Bank lending to the agriculture sector has improved in the past four years, increasing by almost 300 percent from about N75 billion in 2008 to N300 billion in 2012. However, total loans to the sector is only about 4 percent of banks’ portfolio.

This was disclosed recently by Sanusi Lamido Sanusi, governor, Central Bank of Nigeria (CBN), at a recent signing of a memorandum of understanding (MoU) involving the United States Agency for International Development (USAID) and the Ministry of Agriculture in Abuja. The MoU is aimed at providing credit guarantees for the agric sector.

With the MoU in place, banks can receive technical assistance in understanding the intricacies of agribusinesses so as to provide loans to farmers at lower interest rates.

However, the increased credit to the sector has medium and large sized food related companies as major beneficiaries. But this lopsidedness may change, as the operations of the Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) spread with the backing of the CBN, the ministry of agriculture and USAID.

With a balance sheet of N45 billion, NIRSAL, which became fully operational April 2012, offers 75 percent guarantees to banks on loans to agribusiness investors, farmers, companies and other related participants, and provides investment advice to farmer groups and value chains, strategic advice to state governments, cities and local governments on how to create an enabling business environment for agriculture and so on.

“We are expecting that NIRSAL will be able to unlock up to $3 billion (N480bn annually) worth of investment into the agriculture sector. We are running agriculture in Nigeria as a business. It is not a development activity,” Akinwunmi Adesina, minister of agriculture, said at the signing of the MoU.

According to Jude Uzowanne, head, NIRSAL department of CBN, over N6 billion in credit guarantee contracts were written in third quarter 2012 alone, and these credit guarantees are on the rise, tripling first quarter this year. In the value chains, NIRSAL works at improving rice, cassava, tomatoes, beef, leather, maize, soya beans, cotton, and has also begun delving into Jatropha, pineapples, oil palm and wheat.

Meanwhile, other lending schemes such as the CBN Commercial Agriculture Credit Scheme (CACS) are ongoing. CBN report in January indicates that it released N199.5 billion to participating banks for disbursement to 270 projects in the last year.

According to the CBN governor, NIRSAL was introduced to encourage banks to lend to farmers from their balance sheets, rather than just collecting money from the CBN for on-lending or the CBN guaranteeing, irrespective of their quality.

The credit guarantees of the schemes have caused banks to reduce the interest rate that is paid by farmers to banks on loans collected, as the guarantees assure banks that the money would still be recovered even if there is a default.

Other factor that has led to the increased bank lending to the sector includes initiatives by the ministry of agriculture, such as market facilitation. This year, banks that denied loans to cassava farmers in previous years are now on their trails with loan offers due to the launching of cassava bread and pastries in highbrow supermarkets.

Segun Adewunmi, president, National Cassava Growers Association, said recently: “We are now being pursued by banks, offering loans to us because the issue of inadequate market for cassava, which they gave as the reason for denying us loans in the past, has been addressed.”