• Saturday, February 24, 2024
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Tough loan conditions hinder small agribusinesses


Small agribusinesses like that of Justus Kachikwu, a Delta State-based cassava farmer, are finding banks’ conditions for agric loans too tough. This is because the loan guarantee by the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) has been reduced to between 5 and 15 percent, from the initial 75 percent, for small farmers and other agribusiness investors. Only large-scale farmers can come up with collateral that banks demand.

Nigeria, the largest producer of cassava in the world, spends $680 million a year importing flour, starch, glucose, animal feed and ethanol, all of which can be derived from cassava. However, cassava is increasingly a growers’ market on the back of rising demand from food and beverage companies.

Growing cassava on a large scale requires plenty of manual labour and machines to process the tuber once it is harvested. The absence of large commercial cassava farmers and processors hinders local production.

Jude Uzonwanne, former managing director of NIRSAL, says the real problem is the reduction in the loan guarantee provided by the Central Bank of Nigeria (CBN) through NIRSAL for small scale agribusinesses, noting that when NIRSAL issued a 75 percent guarantee (from April 2012 to August 2013), CBN was able to convince banks to issue loans to small scale agribusinesses.

This, however, changed when CBN found that banks were beginning to take on too much risk in approving loans. As a result, the guarantees were reduced from 75 percent to between 5 and 15 percent starting in September 2013, which, unfortunately, chilled the banks’ willingness to grant loans.

The purpose of NIRSAL is to encourage banks to give loans without collateral to agribusinesses, especially primary producers. It was established to encourage commercial banks to lend from their portfolio rather than having government provide the money to the banks to lend to the agric sector. It, therefore, came with risk guarantee for loans to the big, medium and small-sized agribusiness operators.

“The collateral is what is driving the financing of cassava farmers by banks. This is because the conditions for loans by banks are still very stringent and far above what the small and medium-sized farmers can meet,” says Kachikwu, the Delta State-based cassava farmer.

Bank lending to agriculture grew to 6 percent in 2013 from 1.6 percent in 2010, an increase of over 300 percent. Most of the lending to small farmers through NIRSAL has been through co-operatives that bring hundreds of farmers together.

For input manufacturing businesses such as Notore and agricultural processors such as Dangote, the CBN, through NIRSAL, is to pay 30 percent of losses incurred in the event of loan default. For large farmers and logistics businesses such as storage providers and transporters, the CBN is to pay 50 percent of losses.

Anga Sotonye, an agricultural produce exporter, affirms that the CBN still needs to do a lot more sensitisation in getting banks to lend to the agric sector through NIRSAL.

“I approached one of the commercial banks for a loan to finance my export business and the bank insisted on collateral. I requested for a loan under the platform of NIRSAL and the bankers said they would research into it. The bank later contacted me and insisted that I bring the collateral to get the loan,” Sotonye said.