRR is a portion of banks’ deposits kept with the CBN.

According to him, the apex bank has been supportive of banks, adding that the Deposit Money Banks (DMBs) should be able to lend to companies that are doing new capital expenditures and expansions to factories using some of their CRR at nine per cent. These, he said, are not short-term loans but long-term facilities spanning seven year with two year moratorium on principal.

Abdullahi said: “It would probably be the first time in the history of this country where manufacturers would be able to take fixed interest rate loans for seven years which means they would be able to plan.

“The volatility that they fear for all kinds of risks would be taken out and I think these are very laudable steps in improving and growing the economy.”

The policy, it was learnt, was to have creating activities in the economy and also bring the interest rate low. Agriculture and manufacturing were the sectors initially targeted for such facilities, but job-creating sectors may now be considered.

Abdullahi said: “The idea is that we can refund the CRR of a bank that has engaged in giving out loans to finance new projects or existing ones in the agriculture or manufacturing sector as a way of utilising the CRR.

“So, anytime a bank lends to manufacturing or agriculture at the rate prescribed by the CBN, it would have its CRR refunded up to the amount it has given out. The guidelines are coming up any moment from now and once they do, it (policy) takes off.”

Also speaking, Executive Director, Finance at the First City Monument Bank (FCMB), Mrs. Yemisi Edun, said the CRR taken from banks would be positively deployed to grow the real sector as well as the agriculture sector in the economy.

Her words: “This is very positive for the economy and also positive for banks because we would be able to access these funds and earn on it. And because it would be coming at single digit rate, it would be positive for the economy.

“For now, it would be channelled to agricultural sector and manufacturing for growth to enhance jobs’ creation. The focus is to ensure economy growth. Now that we have achieved stability, we need to see a positive trend of growth and that is what we are committed to do at this time.”

CACS to the rescue

Besides, its assurance of the CRR refund, the apex bank said the maximum interest rate to the borrower under the CACS shall not exceed nine per cent, inclusive of all charges.

The apex bank approved the participation of all DMBs under the scheme. The participating banks have a mandate to sponsor projects from any of the target areas indicated in the guidelines and bear all the credit risk of the loans they will be granting.

The CACS is being financed from the proceeds of the N200 billion, three-year bond raised by the Debt Management Office (DMO).  The fund will be made available to participating banks, to finance commercial agricultural enterprises.

“The single obligor for any project from a participating bank under CACS shall be N2 billion while for state governments, it shall be N1 billion. However, for special schemes and programmes for agricultural development, state governments may be granted concessionary approval for more than N1 billion,” the CBN said.

The scheme is expected to fast-track  the development  of  the  agricultural  sector  of  the local economy  by  providing  credit  facilities  to  commercial  agricultural enterprises at a single digit interest rate; enhance  national  food  security  by  increasing  food supply  and effecting  lower  agricultural  produce  and  product  prices,  thereby promoting low food inflation.

CBN Governor Godwin Emefiele identified agric financing as the way forward for the economy. He explained that part  of  its  developmental  role, the CBN has in collaboration with the Federal Government, represented by the Federal    Ministry    of    Agriculture    and    Rural    Development    (FMARD), established  the  CACS for  promoting commercial agricultural enterprises in  Nigeria, which is a sub–component of the  Federal    Government’s Commercial Agriculture Development  Programme  (CADP).

The fund, he added, will complement other special initiatives of the apex bank in providing concessionary funding for agriculture, such as the Agricultural Credit Guarantee Scheme (ACGS) which is mostly for small   scale farmers, Interest Draw-back scheme,    Agricultural Credit Support Scheme and other similar developmental initiatives.

According to Emefiele, “there was no need to allocate scarce forex to rice importers when vast amounts of paddy rice of comparable quality produced by poor hard-working local farmers across the rice belts of Nigeria are wasted, and farmers are falling deeper into poverty at a time the government exports their jobs and income to rice producing in overseas countries.

“Few decades ago, Nigeria was one of the world’s largest producers of palm oil but, today, we import nearly 600,000 metric tonnes while Indonesia and Malaysia combine to export over 90 per cent of global demand.

“Under these circumstances, I believe it is appropriate, and in fact, expected, that the CBN contributes to protecting the jobs and incomes of local farmers, using some of the same principles Western economies use to justify the protection of their farmers through huge subsidies.”

