Agricultural Credit Scheme as Support for Food Sufficiency

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Donatus Nwaogu
The Covid-19 pandemic has seen countries increasingly focus on food sufficiency. Achieving food security not only carries significant benefits for human health, but also serves as the basis to achieve sustained economic growth.

That was why the Agricultural Credit Guarantee Scheme (ACGS) Amendment Act which was assented to by President Muhammadu Buhari on June 24, 2019, that increased the share capital of the fund to N50 billion, from N 3billion, has continued to receive commendation, especially during this period of uncertainty.

The Central Bank of Nigeria (CBN), through the scheme as well as its other development finance interventions has continued to support the fiscal authority’s quest for the nation to attain food sufficiency.
Under the ACGS Amendment Act 2019, the sharing ratio is Federal Ministry of Finance (60): Central Bank of Nigeria (40). The maximum for non-collaterized loan under the scheme is now N100,000, just as under the amended Act, the maximum amount for collaterised loan granted to individuals, cooperative societies and corporate entities is now N50 million, up from N10 million

Furthermore, the amended Act showed that complete agricultural value chain financing is now allowed under the ACGS Amendment Act 2019.
In addition, the Agricultural Credit Guarantee Scheme Amendment Act 2019 now also includes the financing of production farm machinery, the implementation and equipment for production, processing, storage and transportation.

The ACGS was established by Decree No. 20 of 1977, and started operations in April, 1978. Its original share capital and paid-up capital were N100 million and N85.6 million, respectively.
The fund guarantees credit facilities extended to farmers by banks up to 75 per cent of the amount in default net of any security realised. The fund is managed by the Central Bank of Nigeria, which handles the day-to-day operations of the Scheme. The guidelines stipulate the eligible enterprises for which guarantees could be issued under the scheme.

Between 1978 and 1989 when the government stipulated lending quotas for banks under the scheme, there was consistent increase in the lending portfolios of banks to agriculture, but after the deregulation of the financial system, banks started shying away by reducing their loans to the sector due to the perceived risk.

According to the CBN’s economic report for February 2020, the ACGS has guaranteed a total of N334.8 million to 2,123 farmers as of February 2020. The amount represented an increase of 63.3 per cent and 47.3 per cent above the levels in the preceding month and the corresponding period of 2019, respectively. Sub-sectoral analysis showed that food crops obtained the largest share of N184.9 million (55.2 per cent) guaranteed to 1,314 beneficiaries, followed by the livestock sub-sector, N60.2 million (18.0 per cent) guaranteed to 219 beneficiaries, and cash crops, N44.0 million (13.2 per cent) guaranteed to 241 beneficiaries. Furthermore, it showed that fisheries and mixed crops obtained N21.8 million (6.5 per cent) and N15.3 million (4.6 per cent) guaranteed to 77 and 226 beneficiaries, respectively, while the ‘Others’ subsector got N8.6 million (2.6 per cent) for 46 beneficiaries.

Analysis by state showed that 28 states and the FCT benefited from the scheme in February 2020, with the highest and lowest sums of N36.5 million (10.9 per cent) and N0.9 million (0.3 per cent) guaranteed to Ekiti and Rivers States, respectively.
Beside the ACGS, the central bank through its Anchor Borrowers’ Programme (ABP) has continued to enhance food production in the country.

The ABP which was launched by President Muhammadu Buhari in 2015, was designed to assist small-scale farmers to increase the production and supply of feedstock to agro-processors with the aim of creating an ecosystem to link out-growers (smallholders) to local processors. The programme has increased banks’ financing to the agricultural sector, enhanced capacity utilisation of agricultural firms involved in the production of identified commodities as well as the productivity and incomes of farmers. The anchor borrowers’ programme has also assisted rural subsistent farmers to reach commercial production levels.

The thrust of the ABP is the provision of inputs in kind and cash (for farm labour) to smallholder farmers with a view to boosting the production of rice, maize, poultry, sorghum, cassava, tomatoes, cotton, palm oil, Soybean, among others.
The idea is to stabilise input supply to agro-processors and address the country’s negative balance of payments on food. It is a loan to farmers without collateral and the benefitting farmers are given farm input and cash to cultivate their farms, including the experiment on rice.

According to the structure of the ABP, a farmer who wants to repay his loan can either do so with cash or give the central bank his /her produce of same value, after which officials of CBN’s Development Finance Department would sell and recover the loan.
Following success recorded by the scheme and in line with efforts to boost food production as well as help the country avert the looming economic recession, the CBN recently disclosed that it has set aside about N432 billion to fund the value chains of nine commodities in the 2020 wet season.

It listed the commodities to include rice, cassava, maize, cotton, oil palm, cowpea, livestock, poultry, and fish.
The Director, Development Finance Department of CBN, Yila Yusuf, who disclosed this, said over 1.1 million farmers, cultivating over one million hectares of farmland were expected to benefit from the loans that would help to produce a collective output of 8.3 million metric tons. Yusuf said the focus on the 2020 wet season was to ensure the provision of improved seeds that would incentivise farmers to return to their farms.

He maintained that the CBN adopted the value chain approach across all the commodities to ensure that every player along the entire value chain, from the farmers through to the processors, was financed.
The CBN’s funding of the ABP for the 2020 season, Yusuf said, was the highest since the inception of the programme in 2015. He said the proposed funding for the nine commodities was a significant move by the CBN, considering the successes recorded in the 2019 season that contributed to shielding Nigeria from any food shortage, particularly rice.

Also, CBN spokesperson, Isaac Okorafor, said the bank was committed to aggressively fund its agricultural programmes, particularly in the 2020 agricultural wet season, to ensure the farmers go to work immediately on the cultivation of the identified commodities.
“This is to spur farmers along select crop value chains to prevent the country from sliding into a recession, as is currently being experienced in some major economies of the world,” Okorafor said.

CBN Governor, Mr. Godwin Emefiele, has assured that the Bank would sustain its intervention in the agriculture sector through its development finance mandate, in order to help catalyse growth in critical sectors of the economy such as agriculture and the manufacturing sectors.

In line with the vision of President Buhari, the CBN has indeed created several lending programmes and provided hundreds of billions to smallholder farmers and industrial processors in several key agricultural produce. These policies are aimed at positioning Nigeria to become a self-sufficient food producer, creating millions of jobs, supplying key markets across the country and dampening the effects of exchange rate movements on local prices.

The CBN governor explained that through programmes such as the ABP, the Commercial Agriculture Credit Scheme and the Bankers Committee Agri-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS), the apex bank has improved access to markets for farmers by facilitating greater partnership with agro-processors and manufacturing firms in the sourcing of raw materials.

Therefore, it is expected that the multi-pronged approach towards agricultural intervention adopted by the central bank will support the federal government in its drive towards achieving food security. This is also help strengthen economic growth and assist the government in its quest for economic diversification.