Non-interest Banks to Bear Customers’ Repayment Risk in CACS



The Central Bank of Nigeria (CBN) has amended the guidelines to the Commercial Agriculture Credit Scheme (CACS) which was set up to promote commercial agricultural enterprises in the country.

Part of the amendment, which was posted on the Bank’s website yesterday stated that as part of the investment terms under the CACS, non-interest financial institutions (NIFIs) shall bear the credit risk of repayment by an investor, adding that the collaterals pledged by the borrowers would be to mitigate that risk.

Furthermore, it stated that a Restricted Profit-Sharing Agreement (Restricted Mudaraba) shall be executed between the CBN and NIFI.

“The CBN, as Capital Provider disburses the funds for investment by the NIFI as the Implementing Party, based on a Business Plan commitment to be signed by the NIFI committing itself to the following terms: Investment shall only be for financing of projects under the target activities, commodities and value chains; The financing shall have an overall target profit rate of nine per cent; and that the profit distribution ratio between the CBN as Capital Provider and the NIFI as the Implementing Party shall be in the ratio of 2:7 (i. e. CBN 22% and NIFI 78%),” the amended guidelines stated.

In addition, the NIFI is expected to commit itself to achieving a target profit rate oftwo per cent accruing to CBN.

“The NIFI finances the customer (Client) using CBN approved non-interest financial contracts appropriate with the type of financing requested, like Murabahah, Salam, Istisna’, Ijara, Wakalah, etc. Repayments Repayments under the facility shall be amortised,” it added.

As part of its developmental role, the CBN in collaboration with the federal government had established the CACS. Thisfund helps in complementing other special initiatives of the central bank in providing concessionary funding for agriculture such as the Agricultural Credit Guarantee Scheme (ACGS) which is mostly for small scale farmers, Interest Draw-back Programme, Agricultural Credit Support Scheme and other similar development initiatives.