The importance of the agriculture sector to a country cannot be overemphasised, especially one like Nigeria where about 42 per cent of the GDP is contributed by agriculture. Prior to the birth of the oil fortune, agriculture was contributing about 70 per cent of the GDP. One can only look back now and say those were the good old days.
However, the concentration on oil fortunes have become the misfortune of the sector and it became more difficult for a farmer to access funds from banks. Subsequently, Nigeria’s agricultural export gradually fell and according to figures made available by the Central Bank of Nigeria, accounts for only one per cent of the country’s exports.
Knowing the essence of agriculture to the survival of the nation’s economy, the CBN had come up with various ways of getting funds to farmers as well as those in the agric value chain. One of such funding vehicles is the Nigerian Incentive-Based Risk Sharing System For Agricultural Lending (NIRSAL).
The NIRSAL scheme emerged out of lessons from inefficiencies of the CBN’s past agricultural lending programmes which yielded less to the farmers and the economy as they were unable to unlock the kind of bank lending that was expected into the agriculture sector.
NIRSAL is a new approach that tackles together the agricultural value chains and the financing value chain. The agriculture value chains and the financing value chain are interdependent. The apex bank believes that in moving agricultural financing forward in Nigeria, fixing the financing value chain without addressing the agricultural value chains would be a futile exercise.
NIRSAL breaks with tradition by doing three things at once. One is fixing the agricultural value chains, so that banks can lend with confidence into cohesive and complete value chains. Secondly it encourages banks to lend into the agricultural value chains by offering them strong incentives and technical assistance. It also engages in active market access development in partnership with key buying groups, states, private investors, farmer groups and processors.
Since it commenced operations, NIRSAL has guaranteed close to N100 billion for farmers. The scheme has also helped push bank lending to the agriculture sector to about four percent, from just less than one percent as at 2010.
According to the Head NIRSAL Implementation Office, Jude Uzonwanne, between July 2012 and January 2013, the scheme sold approximately N14 billion in guarantees, while between January and the end of March, 2013, about N12 billion guarantees were sold to the farmers.
“We started selling guarantees in 2012 and if you put together what we have done since last year and the GES scheme for 2013, our portfolio is fairly getting close to N100 billion lending to agriculture and the critical thing is that there is no one kobo of CBN or government involved but private sector money in form on-lending from the banking system.
“In 2010, the level of lending to agriculture was under one percent of all lending in the Nigerian banking system. Today it is about 3.6 percent and our goal is to get that number to 10 percent by 2017. So we have tripled the levels of lending to agriculture in less than basically three years and our goal is to do it again and do it in a better way,”
Apart from guaranteeing bank lending to farmers, NIRSAL also works ahead to help find industry-wide solutions to some of the challenges the operators face in order to ensure sustainability of their businesses.
NIRSAL is expected to be a game changer for banks in agricultural lending offering risk sharing, capability building and the opportunity to lower transaction costs in loan origination and distribution as well as increase access to lending and interest rates close to single-digit levels for agricultural producers.
In the long run, Nigeria would have a stronger agricultural sector with more integrated value chains, enhanced food security, fewer imports, and higher productivity, as well as a stronger economy with additional agricultural GDP growth, higher employment, reduced expenditure on food imports, higher tax revenue from the agricultural sector, competitive exports and a more diversified economy.