• Friday, September 29, 2023
businessday logo


Nigerian Banks Increase Lending to Oil, Reduce Lending to Agriculture

It would seem logical that the Nigerian banks would support the sectors with the largest contribution to economic growth in Nigeria, yet as oil prices have fallen, the allocation of credit by the banks to Oil and Gas companies has increased. Agriculture is Nigeria’s single largest contributor to economic growth, it employs the largest number of rural Nigerians, yet its share of sectoral credit has fallen in 2016.
Picture A shows the share of Oil and Non-Oil sectors to Nigeria real GDP.  Note these sectors have a less than 12% contribution to GDP.
Picture B shows the sectoral allocation of credit by Nigerian banks to sectors in the economy, it shows oil and gas with an overweight allocation from banks. Look at agriculture, its way down the line..
This is a problem.
Bank credit is a catalyst, without monetary credit an economy cannot grow. Look at Mining and Querying sectors on picture B , zero credit from commercial banks. The President of Nigeria had spoken publicly about his economic plans which rests on job and wealth creating via Agriculture and Mining, yet private credit flows are not keeping apace with these economic plans.
It is important to note that private credit is capitalist and profit seeking, thus is wont readily flow to sector profiled as risky by commercial bankers. Agriculture and extractive lending is risky, and it needs to be de-risked, this is what the government must focus on. Mandating sectoral allocation limits to bankers will not make agriculture a viable sector, the sector must be institutionalized and offered clear incentives to move agriculture into the formal financial market.
A full derisking strategy is beyond the scope and intent of this paper, what is important is to point out this imbalance, with a view to this be corrected. Derisking involves everything from credit guarantees to accessibility of documentary evidence of collateral assets eg land Certificate of Occupancy titles.  we have a few ideas…
  • The provision of legal title for farmers and miners has to be prioritized, Land remains the only real asset many farmers have to seek a loan, the State Governors must create fast track the process to issue land title to rural farmers.
  • The process for creation of legal and equitable mortgages with agricultural and mining land is made simple, clear and affordable. The CBN must lead with directing and creating policy for Nigerian banks in this regard.
  • The Nigerian Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) has only  USD300m in its risk-sharing facility this needs to be increased. A similar arrangement created for Mining.
  • The new Nigerian Development Bank has to be core focused on a mandate of lending to MSMEs, it’s important oil and gas are not considered in its lending mandate, for now.
  • Central Bank of Nigeria should sustain its funding of special intervention funds for these sectors.
These are basic directional step to tilt the imbalance back to the real job creating sectors in the economy.