Business

Evaluating NIRSAL’s credit guarantor’s role to commercial banks

With over N73 billion mobilised thus far into agriculture value chain while acting as facility guarantor to commercial banks, NIRSAL Plc is reinventing banks’ interest in agriculture lending, ABDULWAHAB ISA reports

Prior to now, banks dreaded extending credit facilities to agric businesses. It was an area classified as a risky zone when it comes to lending. The Central Bank of Nigeria began the process of changing the narrative by wooing banks to tilt their credit portfolio towards agriculture and its value chain. It conceived Nigeria Incentive- Based Risk Sharing System for Agricultural Lending (NIRSAL Plc) as a de-risking agency, a guarantor to deposit money banks. Launched in 2011 and incorporated in 2013, CBN set up a $500 million non-bank financial institution wholly-owned by it. NIRSAL was created to redefine, dimension, measure, re-price and share agribusiness-related credit risks in Nigeria.

Dreading agric lending

A 2018 report by the National Bureau of Statistics (NBS) revealed that at ₦3.58 trillion, Nigeria’s oil and gas sector received the highest allocation of private sector credit – 22 per cent of the total pot. By comparison, second place was manufacturing at 14 per cent, while all other sectors received less than 10 per cent. Sadly, the agriculture sector, which employed at the time, around half of working Nigerians and contributed around a third of the country’s GDP, received only three per cent of total bank credits. The numbers were nauseating given the importance of agriculture to the development of the economy. These numbers were quite startling for a sector so vital; one which government views as its only hope. But then, oil and gas sector and manufacturing took the lion’s share of credit.

Oil and gas as banks’ favorite

Commercial banks are set up purposely for profit-making. They are primarily interested in short-term lending and high returns. Given that most oil firms are mostly involved in the export of crude oil and the import of its refined products – a short-term activity, it fits perfectly into banks’ business preference. Investment in agriculture is a long tenured investment. It has a longer gestation period. Commercial banks won’t want to tie down their facility. Added to this is the lack of sophistication, which characterised smaller nature that make up Nigeria’s agriculture sector. They are predominantly persistence in nature – small scale farming. Added to the farmers’ problem is their lack of proper book keep ing and lack of collateral facility. All the indices that influenced banks to grant credit facilities to structured businesses are lacking in the agriculture sector, mostly the subsistence segment.

Evaluating NIRSAL’s role

One of the reasons for establishing NIRSAL by the Central Bank of Nigeria is to act as a guarantor for commercial banks. Because commercial banks were wary of advancing credit facilities to agric businesses, CBN, in its informed opinion, felt there was a need for having an agency that will stand as a guarantor, an agency that lending commercial banks would resort to should something go wrong with facility lent to agric businesses. In discharging this important mandate of creating linkage between segments of Nigeria’s Agricultural Value Chain (AVC) NIRSAL has facilitated over ₦73 billion into Nigeria’s agro processing industry from inception till date. NIRSAL doesn’t have facilities at its disposal to advance farmers. The agency mobilised various sources, including banks, development financiers, private equity investment firms and other financial institutions to lend out. It acts as guarantor to lending commercial banks. NIRSAL’s support comes at a time developing economies are increasingly shifting from only producing raw materials to both production and value addition for increased economic activity, bolstering foreign exchange earnings and widespread social development. Other beneficiaries of NIRSAL Plc’s financefacilitation include preupstream, upstream and downstream AVC operators that are involved in inputs production and supply, mechanisation service provision, primary production and logistics. NIRSAL CRG in the agriculture value chain contributes immensely to boosting Federal Government’s agric promotion drive. CRG is the agency’s core item for sharing agribusiness- related credit risks with commercial banks and financiers by up to 75 per cent depending on the segment that CRG applicants operate in. The riskier the farmer group or agribusiness operations, the higher the percentage of risk NIRSAL Plc shares. By protecting financiers and investors from possible losses in a credit transaction, NIRSAL Plc has built up their confidence to lend to players in the agric sector, a sector once widely considered as a no-go area in finance circles. With NIRSAL CRG now in place, farmer groups and agribusinesses, which hitherto before advent of CRG had difficulty securing loan approvals from commercial banks, now enjoy smoother approval processes for the loans they require to expand their operations, increase their profits and enhance their livelihoods.

Interest draw back as game changer

NIRSAL’s support to farmers and agric value chain comes in various forms. The agency is providing further support to Nigerian farmers and agribusinesses through its interest drawback scheme. A faithful and diligent borrower that is well behaved and keeps to terms of borrowed facility is entitled to discretionary rebates of up to 40 per cent of interest paid on NIRSAL CRG-backed agribusiness loans. To date, NIRSAL Plc has paid out over ₦1.64 billion, thereby reducing the effective interest rate for borrowers with a good credit history. Also critical in the creation of NIRSAL CRG-backed loans is NIRSAL’s constant engagements with commercial banks and training of their officers. Over 4,250 bank officers have been trained on NIRSAL CRG guidelines and efficient agric lending, resulting in a better understanding of the two, an improvement of banks’ disposition towards agric lending and an increase in bank lending.

It would be recalled that at the point of NIRSAL Plc’s establishment, banks’ lending to agriculture stood at 1.4 per cent. The invention of NIRSAL CRG has leaped the figure to 5.4 per cent as of Q3’21. Speaking recently on NIRSAL’s role as a credit guarantor, its Managing Director/CEO, Mr. Aliyu Abdulhameed, said that as a guarantor, its support positively impacted financiers, borrowers and the nation’s economy. According to him, “while financiers are now able to confidently invest in profitable agribusiness ventures, agribusinesses who borrow from them can improve productivity and profitability, all of which generate much-needed local economic activity.” He noted with happiness that the injection of finance into the agric sector through NIRSAL Plc had resulted in broad socioeconomic growth. Agribusinesses, he said, had been able to expand their operations and increase their staff strength, with NIRSAL CRG beneficiaries attesting to a 20 to 60 per cent increase in capacity utilisation, productivity, number of markets served and sales value. The agency’s finance facilitation efforts have generated an additional $2.5 billion worth of economic activity through agricultural products/outputs and other value chain economic activities, created 360,000 direct jobs and positively impacted the lives of 1.8 million Nigerians. As a result of the success of NIRSAL Plc’s risk-sharing model, commercial banks have pledged a combined $500 million to fund agriculture and agribusiness. Furthermore, NIRSAL Plc has been approached by other African countries to provide support for the establishment and implementation of risk sharing facility models in their respective jurisdictions. NIRSAL Plc’s latest achievement also coincides with the development of the Nigeria Special Agro-Industrial Processing Zones (SAPZ) programne across the country to which NIRSAL Plc is offering its support. With NIRSAL’s financefacilitation mandate, SAPZ pledged to mobilise private sector investment into the selected zones to enhance productivity and integrate production, processing and marketing of Agric commodities.

Last line

The role of NIRSAL as a credit guarantor to commercial lending banks, without doubt, eliminates fear of credit loss hitherto nursed by banks. As a de-risking agency, NIRSAL’s presence in the agriculture value chain is a booster, both to commercial banks and agric businesses.

 

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