Noting that agriculture remained the largest employer of labour, the CBN chief said the sector contributes about 24.2 per cent of the country’s Gross Domestic Product (GDP).

Emefiele described as unacceptable that the greatest share of the demand for forex goes directly to importing agricultural produce.

He said: “So, the CBN has both a direct and indirect rationale to ensure that this sector is revived in a significant way. In this regard, we are gratified that the CBN’s Anchor Borrowers’ Programme (ABP), together with other initiatives like the CACS and Nigeria Incentive-based Risk Sharing System for Agricultural Lending NIRSAL, are proving to be successful in several states.”

He explained that in Kebbi State alone, over 78,000 smallholder farmers cultivate about 100,000 hectares of rice farms. It is expected that over one million metric tonnes of rice will be produced in that state alone this year.

He said: “And this is the bedrock of the recently-launched Lake Rice, which is an innovative partnership between the governments of Lagos and Kebbi states.

“The CBN remains committed to do more in the identified crops such as rice, maize, sorghum, tomatoes, cassava, cocoa, cotton, dairy, and groundnut.

“We also need to find ways to make land titling much easier especially for smallholder farmers. In this regard, the NIRSAL can assist with technical knowledge and deployment of relevant GIS and Satellite Imaging that will realise this within a short period.” 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 GDP.

Bankers’ Committee

The CBN and DMBs, under the aegis of the Bankers’ Committee, restated their commitment to expanding bank lending in agro-business in order to discourage importation of goods that 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 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,” the Committee added.

Agric potential

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

According to the CBN, one way of achieving the goal, is by collaborating with the banking system to fix the value-chain problems in the agricultural sector.

Mrs. Edun said that 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.

NIRSAL performance

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

The bank said: “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.”

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 (TAF) amounting to $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 commended the performance by the banks as a demonstration of their belief in the ability of agriculture to transform the economy. The CBN said that with the credit trend in the banks, Nigeria may be close to realising its economic diversification objectives.

Role of the DMBs

As part of its commitment to support agriculture businesses across the value chain and play its enabling role in the nation’s drive for economic diversification through agriculture, First Bank of Nigeria Limited held the second edition of its annual agriculture expo in Lagos. The theme of the expo was: ”Innovating for a sustainable green economy”.

As a result of the expo, the First Bank’s agriculture portfolio recorded a growth of N11.65 billion as a direct impact.

Agriculture & Rural Development Minister Audu Ogbe was the special guest of honour at the expo and Doyin Salami, a Senior Fellow/Associate professor and full-time Faculty member at the Lagos Business School delivered the keynote address on the theme of the day.

Ogbe described the agriculture sector as vital with the recent National Bureau of Statistics fourth quarter, 2016 GDP growth rate of about four per cent, and a 24 per cent contribution to the economy.

The minister decried the menace of foodstuff importation into the country, which he identified as a major threat to achieving self-sufficiency in food production.

After opening the expo, the minister led other dignitaries, including Industry, Trade & Investment Okechukwu Enelamah, on a tour of the exhibition booths as he did in the inaugural edition. Enelamah delivered the goodwill message at the event.

AFEX Commodities Exchange Country Manager Ayodeji Balogun, who spoke on “Reinventing agriculture for sustainable national development”, said that achieving the goal will require capital, talent and a high drive for productivity in the sector.

He noted the need to rethink collaterised lending and consider structured trade finance for the agriculture sector.

The Managing Director/Chief Executive Officer of First Bank of Nigeria Limited and Subsidiaries, Adesola Adeduntan, stated that his bank has over the years, committed to nation building, whilst promoting agric-business and the development of the economy in Nigeria.

He said: “This second consecutive edition of the FirstBank agric expo is indicative of our commitment to increasingly collaborate with public and private sector partners to fully restore the prime role of the agricultural sector as the mainstay of our national economy.”

The FCMB, Sterling Bank, Diamond Bank and United Bank for Africa have all renewed their pledge to intensify support to the agricultural sector and its value chain, including lending more to the subsector in the interest of the economy.

The lenders insisted 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.

They expressed conviction that the Nigeria has capacity to produce the identified items in required quantities to meet the population’s domestic consumption needs.

With its attendant impact on the GDP and job creation, agriculture remains a critical sector of focus for the financial system.

The banks said they remained focused on being the government’s strategic partners to other stakeholders in the agricultural sector to ensure food sufficiency, employment and revenue generation.

Source: The Nation