Nigeria’s government and USAID partner to increase lending by banks to agriculture.The Federal Government and the United States Agency for International Development, USAID, on Thursday signed a Memorandum of Understanding, MoU, to facilitate increased lending by banks to the agricultural sector of the economy.
The financial deal signed by the Minister of Agriculture and Rural Development, Akinwumi Adesina, and the Governor of the Central Bank of Nigeria, CBN, Lamido Sanusi, on behalf of the Federal Government; and Rajiv Shah, for USAID, is expected to help leverage about $100 million loan guarantee to farmers in the immediate term.
Anchored on the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending, NIRSAL, project, the partnership would enable the parties to use co-guarantees, joint technical assistance, combined training and workshops for local banks and agriculturally-linked enterprises, to encourage the growth of the country’s agriculture sector.
The agric minister described the agreement as a landmark initiative in government’s efforts to transform the agricultural sector as it would help to reduce the risk of commercial banks in their agricultural sector lending.
“We are expecting that NIRSAL will be able to unlock up to $3 billion worth of investment into the agriculture sector,” Mr. Adesina said. “We are running agriculture in Nigeria as a business. It is not a development activity.
According to the minister, in the last one year that the Agricultural Transformation Agency was launched by the Federal Government, significant transformation has been achieved in the agricultural sector, pointing out that through the scheme about $8 billion worth of private sector investment was attracted into the states.
He noted the impact of the reforms that has enabled banks to lend to farmers, adding that the launching of the growth enhancement scheme last year helped bring to an end over four decades of corruption in the sector using mobile phones.
About 1.2 million farmers were reached through the scheme this year, adding that government intends to reach about five million additional farmers in the coming years.
Mr. Shah said the partnership with the Federal Government underpins the United States Government’s commitment to end hunger and extreme poverty across the world, pointing out that when President Obama began his first term in office he had declared his primary commitment to development by ending hunger and extreme poverty through business investments.
He had also indicated interest in promoting self sufficiency through a vibrant agriculture system as a first step to building vibrant and diversified global economy, noting that despite all the promise and the success that the future holds for Nigerian agriculture, nearly 70 per cent of Nigerian small scale farmers lack access to finance.
He noted that through such partnership hundreds of millions of dollars of private finance would be available so that farmers and related businesses can invest to turnaround their operations.
According to him, the United States is ready to offer credit guarantees, technical assistance and other forms of partnership to ensure that “farmers invest in their production systems, agro-businesses invest in expanding their processing operations and ultimately exporters and retailers can invest in adding value and building a more effective food economy.”
He said the ambition of USAID is to reach another $3 billion in Nigeria, focusing specifically on the development of the agricultural sector.
The Central Bank Governor said that central to the banking crisis in Nigeria is the fact that banks derailed from their core function of intermediation of all the savings generated in the economy into the real sector, into the creation of jobs and production of goods and services.
He said for decades, banks became institutions that mobilise savings and speculate on the capital markets, pointing out that it is not just enough to complain about banks, as there must be a process of working together and recognising that there are many parties involved in unlocking finance needed to grow the business.
According to him, the 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 loans irrespective of their quality.
While reflecting on the apex bank’s achievements in its efforts to improve banks’ lending to the agricultural sector in the past years, Mr. Sanusi noted that contrary to practice in the past when lending to the sector was less than one per cent of their total loan portfolio, the recent initiatives have improved lending significantly, rising to about four per cent or N300 billion in 2012.
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