CBN and the N378.5bn agric loan default

By Adamu Lawal Toro     Thirty-four years ago, precisely in 1987, the federal government established the Nigerian Agricultural Insurance Corporation (NAIC) as the executing agency of the Nigerian Agricultural Insurance Scheme (NAIS). It was sequel to the recurring huge losses by farmers due to floods, pests, diseases and drought.  The scheme, designed to cover […]

By Adamu Lawal Toro  

 

Thirty-four years ago, precisely in 1987, the federal government established the Nigerian Agricultural Insurance Corporation (NAIC) as the executing agency of the Nigerian Agricultural Insurance Scheme (NAIS). It was sequel to the recurring huge losses by farmers due to floods, pests, diseases and drought. 

The scheme, designed to cover all farmers from small to large corporate farms, had as its objectives, among others, to provide financial support to farmers, where there is a loss to crops or livestock arising from natural disasters, provide credits/inducement by financial institutions to farmers to promote agricultural production and minimize or eliminate the need for government ad hoc assistance to farmers in the event of agricultural disasters.   

The scheme made it mandatory that all agricultural projects financed through one form of credit or the other, including government intervention programmes, must be insured with the corporation under the scheme. It provides for financial support of up to 50% premium subsidy while the farmer pays the other 50%. The federal government provides 37.5% of the subsidy, while the states pay 12.5%.  

Over the years, NAIC has developed a comprehensive operational guideline for farmers and financial institutions on the planting season across the six geo-political zones in the country to minimize misuse and misapplication of inputs for maximum crop production.  

To cushion the effects of the ban on the importation of rice by the federal government, the Central Bank, in 2015, launched an ambitious Anchor Borrower Programme (ABP) for various commodities that entailed extending credit facilities to small-scale farmers in a bid to reverse Nigeria’s negative balance of payments on food. 

The objective of the ABP is to create economic linkage between small-holder farmers and reputable large-scale processors to increase agricultural output and significantly increase the capacity utilization of agricultural farms.  

While the ABP could be termed a success in growing and processing rice and other commodities, the repayment of the loans by farmers had since become a big problem due in part to the structure of some of the anchors themselves and the implementation strategies at the state levels.  

It was therefore expected that the CBN would have learnt from NAIC’s operations on how, when and where to disburse funds without risking its investments. To access the CBN loans, farmers were encouraged to form commodity associations, link up with service suppliers, off-takers and relevant financial institutions through whom loans were to be disbursed and recovered.  

To date, CBN is said to have disbursed over N700 billion to over three million farmers across the country. But down the line, since the inception of ABP in 2015, N378.5 billion remains in default.  

Over the six years since the implementation of the ABP, there had been widespread complaints that inputs were not provided to farmers at the right time; funds were not disbursed as at when due, and the various states’ project management teams (PMT) headed by the apex bank failed to insist that the right thing be done at the right time thereby making many of the investments unviable and therefore susceptible to default.  

It was, therefore, foolhardy to allow distribution of inputs and planting at the tail end of the rainy season, knowing fully well that NAIC will not insure such exercise, which in essence means that particular loan is going down the drain.  

Farmers also generally complained that the seeds being distributed for planting were not those certified by the Seeds Council of Nigeria. They claimed the seeds given to them were procured from the open market and therefore, could not guarantee the expected yields. They also said the tractorisation of their farms was carried out by service providers who lacked the capability and capacity to deliver on their assigned mandate.  

One other major drawback is the non–remittance or late remittance of insurance premium to NAIC which operates on the basis of no premium no cover. The other problem is the involvement of commercial insurance companies by the CBN in total disregard to the laws governing insurance.  

From the foregoing, it is clear that associating the default to insecurity, particularly in the North West is beside the point. CBN should do a total review as regards timelines for the distribution of inputs, loans disbursement and the remittance of insurance premium as at when due.  

Another contentious issue among stakeholders is the involvement of private insurance companies in collecting insurance premiums. NAIC by its act is the only insurance corporation established to underwrite agricultural risk across the agricultural value chain. Consequently, the corporation’s policies across the value-chain include, crops, livestock, poultry, fishery, produce in transit, produce in storage, fire, burglary, plant-all-risks, machinery breakdown, motor, workmen compensation, group personal accident, fidelity guarantee, etc. above all, the corporation’s crop policies are midwifed through the indemnity and area yield index insurance covers.  

NAIC on its own has expanded its insurance coverage following popular demand of farmers for insurance coverage to herdsmen against cattle damage.  

The central bank will continue to have issues and defaults in its loans as it relates to its ABP without carrying NAIC along. Operations of private insurance are solely driven by profits while that of NAIC is driven by the need to operate the scheme established by the federal government to keep farmers solely in business, with or without profits.  

The managing director of NAIC, Mrs Folashade Joseph, at the interactive forum organized by the corporation for the representatives of commodities association and other stakeholders at the Sheraton Hotel and Towers, expressed optimism that the Nigeria agricultural sector holds huge potentials to move the Nigerian economy and attract up to 40 billion investments and stop the N1 trillion food import thereby freeing more funds for infrastructure. 

Time has come for the CBN to completely review its involvement in agricultural financing by working closely with those institutions of government that were purposely set up to provide service to make Nigeria self-sufficient in food production and a source for foreign exchange.  

 Adamu Toro writes from Wuse Zone 7.