Last week, Sterling Bank PLC hosted its Agricultural Summit in Abuja. On the sidelines of the event, the Managing Director and Chief Executive, Abubakar Suleiman, spoke with Business Editor, Bassey Udo, on a number of activities by the bank to promote agricultural development, particularly among small and medium-scale enterprises.
PT: Your bank just launched SABEX, a digital commodities trading and financing platform. What informed this initiative?
SULEIMAN: The bank realised that in the agricultural value chain it was a difficult experience for people at the lower end of the economic spectrum, particularly small and medium-scale enterprises, to access adequate financing for their businesses and be able to dispose their products and commodities after harvest.
The bank thought of a solution that would make it possible for the average farmer to be able to access finance for their agricultural activities and at the same time be able to harvest their crops, move to a storage facility, without much losses, and be able to sell and earn value as soon as possible.
The bank went into partnership with AFEX commodities exchange and digital platform called Binkabi, which is based on block chain operations. What they have delivered is a way to decentralise commodity trading and reduce intermediation in trade, while distributing profits more widely across the value chain. The platform will be able to tokenise commodities and cash, so that the two can be exchanged instantly irrespective of where the farmer is located.
The trading and financing platform is based on the block chain in Nigeria. This is the first time buyers and sellers can be connected directly for the purpose of exchanging goods and services.
Once both parties have agreed on the price, they can transact on any commodity. The platform will settle the payment and the money will get into the wallet within a few minutes as opposed to the existing arrangement where commodity traders will have to wait for days or even weeks before getting their commodities sold.
If people do not want to sell the commodities they have harvested immediately, then they can use the commodities they have stored in warehouses as collateral for loans.
The whole loan process will take a few minutes. These are loans that are usually in days or in weeks.
The objective of this initiative is that it will drive farmers to produce high quality commodities and be able to move these commodities to warehouses across the country without any fear of losing so much, in terms of the absence of storage facilities and post-harvest losses always suffered by farmers.
Based on these, the farmers can have sufficient capacity to qualify to access financial support, in terms of loans from the bank, either to buy inputs, or essentially continue to live their lives.
PT: Who are those qualified to get on the platform to trade and access loans?
SULEIMAN: To get on the platform, prospective players have to link their bank accounts with Sterling Bank, or any other partner banks. They will be directed to provide some more details about themselves and their businesses before they can start trading.
There are no other special requirements. The only emphases we would want to say is commodity trading, either as individuals or companies. It does not cost anything to register. It is free. It does not even require any special skill. Anyone can do it.
The most important thing is that we want to see how we can involve more and more people in the agriculture value chain by encouraging them to have access to instruments that would promote their productivity and business.
The platform is one of such instruments, and is already operating live. Registration is currently ongoing.
PT: What motivated to bank to consider the initiative in agriculture?
SULEIMAN: The biggest motivation was the huge post-harvest losses that farmers always suffer in the country. When farmers suffer to cultivate their crops and are again made to suffer huge post-harvest losses as a result of not being able to deliver their commodities to warehouses all over Nigeria, it could be such a terrible experience. With what the bank is doing, those losses will be drastically minimised.
Where the farmers do not have facilities to store their commodities after the harvest, they are compelled to sell those commodities cheaply, since they have to dispose of those commodities immediately after harvest, to avoid them going bad after a few days.
By offering them the opportunity to move these commodities to where they would be safely stored, to enable them derive the expected financial benefits, the farmers are no longer compelled by circumstance to sell at a bad price immediately after harvest.
If they can move these commodities to storage facilities of their choice and be able to get tokens that will give them the value for all their efforts, it will give them sense of satisfaction to produce more.
With the values of the commodities the farmers have put in their storage facilities, they can now borrow from the bank against it, or they can wait and sell at a time the price is right.
In other words, the initiative will not only make the farmers productive, but also profitable.
PT: The bank has put in place N100 million deal room financing for prospective farmers. How easy is it for the small-scale farmers and other enterprises to access the loans?
