Nigeria, with a population of 230 million, is the sixth most populous nation in the world, after China, India, the United States of America, Indonesia, and Pakistan. In the global food security index managed by the Economist Intelligence Unit, we were ranked 106 out of 113 nations in 2022, highlighting how far we are from meeting Sustainable Development Goal (SDG) 2 targets 2.1 and 2.2—to end hunger, food insecurity, and malnutrition in all its forms. Nigeria is ranked 153rd out of 195 countries in farm automation and mechanisation, providing a nexus between our food security crisis and poor adoption of modern production methods, innovation, and investment in agricultural technology. Since the onset of the oil boom in 1971, Nigerians have been moving to the cities without the expected agricultural revolution that replaces subsistence farming with mechanised and modern farming techniques.
The lack of institutionalised farm finance is at the centre of the persistent underdevelopment of the agricultural sector and the persistent food security crisis. Access to finance is pivotal in adopting modern farming techniques and using improved inputs. Farmers need financing to expand their operations and meet working capital requirements like buying fertilisers, pesticides, feed, hiring labour, and tractors. Farmers need additional external finance because of the cyclical nature of agricultural business, which compels them to pay for items such as land clearing and inputs such as fertiliser, herbicides and farm labour before receiving payment for their products.
Commercial/money deposit Banks have been responsible for providing credit to the agricultural sector through direct lending by the banks and execution of various schemes initiated by the Central Bank to discharge its development finance function. The scheme includes the Agricultural Credit Guarantee Scheme (ACGSF 1977), Rural Banking Scheme (1977), Interest Drawback Scheme (2002), Commercial Agricultural Credit Scheme (CACS 2009), Nigeria Incentive-based Risk Sharing Scheme (NIRSAL 2011), and Anchor Borrower Scheme (ABS 2015). Despite the agricultural sector contributing about 24 percent of the gross domestic product (GDP), the average lending to the industry is about 4 percent, which is dismally low. The Central Bank treasury-based interventions through CACS and ABS between 2009 and 2015 only increased the percentage to 5.9 percent in 2021. According to the CBN bulletin reports, agricultural lending dramatically rose 36 percent from N 0.772 billion in 2019 to N 1.049 billion in 2020, when the Anchor Borrowers Scheme was launched.
The lending to agriculture the following year (2021) increased by 39 percent to N1.457 billion. At the best of times, agricultural lending represents only 5.9 percent of the aggregate credit to the economy of N24.383 billion in 2021. It is glaring that commercial/money deposit banks are not suited to providing credit to the farm sector. They only mobilise deposits from the rural areas, pay nominal rates on savings, and lend so little to the industry.
The Bank of Agriculture (BOA) is crucial in Nigeria’s agricultural and rural development finance. Established in 1973 as the Nigerian Agricultural and Cooperative Bank (NACB), the bank has undergone significant changes. In 2000, it merged with the former Family Economic Advancement Programme (FEAP) and People’s Bank of Nigeria (PBN) to form the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB). Both FEAP and PBN were populist lending institutions created during the military regime. The bank was renamed Bank of Agriculture in 2010, with a core mandate to provide affordable credit facilities and promote banking habits at the grassroots. However, the bank’s journey has been marred by challenges, necessitating reforms. These challenges include non-performing loans, a poor capital base, and a lack of channels to mobilise savings from farmers and rural dwellers. The impact of the reforms on the discharge of its primary function of funding agribusiness has been minimal. Effective discharge of the development finance core mandate of the bank is pivotal to the growth and sustainability of the Nigerian agricultural sector.
The role of BOA in developing agriculture in Nigeria cannot be compared with the profound outcome of the gradual reforms spanning four decades of the Bank of Agriculture and Agricultural Cooperative (BACC) in Thailand, which changed the face of agriculture in Thailand. The four phases of gradual reforms positioned BACC Thailand to provide credit and banking services to 88 percent of Thailand’s farm households and maintain institutional stability. This success story can serve as a beacon of hope, demonstrating the potential for Nigeria to learn from successful models and implement similar reforms to transform the Bank of Agriculture. It is instructive to note that the Bank of Thailand attained the feat in about four decades. Some of these strategies can be replicated to rebuild our agriculture since we have the resources and the manpower to do it. They include accessing farmers for savings and lending through cooperatives and farmers groups, providing a comprehensive and complete stream of banking services for farmers and rural enterprises, focusing on rural enterprises, paying attractive rates on savings, and promoting financial inclusion, adherence to prudential banking regulation and guidance, and creation of incentives for staff to perform.
The ongoing reforms should address the bank’s historically low capital base. Its capital base should benchmark the minimum capital requirement of a national bank at not lower than N200 billion, enabling the bank to modernise its infrastructure across the 744 local governments in Nigeria. The post-reform ownership structure should prevent the government from controlling the bank’s management and ring-fence it from overt and covert detrimental political influence. Government holding should be between 25 and 49 percent, and these should be the three tiers of government—local, state, and federal government. The ownership structure must effectively transfer the bank’s day-to-day management responsibility to the private sector, emphasising the crucial role of private sector involvement in the reform process. This collaboration is essential for the growth and sustainability of the Nigerian agricultural sector.
The reformed bank’s operation must be tailored to mobilise rural deposits nationwide through competitive savings deposit rates and performance-based employee incentives and compensation. The value proposition of the bank’s enhanced capital base, private sector majority ownership and part ownership with farmers’ organisations is the capacity to mobilise deposits that would create loanable funds for advancing credit to the agrarian sector at market-determined reasonable interest rates and credit portfolio management by trained professionals from loan creation to collection. The bank must provide technology-enabled services to farmers and rural enterprises. Savings and lending products must be developed for the various segments of the agricultural value chain and rural enterprises. For instance, there should be an arable crops loans scheme, Livestock breeding loans scheme, and tree crops refinancing scheme. From the onset, the bank must provide supervised credits to farmers using trained agriculturists who will provide extension and credit services to farmers. It must develop channels of loan disbursements and deposit mobilisation, such as cooperatives, farm clusters, and joint liability groups.
The restructured and recapitalised Bank of Agriculture must hire experienced and well-motivated personnel who will develop processes and procedures from the outset to enable access to multilateral finance institutions and donor agencies’ funding based on institutionalised sound credit culture, management, and corporate governance.
In conclusion, the Bank of Agriculture’s reform must disrupt farmers’ access to credit, increase farm productivity, address Nigeria’s food security challenges, and position the country as the sub-Saharan African food basket. That will be to the extent the Nigerian government, at the three tiers, is willing to spend more of its budget on agriculture to put the requisite soft and hard infrastructure in place, such as extension services, research, irrigation facilities for all-year-round farming and minimisation of the impact of climate change, rural roads, and rail network to connect the six geopolitical zones to boost domestic trade, increase our GDP and reduce the core inflation.
Dr Bolade Agbola, DBA, CEO of Lam Agro Consult Limited, is an Agricultural Economist and a Fellow of the Chartered Institute of Bankers of Nigeria and the Chartered Institute of Stockbrokers. He is a faculty member of the Agricultural Management Programme (AgMP) of Lagos Business School. [email protected]
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