De-risking The Agricultural Sector


Monday, February 24, 2020  11:59 AM / CSL Research/ Header Image Credit:  African Business Magazine

Speaking during a summit in Lagos, the Managing Director/CEO, Nigerian Incentive-Based Risk Sharing System for Agricultural Lending, (NIRSAL) disclosed that the institution has provided insurance cover worth N6.5bn to protect farmers in the country. He also disclosed that NIRSAL developed and launched the Area Yield Index Insurance product and protected over 37,399 farmers, with over N121m paid out as compensation.

The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc.) is a Non-Bank Financial Institution wholly-owned by the Central Bank of Nigeria (CBN), established in collaboration with the Federal Ministry of Agriculture and Rural Development (FMARD) and Nigerian Bankers' Committee in 2013. The core mandate of NIRSAL is to stimulate the flow of affordable finance and investments into the agricultural sector by de-risking the agribusiness finance value chain, building long-term capacity, and institutionalizing incentives for agricultural lending through its five (5) strategic pillars, namely: Risk Sharing, Insurance, Technical Assistance, Incentives and Rating.

With respect to the insurance pillar, the establishment of NIRSAL was expected to encourage banks to improve direct lending to the agricultural sector while NIRSAL stands as guarantor. However, we understand that banks are still reluctant to lend to the sector, suggesting that the sector is still considered highly risky. In our view, socio-economic/structural issues which range from insecurity particularly in the northern parts of the country (evidenced in Fulani- Herdsmen clashes), inadequate infrastructure (especially power and good road networks) and the dearth of technical skills among farmers will continue to deter banks from extending credit to the sector.

The reluctance of banks to extend credit to the agricultural sector has led the CBN to establish alternative financing schemes such as the Anchors Borrowers Programme (ABP) and Commercial Agriculture Credit Scheme (CACS) to provide finance for the planting and cultivation of crops locally. Despite these initiatives, we note that the fortunes of the agricultural sector is yet to show any remarkable improvement as the supply gap across a number of commodities has continued to widen in the face of faster population growth.

While we applaud the initiatives of the CBN towards improving domestic agricultural output, we believe the federal government needs to complement the efforts of the apex bank by tackling those long standing structural barriers that have hindered the productivity of the sector. Improvement in agricultural output is crucial considering Nigeria's growing population.

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 Proshare Nigeria Pvt. Ltd.

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