SULEIMAN: The N100 million deal room fund is what the bank has made available for farmers just for the period of the Agricultural Summit. There are several other loan schemes the bank has in place.
The objective of th arrangement is to encourage a lot of young farmers and other people in the agricultural value chain that cannot access funding normally by giving them instant access.
Beyond that, the bank has provision for all kinds of funding for farmers, irrespective of where they are in the country.
The most popular funding scheme the bank in providing is the Anchor Borrowers Scheme, which is funded by the Central Bank of Nigeria (CBN) for small and medium enterprises involved in agricultural development in the country. This has been very successful in assisting farmers in their businesses.
There are other funding packages that are available for farmers engaged in various activities in the agricultural value chain. This depends on exactly what the farmer does and how much he or she needs. Apart from accessing direct loans from the bank, there are other specialized facilities the farmers can also avail themselves of.
There are special funds the bank has put together for lending to farmers. There is also the Nigeria Incentive-based Risk-Sharing System for agricultural Lending (NIRSAL) guarantee scheme, which allows the bank to lend to farmer because of the special guarantee on the loan, irrespective of where the farmer is, or whether he is buying input, like fertilisers, tractors or equipment.
The bank can give the farmer funding to do all that. There is no standing financing arrangement for all farmers. Every single farming activity is different. The farmers need to sit down with the bank to decide which is best for them.
PT: Loan recovery is a serious problem in Nigeria’s banking industry. How easy is it like getting the farmers that take loans from the bank to repay?
SULEIMAN: Absolutely! Debt recovery is a serious problem. But, what we have witnessed has been improvements over the years, because of the solid governance structures we have in place.
In the first year, the Anchor Borrowers Scheme was introduced, the repayment of the loans by farmers was pretty low. Every year after that, we have seen significant improvements.
If the bank wants farmers to be able to pay back loans taken, it is important for the bank to have presence in their immediate communities for effective monitoring and coordination of repayment plan.
Lending to farmers and not being around to provide support services when they need it, and to collect monies when they are due, cannot be an effective way to lend to anybody. That is why I spoke about effective governance structures.
Our bank has agents across the country, particularly in the farming communities where we provide financing. This is very important to our overall lending strategy. These agents assist us to monitor the loans and recover them when they are due for repayment by the farmers.
The farmers we deal with have also realised that it is better to pay, because if they do, they will continue to access funds to from us to sustain their businesses.
So, we believe that the repayment of loans by our farmers has improved significantly. I hope it will continue to get better.
PT: It appears agriculture is attracting a significant interest by your bank. What’s your budget for agriculture?
SULEIMAN: Over the last five years, the bank has lent over N55 billion to farmers for various activities to promote agricultural development. The amount the bank is ready to lend depends on the quality of requests and proposals received from the farmers.
For this year, we had planned to lend a minimum of N10 billion to farmers. That does not mean that if we receive credible proposals, we will not do more than that. Funding agricultural is close to our heart. That is why we have a deliberate policy to encourage lending to farmers and other agricultural activities in the country.
Beyond what we lend on our balance sheet, the bank has a lot of partners that we are working with who lend to farmers. So, the N10 billion is just the starting point we have set.
PT: Why is Sterling Bank interested in financing agriculture?
SULEIMAN: I think it is simple. It is difficult to operate in a country and ignore a sector like agriculture that accounts for so much employment and add so much output to the country’s gross domestic product.
At the end of the day, all the country’s development starts with agriculture. Apart from the raw materials that come from there, the country must be able to provide food to feed the people and provide the input required for mechanisation and for manufacturing to take place.
To a large extent, I can’t imagine a better place to start to focus our intmechanization, if not agriculture.
The bank has built its strategy around five key sectors. These are: agriculture, health, education, and renewable energy as well as transport sectors.
We need these sectors to enable the economy grow. We believe the economy is growing fast enough.
The government cannot be made to seem as being responsible for everything. The private sector, particularly the banks, has to identify and focus on those strategic sectors that will create economic growth.
The banks should be there to provide the funding necessary for those economic activities. That is how the bank will also profit from such funding activities.