Federal government and the United States Agency for International Development (USAID) yesterday signed an agreement to de-risk banks lending to farmers in Nigeria.
The Minister of Agriculture Dr. Akinwumi Adesina and governor of Central Bank of Nigeria Sanusi Lamido Sanusi signed the Memorandum of Understanding on behalf of Nigeria, while the USAID Administrator Rajiv Shah signed for US.
The agreement is under the federal government's Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL), which the Federal Ministry of Agriculture and the Central Bank of Nigeria are championing to enable banks lend to farmers.
The NIRSAL has N75 billion funding capital.
Yesterday's agreement involved $3 billion that banks are expected to invest in agriculture overtime and the United States of America has agreed to guarantee the first $100 million so that farmers can access bank loans without collateral.
"Our specific part of the $3 billion vision is to take the first $100 million and we will guarantee that the agricultural sector will pay back to banks so that they can have the courage and conviction to make that loan," Shah said.
He said: "We know that access is very limited and the United State is committed to working with the central bank and ministry of agric to offer technical assistance to banks so that hundreds of millions of dollars can be provided at a lower interest rate to farmers."
The minister of Agriculture said that the facility will reduce the interest rate that is paid by farmers.
Adesina said: "If for example, the interest rate is 15 percent, because of the risk sharing facility that NIRSAL will do and because of the fact the ministry of agriculture is fixing the agric value chain, it means that the interest rate would go down from 15 percent to about 9 percent. It is a facility that would reduce the risk of lending and the interest rate paid by farmers.
"We are going to help the farmers to organize themselves into cooperative groups and the agro dealers that are going to benefit from this facility are going to be registered. The reason why banks ask for collateral is because if they think that you are a high risk borrower, they need something they can hold on to. In this particular case we are linking farmers to companies that are buying from them. We need new ways of lending that are not based on collateral."
The central bank governor Sanusi Lamido Sanusi said banks are now convinced to start lending to the agricultural sector.