Why Nigeria Needs An Islamic Agric-Microfinance Bank - Abdullahi AbdulRasaq


Friday, November 20, 2020 / 1:00 PM / Bukola Akinyele for WebTV / Header Image Credit: WebTV

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The Central Bank of Nigeria (CBN) Shariah Advisory Board should intensify efforts towards achieving the establishment of an Islamic Agric-Microfinance Bank in Nigeria said Abdullah AbdulRasaq, Lecturer at the Department of Islamic Banking insurance and Finance at College of Islamic Finance and Management Science, Ilorin Kwara state. Abdulrazaq said this at a recent discussion on developments in the Microfinance banking sector in Nigeria.

According to AbdulRasaq agriculture is a key sector in the development of any nation but is not getting adequate support and allocation at the moment as the 2021 Federal Government budget revealed an allocation of 1.5%.

According to him, the support of the Bank of Agriculture (BOA ), The Central Bank of Nigeria (CBN) and the Federal Ministry of Agriculture & Rural Development (FMARD), will put an end to a lot of theoretical concepts such as 'Zero Hunger' and 'Food Security' that have been poorly executed. 

He said, the BOA has 80 branches with each assigned 5 tractors, and it has two loans such as "Agricultural Loan" and "Non-Agricultural Loan", where an individual is entitled to N250,000 to N5m. The scholar stressed that the Nigerian Agric sector will not achieve the necessary impact, without the empowerment of people in rural communities.

Abdulrazaq speaking further noted that the World Bank has a lot of money that has been allocated to the development of agriculture particularly for the African continent. Recently, the Bank of Agriculture signed an MOU with the SME Agency Fund of the Federal Government which is supposed to be MSME-focused,  since those in the rural communities are the Micro farmers that need the support.

He pointed out that in 2006 the African Union signed an MOU with Nigeria on allocating 10% of their annual budget to agriculture, but Nigeria failed to fulfill the promise it was a signatory to.

For the Budget Year 2019, he highlighted the fact that Nigeria allocated 1.2% of its allocation into Agriculture which was than what the country required.

The Islamic Banking lecturer made a strong case for the provision of a 'Youth Fund' that would channel funds to the young micro-farmers in rural communities. Also, he said if they were provided with proper facilities and storage equipment, food security would be assured.

In respect of Agric Microinsurance and how it could support Smallholder  Farmers, he said Islamic Agricultural Microfinance has several products for the development of microinsurance.  In his view, the Mudahara is an Islamic Agric-Microfinance product that could assist farmers.

The Mudahara also goes in line with the  Ijara and Salam products which are the tools to drive the development of Islamic Microfinance in the agriculture sector.

He gave the instance of Bangladesh where the Central Bank of the country recently announced  Mudahara, Ijara and Baitu Salam products for the support of farmers. 

According to him, Bangladesh uses Mudahara products as the country has a lot of arable and untapped land, through which farmers are engaged and profit-sharing is agreed at a mutually acceptable ratio.

AdbdulRasaq believed the same process could work in Nigeria,  but the Islamic Banks in the country like Jaiz do not have any package or product for farmers at the moment.

Explaining the concept of Baitul Salam, Abdulrazaq noted that the Salam product is designed to give a farmer capital to start farming activity and at the end of the harvesting period a pre-arranged sharing formula is followed.

He said the BOA has been helpful in a conventional way to farmers but has not been of support to Microinsurance organization.

"The BOA policies for an individual to obtain a loan from them is not favourable for a common man. For instance, for an individual to obtain a loan from BOA they are entitled to a loan from N250,000-5m with some collateral while a corporate entity can borrow from N5m.  The tenure is 5yrs and it will be returned with agricultural products that are 14% of the loan which will be inclusive and if it is in kind 20% of the loan" Abdullah added.

Abdullahi decried the fact that currently if the farmer runs at a loss during the period of farming or harvesting,  they will lose millions of naira in investments because of an absence of insurance. This was the experience of farmers in Nasarawa and Taraba states after the 2020 flooding.

He believed it was time to establish a viable and dynamic Islamic micro agricultural finance in a bank in Nigeria, with real-time products that would deepen activities in the agriculture sector.  


AbdulRasaq concluded that the Bank of Agriculture should align with the Federal Ministry of Agriculture & Rural Development on how to take the opportunity to those in the rural communities across the nation. Also, training and seminars should be arranged for micro-farmers. 


Concerning Nigeria, he stressed the importance of the acceptability of locally made products. He called for the increased patronage of homegrown foodstuff in the country.

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