The Central Bank of Nigeria (CBN), United States Agency on International Development (USAID) and the Ministry of Agriculture and Rural Development, have signed a joint Memorandum of Understanding (MoU) to reduce the risk of lending to farmers.
The CBN Governor, Malam Sanusi Lamido Sanusi, at the occasion, said the MoU was a landmark achievement to the apex bank in its effort to ensure enhanced agricultural sector in the country.
The MoU was signed in Abuja under the CBN's Nigerian Incentives-based Risk Sharing system for Agricultural Lending (NIRSAL), which provides risk mitigation, financing, trading, and other strategic assistance to agribusiness.
Sanusi said that commercial banks, with the recent development, would lend to farmers without much losses as the incentive would go a long way to reduce the risk in business.
"NIRSAL will help the banks to diversify; and the banking industry cannot develop on a sustainable basis unless it locks itself into production. So we say let's go to agriculture, manufacturing, SMEs and also into financial inclusion and development which is central to financial stability," he said.
He said the apex bank would meet with the Managing Directors of banks and the minister to evaluate the implementation and the progress so far made. He added that the sector had made progress as it accounts for 4 per cent of banks portfolio as against one per cent in the last four years.
"We save more money with what the ministry is doing with staple crop process zones, reforms of fertiliser regime, research and development of high yield varieties. The whole process of standardisation and commodity exchanges, these are critical and necessary steps to take and pursuit to execute before banks can lend to agriculture," Sanusi said.
He expressed hope that in the next one year there would be revolution in the sector with the introduction of the NIRSAL to the sector
Earlier, USAID Administrator, Dr. Rajiv Shah, observed that the agreement would further make agriculture a source of wealth creation in Nigeria. He said that 70 per cent of farmers in the country lack access to credit facility.
Shah explained that the MoU would provide credit guarantee of about $100 million of agricultural credit to Nigerian farmers. "We will guarantee that the agricultural sector will pay that loan back to banks. So they will have the courage and conviction to lend the loan to the farmers," Shah said.
He said that the US government was aware of some of the work the ministry was doing in the agric sector.
In his remarks, Minister of Agriculture, Dr. Akinwumi Adesina, said the MoU would address the issue of low lending rate to the agriculture sector. He added that the effort would further get the banks to lend to the farmers.
"NIRSAL can unlock about N300 billion into the sector but we have to embark on significant reforms that can make the sector attractive to lending," Adesina said. He said USAID has the market initiative that was driven in rice, cocoa, sorghum and maize, adding the agreement could help develop the value chain programme.
NIRSAL was established to spur additional financing for agriculture lending based on its experience with various guarantee programmes, including USAID's development Credit Authority.