De-risking agriculture

We consider it cheering that lending to the nation’s agricultural sector is now on the increase following the de-risking of the sector by banks.

It is heartening to note that in 2012, credit to the agricultural sector almost doubled compared to the previous year as the Central Bank of Nigeria (CBN) and the bankers’ committee established risk-sharing mechanisms to reduce the risks banks face when lending to farmers.  According to data released by the CBN, in 2012, credit to the agricultural sector as a share of volume to the private sector rose to 3.7 percent from 2 percent it hovered in the past five year period leading to 2011. Total bank lending to the sector skyrocketed from N3.5 billion in 2012 to N25 billion this year buoyed by the Federal Government’s agricultural transformation agenda.

It would be recalled that the apex bank in collaboration with the bankers’ committee established the Nigerian Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), which seeks to de-risk agriculture in Nigeria by ensuring that those involved in agri-business have access to loans on a concessionary basis.

Speaking at the just concluded 19th Nigerian Economic Summit (NES#19), the minister said development finance institutions such as the African Development Bank (AfDB), the World Bank, the International Fund for Agricultural Development, the USAID, DFID, and several others, are putting in $2 billion to back the agricultural transformation agenda as well as irrigation and water resources development.

 After years of dependence on its oil industry as its major revenue earner, the Nigerian government has recently been vigorously pushing agriculture as its new frontier for growth. This is definitely against the backdrop of the recent discovery of shale oil and gas, and the oil production boom, resulting from the large discoveries of oil and gas resources in many African countries.

We cannot agree more with the CBN governor Sanusi Lamido Sanusi that funding is important for the agric sector but for that to be effective the sector needs to be stripped off inherent risks that impair bank lending.

 In furtherance of the NIRSAL, the CBN had floated N200 billion agriculture credit scheme, coupled with the launching of N600 billion NIRSAL funding programme meant to guarantee up to 75 percent of bank loans to various businesses in the agric value chain. This initiative seeks to create incentives and catalyse processes to encourage the growth of formal credit, direct and indirect, for the agriculture value chain, as a mechanism for driving wealth creation among value chain participants.

 Nigeria is targeting $10 billion of investment in farming to boost food production by 2015. The country hopes to create 3.5 million jobs and add 20 million tonnes to domestic food supply by 2015. With 9 million metric tons of food added to the nation’s domestic food supply in 2012/2013, which is 80 percent higher than the annual target of 5 million metric tons that had been set, the prospects are bright.

 While we commend the efforts by the banks to de-risk the agric sector, which has attracted more investments to Nigeria with multinational financial institutions raising their agric portfolio in the country, we urge them not to neglect small hold rural farmers scattered across the country.

 We believe that if the current increased tempo in agricultural credit is sustained, and other necessary domestic and trade policies are properly articulated and implemented, it would not be long for Nigeria to quit the notorious club of countries that have high food import bills.