The Nigerian Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) had its first meeting with First Bank of Nigeria yesterday, July 17th to improve agricultural lending, deploying the NIRSAL Credit Risk Guarantee(CRG).
Piggybacking on the several continental accords were hitherto put in place to intervene in Africa’s agriculture finance situation, the Managing Director of NIRSAL, Alhaji AbdulHameed Aliyu singled out the African Union – Maputo 2003 Declaration where African Head of States and governments committed to allocation of at least 10 percent of national budgetary resources to agriculture and rural development policy implementation within five years.
According to the MD, the rate of lending to agriculture when juxtaposed with other sectors is still low in Nigeria, the aforementioned notwithstanding. As at the fourth quarter of 2018, agriculture still accounted for only 4.03% of total credit, with financiers attributing this to sectoral realities such as unstructured value chains, poor understanding of the sector, perceived high risks, complex credit assessment procedures, high transaction costs and poor visibility and control over cash flows.
In spite of the skepticism, the MD noted that several factors still create a compelling business case for finance and investments in the Nigerian agribusiness space. Locally, government focus, policy alignment, rapid population growth, rising middle income and import substitution capacity of US$22b are all in favour of the sector. On a global scale as well, he indicated that food and agribusiness is a US$5 trillion industry, coupled with the fact that most additional food demand is expected to come from Sub-Saharan Africa, China and India within the next decade.
“Expected consumption growth in Sub-Saharan Africa alone presents a compelling regional market opportunity for Nigeria’s agricultural primary production. In 2018, the agricultural sector grew at a rate of 2.12% in real terms. This is projected to rise to 8.37% by 2020”, he said.
ln order that these potentials can be further harnessed, he stressed the need for the flow of four major capital; finance capital to power an agricultural revolution, technological capital for increased productivity, high-end equipment for mechanization and commercialization as well as human capital extended towards intellectual and technical capacity for agribusinesses.
As against what was obtainable in the past where unsustainable agriculture financing was occasioned by resource diversion, ‘free money’ syndrome and the perception of agriculture as a hobby limited to subsistence, NIRSAL revealed its goal of becoming the bellwether of sustainable and high impact agriculture financing, with guarantee of shared responsibilities, risks and rewards to all actors, ultimately putting an end to even low impact financing engendered by stakeholders’ inability to present bankable transactions and meet up with collateral requirements, as well as the poor monitoring capacity of lenders.
Taking cognizance of the requirements of financiers, investors and capital providers, NIRSAL at the meeting assured First Bank of project feasibility and viability, high market demand (already existing), track record of success, visibility on fund flows, assurance of return on investments, fall back options/insurance cover and a favourable exit plan, all against the backdrop of its robust risk management instruments and innovative techniques, as well as the institution’s current balance sheet of N145 billion with 80% asset liquidity.
On that note, the MD introduced NIRSAL’s Mapping to Markets (M2M) Concept; an innovative approach focused on transforming the Upstream segment of the Nigerian agricultural value chains into a gold mine that will drive the development of other segments.
Following extensive research and analysis, NIRSAL said it has streamlined some commodities according to their ecological advantage. These five commodities with high market demand will be supported in the medium term under NIRSAL’s value chain integration approach. The commodities have been group into; Industrial (Maize, Soya, Wheat, Cassava, Cotton), Export (Sesame, Hibiscus, Ginger, Shea), Consumer (Rice, Sweet Potato, beans), Controlled Environment (Fresh fruits, Vegetables, Aquaculture) and Integrated Livestock ( Beef, Dairy, Hides and Skin).
Prompting a handshake, NIRSAL upon partnership assured First Bank of large integrated financing tickets, central account domiciliation for multiple agricultural value chain actors, demand and supply transactions locked in among value chain actors, virtual financial transactions within an integrated ecosystem for payments and settlements, near zero cash movements and financier visibility and control over financial flows.
The MD of First Bank, Dr. Adesola Kazeem agreed to the partnership with Ondo State as its first operational base.