The Federal Government on Thursday signed a $3bn (about N480bn) agriculture financing agreement with the United States Agency for International Development to leverage financing to the agriculture sector.
The Governor, Central Bank of Nigeria, Mr. Lamido Sanusi, and Minister of Agriculture and Rural Development, Dr. Akinwumi Adesina, signed on behalf of the Federal Government, while the USAID Administrator, Dr. Rajiv Shah, signed for the agency.
The agreement, which was signed at the CBN headquarters in Abuja, will enable the parties to use co-guaranties, joint technical assistance, combined training and workshops for local banks and agriculturally-linked enterprises to encourage the growth of the agriculture sector in Nigeria.
Speaking at the event, Shah said under the agreement, the US would immediately provide guarantee of up to $100m in commercial lending to Nigerian banks.
The move, according to him, will help increase private financing to the sector as well as reduce banks’ apathy to agricultural lending.
He said, “We are very proud of this partnership agreement because we know that in all of the promise and success that the future holds for Nigeria; agriculture nearly 70 per cent of small scale farmers lack access to financing.
“Because of this partnership, hundreds of millions of dollars will be made available so that farmers can access and improve their production system and their processing operations.”
Also speaking, Adesina said the guarantee would help to address some of the issues affecting lending to the sector by banks.
They are high interest rates, persistent decline in the quantum of lending to the sector and risk of default.
The minister said, “What this facility is going to do, and I really commend the Central Bank governor, is to reduce the risk of lending by banks. We had a meeting last week with the CBN governor and the managing directors of banks, and they were thrilled at the level of activities in the sector.
“They were thrilled at the $8bn investment commitment into this sector in one year and they were also thrilled by the fact that of the N3bn that was lent last year to seeds and fertilizer companies, the default rate was zero per cent.
“So, on this facility, the central bank will put out risk sharing instruments, which will leverage the excess liquidity from the commercial banks. The total amount that we are looking at is $3bn overtime.”
Adesina said the amount that would be facilitated under the Nigerian Incentive-based Risk Sharing for Agriculture Lending had about four components.
The components are to reduce the risk faced by banks, provide technical assistance to banks, improve the agriculture value chain and provide insurance cover.
“So, its an endorsement of the fact that the central bank and the banking community recognise that there is a revolution on the way in Nigeria in agriculture and they are ready to put significant financing behind it,” he added.
Also speaking, Sanusi said the process for the agreement began in 2009 at the peak of the banking sector crisis, adding that the steps so far taken in reforming the sector had started yielding fruits.
He said, “The tentative steps taken last year have started making banks to give credit to this sector without securing losses. We have so far made progress in the agriculture sector.
“Four years ago, the agric sector accounted for less than one per cent of the portfolio of banks; last year, it was four per cent and we had over N300bn already into agriculture but we can do more.”