As CBN Moves to Protect Beneficiaries of Intervention Fund…

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Though recent happenings in the agriculture value chain may have necessitated a stern warning to Participating Finance Institutions, Olaseni Durojaiye and James Emejo report that compliance and enforcement remain challenges confronting the sector

Barely a week after the Minister of Agriculture and Rural Development, Dr. Audu Ogbeh, spoke on the fears of an impending famine in the country, the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele’s warning to financial institutions participating in the CBN-guaranteed intervention funds to desist from granting loans with interests above nine per cent has further put development in the agricultural value chain under focus.

Emefiele gave the warning in Abeokuta, Ogun State, during an interaction between the Presidential Task Force on Agricultural Commodities and Production and young farmers at the Owowo Model Farm Estate. He also assured the young farmers of the bank’s funding support through their respective PFIs, and asked them t*o report any bank that charg*es them above 9 per cent interest on loans guaranteed by the CBN. He also urged operators in the sector to report any erring PFI to the apex bank for possible sanction.

The warning, coming shortly after the alarm by Ogbeh, that famine was imminent in the country if certain steps were not taken urgently, may have flagged some questions around the country’s agricultural value chain. Keen observers would wonder -why a country with massive potential in the sector could not guarantee food security for its citizenry or, in the least, guarantee lower food inflation.

This appears to gain more traction considering that various interventionist funds have been put in place to galvanise potential in the sector towards ensuring food security in the country and diversification of the country’s revenue base away from the oil and gas, and services sectors.

While the warning from Emefiele underscores low compliance rating among the PFIs, some observers opined that it is also a signal that the CBN is determined to improve on monitoring and enforcement of guidelines attached to intervention funds for critical sectors.

Commercial Agriculture Credit Scheme (CACS)

According to information sourced on the website of the CBN, one of the -*intervention funds dedicated to the sector is the Commercial Agriculture Credit Scheme. The site stated that, “As part of its developmental role, the Central Bank of Nigeria (CBN) in collaboration with the Federal Ministry of Agriculture and Water Resources (FMA&WR) established the Commercial Agriculture Credit Scheme (CACS) in 2009 to provide finance for the country’s agricultural value chain (production, processing, storage and marketing). Increased production arising from the intervention would moderate inflationary pressures and assist the bank to achieve its goal of price stability in the country.”

The site also listed the primary objectives of the scheme to include, “Fast-track the development of the agricultural sector of the Nigerian economy by providing credit facilities to large-scale commercial farmers at a single digit interest rate; enhance national food security by increasing food supply and effecting lower agricultural produce and products prices, thereby promoting low food inflation; reduce the cost of credit in agricultural production to enable farmers exploit the untapped potentials of the sector; and increase output, generate employment, diversify Nigeria’s revenue base, raise the level of foreign exchange earnings,” among others.

The scheme, which is a sub component of the Federal Government of Nigeria’s Commercial Agriculture Development Programme (CADP), is financed through a N200billion Bond raised by the Debt Management Office (DMO).

Reactions to the New Directive

Speaking with THISDAY, Chairman, Nigeria Agribusiness Group, Sanni Dangote, welcomed the directive but noted that there was need for segmentation of the agribusiness. He added that, while the nine per cent interest rate favour operators in the agribusiness sector, it does not favour the primary segment of the agricultural value chain.

Dangote argued for a lower interest rate for operator involved in activities that require long gestation period including tree and pineapple plantation, land development among others. He stated that, “it is fine for agribusiness because it is a short term window and brings quicker returns; some activities require longer period of gestation even with the moratorium in place.”

He said: “It is a good development and we welcome it. However, there is need for the CBN to do a proper segmentation of the agribusiness sector because nine per cent is still too high for the primary segment of the sector. For those in the primary segment, at best it should be six per cent.”

Besides, he argued that the call on sector operators to report erring PFIs would not work. According to him, the call would have been more effective if it came with a guarantee that the whistle blower will enjoy some guarantee against blanket blacklisting from PFIs.

“Under the present circumstances, nobody will report any erring bank for fear of being blacklisted by the bank. I would have preferred if the call came with assurance that the CBN will guarantee an operator a loan at another bank if he is refused a loan at the bank he reported as offering double-digit interest rate,” Alhaji Dangote said.

In his own submission, a former acting Managing Director, Unity Bank Plc, Dr. Muhammad Rislanudeen, recalled that, “Intervention funds were introduced as part of efforts towards strengthening the economy and financial institutions themselves after the stress test conducted in 2009. They were meant to bridge a funding gap especially for small and medium enterprises as well as agriculture financing.

“CBN initiated the power and aviation, small and medium enterprises as well as commercial agriculture credit facilities sometimes around 2009 with specific aim of providing more funding to real sector, income enhancing and employment creating sectors that have long-term benefit of supporting growth at single digit interest rate. It is even more relevant now with economy in recession and most of those critical sectors contracting due in large part to high cost of doing business inclusive of high interest rate charged by banks.

Rislanudeen noted that, “In the guidelines for those intervention funds, it is clear that banks will charge single digit interest rate of 7 per cent for SME, power and aviation loans and 9 per cent for agriculture loan inclusive of all charges. The central bank is therefore right to insist on single digit interest rate in compliance with extant guidelines.”

His view was shared by economist and ex-banker, Dr. Chijioke Ekechukwu, as he justified the need for the apex bank to closely monitor such funds which are aimed at reflating certain sectors of concern to the economy. According to him, “Part of the core functions of the CBN is, occasional interventions to stimulate the economy, grow and regulate same. Depending on what sector of the economy that needs intervention. It could be aviation, power, textile or general real sector as experienced recently. Intervention funds therefore are aimed at reflating certain sectors of concern to the economy considered necessary to grow the economy. Intervention Funds are meant to provide cheap loans to the players in these sectors.

“When a loan is considered cheap in this context, interest rate should be between 5 per cent to 9 per cent (single digit) per annum. CBN has recently deployed intervention funds in Youth Entrepreneurship Development Programme, Anchor Borrowers Programme; Micro, Small and Medium Enterprises; Commercial Agriculture Credit Scheme and Development Funds.”

He added that, “These loans are availed through Participating Financial Institutions(PFIs) like BOI and some selected commercial banks. CBN has mandated these PFIs to ensure that these loans are given at single digit interest rates. This is to be able to achieve the ultimate purpose of such interventions. The higher the interest rate, the higher the risk of default in repayment by the debtors or beneficiaries and the higher the prices of their output.”

“Some other times, CBN cushions the loan burden of commercial banks by moving them out of their books as loans to the books of PFIs to save the lives of these ailing banks or to encourage them to extend more loans to certain sectors.

These are how relevant these funds are to the economy. They are indeed used to control some macro-economic indices” he explained.