Agricultural financing is key to green revolution
Like every business, agriculture requires serious financing. What are the current needs of stakeholders in the sector? Agricultural financing in Nigeria is still very way behind where it should be. The information the last time I checked is that lending from our commercial banks to agriculture is around 3 to 4 percent of their lending […]
Like every business, agriculture requires serious financing. What are the current needs of stakeholders in the sector?
Agricultural financing in Nigeria is still very way behind where it should be. The information the last time I checked is that lending from our commercial banks to agriculture is around 3 to 4 percent of their lending portfolio. For a sector that engages more than 60 percent of the population, provides employment for millions, for that level of lending to go to agriculture, it means there is a disconnect somewhere. Agric financing is a big issue in this country and the financial need for agriculture cuts across the entire value chain beginning from even production.
From production side, there has to be more finance for farmers to be able to adopt and use good farm inputs and equipment on their farms; there is need for people to acquire land for farming so that if you go to a location which is not your place of origin, and you want to farm, access to land is a big issue except you can afford to buy. So you need finance for those kinds of things. And then when you start to talk about the cultivation itself, there is a lot of financial needs along those lines and even where the produce gets harvested, value addition is another area where financing is very crucial.
Report has it that in Nigeria we lose about 40% of agricultural produce to spoilage and postharvest. So we need to have a structure where people can be financed to acquire small equipment that farmers can use to create the first layers of value addition even if it is not taken to finished goods. Finance is required even in the marketing of the agriculture produce. If you compare things that are imported into Nigeria with those that are produced in the country, what comes out is that their products are better branded. All about of branding and core marketing work require financing. So if you look at the entire value chain, there is huge need for agricultural financing.
Are the financial institutions ready to finance agriculture in Nigeria?
I will say no. I don’t think that the financial institutions in Nigeria are sufficiently committed to financing agriculture. I will tell you the reasons: one major reason why financial institutions are not so committed to financing agriculture in Nigeria is the fact that there are a lot more attractive alternatives to agriculture for them to put their money into – oil and gas and property development. They lend to that sector at high interest rates where there is “assurance” in quote that their money is coming back.
Two, there is a limited understanding of agribusiness among our financial institutions. The operators of financial institutions don’t understand how agriculture works. Therefore they judge agriculture as being too risky to finance.
Don’t you think that government policy should be considered because if you have a policy that compels financial institutions to lend certain percentage of the lending portfolio to agriculture, will that not scale up lending to the sector?
I agree. I mean if the government policy insists that banks lend a particular fraction of their funds to agriculture – if you ask me what that fraction would be, it should be within the neighbourhood of at least 25% because what we need as a country today is the green revolution and that green revolution has to be financed; and if you are looking at our financial institutions to do that, the only way is to insist that not less than a quarter of their portfolio of lending should go to agriculture.
If government enforces that, then we’re likely to see lots more funds coming to agricultural space. But the other thing though is that, it’s one thing to say they must lend to a particular level; the other thing is to check whether they have the capacity to effectively lend and monitor what they lent to agriculture so that they get their money back.
Some agro dealers are unable to pay back the loans they took from banks because government owes them huge amounts. Don’t you think this will discourage bank lending?
The thing is this, if you intervene as a government to help a sector to move faster, your intervention should be that you’re not going to disrupt the sector; you want to push further. So if you say I want to help farmers to have access to inputs, by helping the agro dealer’s structure to provide inputs more rapidly, then you need to look at the existing agro dealer structure and support them to do that. But when you bring people outside that agro dealer’s structure – they have no basis, they have no existing structure, they have no existing relationship with places where they source those product from neither do they have long term commitment to the scheme – that is a big problem. And the banks need to double check who they are lending to to ensure they are connected to proper source so that you can be sure that your money comes back. In fact I even heard conversation to the effect that a few of these agro dealers, a lot of the money they took they did not even put it in the business it was meant for. Even now that government is talking about paying them back, if you look at the bill that government actually owes these people, it is actually far less than what they borrow from the banks. So they will not be able to pay back even if government fully pays them because they diverted the money into something else.
Do you advocate specialised financing for agro inputs?
Yes. It definitely has to be because agro inputs are very unique. They are not like going to the street to buy a car – agro inputs more often than not – even though a lot of it may not be perishable – if you take seed for example, seed viability goes down the longer you store it. So the requirement for the finance is very timely, there is specific time it has to happen, it should be open-ended. So they are very unique. We need to develop a proper structure to finance agro inputs provision so that farmers will have access to it as at when due and at the appropriate prices.
Sometimes the issues is not really the difficulty in finding the finance, it is the lack of conviction by many farmers that this finance, if I find it at all cost, will I get value for it.