The Central Bank of Nigeria (CBN) has introduced a new initiative that could boost private sector lending to the agriculture industry. The Nigerian Incentive-based Risk-sharing System for Agricultural Lending (NIRSAL) was formally unveiled at a conference in Abuja on July 5-6. The purpose of the CBN-organised event was for stakeholders to gather to discuss the new initiative.
One of the key goals of the new programme is to increase lending to the agriculture sector. The industry currently accounts for only 1.4% of total bank lending, compared to 6% in Kenya and 18% in Brazil. This is despite the fact that agricultural activities represent around 40% of national GDP and 60% of employment. The government has targeted generating an additional $3bn of bank lending to the sector within 10 years, or 7% of total bank lending.
The CBN has earmarked around $500m to fund NIRSAL. Some $300m of this will be invested in a risk-sharing facility, whereby the CBN will absorb some of the losses of non-performing loans to the sector. This component of the programme will address the perception among the country’s banks that lending to the agriculture sector is risky. The balance of the funds will be allocated between the four other parts of NIRSAL: an insurance facility ($30m), a technical assistance facility ($60m), a bank incentive mechanism ($100m) and an agricultural bank rating system ($10m).
In a briefing, the CBN asserted that NIRSAL is differentiated from earlier schemes that were designed to encourage lending by its focus on the sector’s entire value chain, including farmers (particularly small-scale ones), processors and input suppliers. At the stakeholder conference in Abuja, the CBN’s governor, Lamido Sanusi, addressed this distinction, saying, “In the last five decades agricultural financing in Nigeria considered and treated each project in isolation, not giving adequate attention to other players along the value chain.”
The NIRSAL initiative has been in the works for some time. Last August the CBN signed an agreement with the Alliance for a Green Revolution in Africa (AGRA) – a non-governmental organisation that promotes sustainable agricultural growth based on small-scale farming – to develop the programme. At the signing, Sanusi said, “The CBN has embarked on major reforms of the banking sector to bring it in line with our priorities for sustainable economic growth. Agriculture is one of the key sectors. Financing agriculture is central to Nigeria’s economic future. NIRSAL is our homegrown instrument for achieving this transformation.”
AGRA will continue to play a role as the NIRSAL initiative is implemented. According to the CBN, the programme will be administered by a non-bank financial institution (NBFI) that will report to a board of directors headed by the CBN with members from AGRA, plus the Ministries of Agriculture, Finance, and Commerce and Industry. The board will be responsible for setting strategy and ultimate decision-making, while the CEO of the NBFI will implement the programme and liaise with key stakeholders.
NIRSAL supplements other measures already in place, including the federal government’s N200bn ($1.3bn) Commercial Agriculture Credit Scheme (CACS), which was launched in 2009. In late June Paul Eluhaiwe, the acting director at the development finance department of the CBN, told reporters that banks have accessed N133.5bn ($869m) from the CACS fund.
Eluhaiwe added that, although these earlier schemes have had some success, the country had “yet to attain the desired level of funding that will take Nigerian agriculture to the crucial threshold of sustainable take-off and growth.” He said that banks hesitate to lend to the sector because of “disrupted value chains lacking cover for weather risks, inaccessible markets for farm products, poor transport infrastructure to move products from the farms, and low uptake from processors and marketers.”
Although poor infrastructure may well be creating an obstacle for the further development of the agriculture sector, it seems unlikely that the implementation of NIRSAL will change this situation. At the NIRSAL stakeholders’ conference, Sanusi pointed out that investing in infrastructure is the responsibility of the state, not the private financial sector. “The commercial banks are not the government; it is not the intension of NIRSAL that commercial banks take the depositors’ fund to do what government is supposed to do,” he said.
Developing the country’s infrastructure may be beyond the scope of a programme like NIRSAL, but this initiative should go a long way towards ensuring that private businesses in the sector have access to the funding they need to grow and develop.