The Nigerian Incentive-Based Risk Sharing System for Agricultural Lending, introduced July last year, has guaranteed N25bn of agricultural loans, latest data from the Central Bank of Nigeria has shown.
This has effectively lifted lending to the sector to four per cent of banks’ total loans, from the average of 1.5 per cent it stood since 2009.
The NIRSAL guarantees up to 75 per cent of bank loans to the sector.
The initiative, which is the brainchild of the CBN, the Bankers’ Committee and the Federal Ministry of Agriculture and Rural Development, seeks to create incentives and catalyse processes to encourage the growth of formal credit, direct and indirect, for the agriculture value chain, as a mechanism for driving wealth creation among value chain participants.
According to the central bank, it plans to spend an estimated $500m to create further incentives for the banks to sustain the flow of agriculture credit.
There is also a risk-sharing facility of $300m, planned to address banks’ perception of high-risks in the sector by sharing losses on agricultural loans. There is equally an insurance facility of $30m intended to expand insurance products for agricultural lending from the current coverage to new products, such as weather index insurance, new variants of pest and disease insurance.
Besides, there is also a technical assistance facility amounting of $60m meant to equip banks to lend sustainably to agriculture, producers to borrow and use loans more effectively and increase output of better quality agricultural products, among others.
The increase has been linked to the N200bn agriculture credit scheme and N600bn NIRSAL. The current improvement in the sector was also linked to access to credit through the new policy focused on increasing private sector participation, emphasis on the entire agriculture value chain, and using agriculture to boost employment, wealth creation and food security.
The CBN explained that with the credit trend emanating from the banks, Nigeria might be close to winning its economic diversification objectives that would lead to less dependence on oil.
It said, “The NIRSAL is one single programme that has brought banks back to their role of intermediation for national economic development. For the economy to be diversified and sustainable development achieved, agriculture has to be given a pride of place as largest employer of labour.