Abdulhameed Aliyu, the Managing Director of the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), is working assiduously not only to guarantee food sufficiency in Nigeria but to also create a robust export base for agricultural products and to enrich the farmers.
To this end, his agency, a creation of the Central Bank of Nigeria (CBN), is evolving strategies and programmes to realise its mission.
Top on the blueprint is deepening engagement with the credit committees of commercial banks in its efforts to pool more funds for agribusiness development in the country.
In cementing the bond between the finance sector and agriculture, the NIRSAL boss revealed that three commercial banks recently made available N4.5 billion for lending to farmers and other agriculture value chain players; saying the feat will eventually solve the food insecurity.
In this interview held at the sidelines of a recent meeting between NIRSAL and some bank Chief executives, Aliyu speaks more on plans to develop the agricultural sector and restore it as a major economic pillar it used to be before crude oil was discovered.
Wooing commercial banks
NIRSAL is engaging the credit committees of commercial banks to apprise them of promising investment-friendly developments in Nigeria’s emerging agriculture/agribusiness sector and the expanding opportunities for value chain actors, with the aim of unlocking banks’ balance sheets to agribusiness lending. We want our farmers to be millionaires. We also want the government and other stakeholders to profit bountifully from this business. It’s a win-win for all.
In the course of the first phase of these engagements, NIRSAL made extensive presentations on its agribusiness models, financing frameworks, tools, techniques, methodologies and partnerships in meetings with Union Bank, Sterling Bank, Guaranty Trust Bank (GTBank), United Bank for Africa (UBA), Keystone Bank, Standard Chartered Bank, Heritage Bank and Unity Bank over the last five months. More banks and other financial institutions have expressed interest to be engaged in subsequent phases over the coming weeks.
The context for these efforts is that for years, the agriculture sector has received less than 3 per cent of total bank lending, leaving it largely underdeveloped and its vast potential for economic growth untapped. To address this, the Central Bank of Nigeria (CBN) created NIRSAL to collaborate with all public and private sector stakeholders to fix broken agricultural commodity value chains and de-risk the sector to enable increased inflow of finance and investments.
NIRSAL’s meeting with banks, therefore, is to pitch its agricultural finance risk management innovations and agribusiness models that take cognizance of banks’ desire to finance/invest but only in secure, risk-controlled, and structured environments. In my presentation, “Unfolding Opportunities in Agricultural Financing” gives an overview of NIRSAL’s work in the four segments of the agricultural value chain namely; the Pre-Upstream, upstream, midstream and downstream.
The presentation focused on the upstream segment (primary production) which NIRSAL calls “the black-hole” because of the high risks involved and banks’ consequent aversion to it. However, the same upstream segment is the source of all agricultural commodities’ raw materials which the other segments are dependent on. There is also NIRSAL’s acquisition and planned utilisation of geospatial technologies for identification of the most ecologically endowed areas for specific commodities, and for the aggregation of fragmented farmlands.
These technologies include the acquisition of satellite imaging data to be supported by Unmanned Aerial System (UAS) platforms adjudged to be the most efficient technological platform for monitoring large swathes of farmlands, remote sensing of crop health status and to serve as an early warning system to control risk events in the field.
NIRSAL’s engagements with banks actually started with the successful NIRSAL-sponsored Bank Chief Risk Officers’ (CRO) Retreat held in Lagos in October 2018. The retreat, moderated by the Risk Management Department of the CBN, focused on agribusiness and SME-related risks. It had CEOs and CROs of Deposit Money Banks, Merchant Banks, Credit Institutions and MSME operators in attendance.
The presentations from NIRSAL also elaborated the corporation’s risk management tools and general approach to Agricultural Finance with particular emphasis on its Credit Risk Guarantee (CRG) cover, the interest draw-back support and its innovative index-based agricultural insurance products.
Mapping to Markets (M2M)
It is perhaps the most significant strategy under which NIRSAL is “pre-selling” smallholder farming Geo-cooperatives to finance. These Geo-cooperatives are developed and mapped in sync with the natural ecologies of specific commodities. The geo-cooperatives will have ready farmers who, after being technically and financially enabled, would be advised on what to produce and how much to produce in order to service the offtake market coordinated by NIRSAL in accordance with pre-agreed quantity, quality and price parameters.
The business logic and game-changing difference of the M2M concept lies in: the creation of thousands of large, integrated, financiable project tickets of grouped farmers with a minimum ticket size of 250 farmers mapped to a 250Ha Geo-Cooperative which are, in turn, mapped to downstream markets under guaranteed offtake arrangements. This involves the facilitation of working capital and asset finance for all relevant agribusiness actors in the target commodity value chain; the mapping of these actors to each other and to the Geo-Cooperative tickets; the domiciliation of all loan accounts with a financing bank or a consortium of banks and near-zero cash movement between the locked-in transacting parties. The ultimate enabler underlying these transactions that gives comfort to all parties is the NIRSAL CRG, backed by its bespoke risk management tools, techniques, methodologies, processes, technical assistance facility & global partnerships that provide 360 degrees life-cycle monitoring support to each guaranteed project.
In all the interactions thus far, NIRSAL has received strong indications that banks are interested in “buying” its de-risked and structured Geo-Cooperatives. In the five months of these engagements with Deposit Money Banks, while leveraging NIRSAL’s CRGs and other de-risking mechanisms, over N14.5 billion in additional financing from banks’ balance sheets have been catalysed and a further N48 Billion are at various stages of approval. Consequently, banks’ staff are being nominated to constitute Joint-Technical-Committees with NIRSAL in order to pursue this new and innovative agriculture/agribusiness financing framework.
So far, the NIRSAL risk-led agricultural financing approach is adjudged to be in high resonance with banks Risk/Return imperatives. The prior perception of high risk by banks is gradually giving way to a new-found faith in the new business opportunities the sector has to offer. Going forward, the enhanced understanding of NIRSAL’s role in securing a safe, profitable and a globally competitive agribusiness economy is expected to elicit greater portfolio commitments from Nigerian banks in sponsoring the NIRSAL-led agribusiness initiatives and developing joint frameworks aimed at facilitating a greater flow of finance to structured, agriculture-related investment opportunities in Nigeria.
At NIRSAL, we work primarily to create value for both financiers and farmers. It is in view of this that we have created innovative tools, techniques, methodologies and established strategic partnerships like this, to create a symbiotic relationship between all actors along the Agricultural value chain.
Partnership with World Bank
We signed a Memorandum of Agreement and Action (MoA) with The Agro-Processing, Productivity Enhancement and Livelihood Improvement Support (APPEALS) – a US$200million World Bank funded Project – for the development, financing, and support of de-risked and optimized agribusiness projects.
In line with the project development objective of APPEALS, NIRSAL will layer its tools, techniques, methodologies and strategic Partnerships (TTMPs) according to its Mapping to Markets (M2M) strategy on the project, with the shared aim of enhancing agricultural productivity of small and medium scale farmers and improvement of value addition along the cassava, cashew, rice, poultry, aquaculture, cocoa, wheat, tomato, maize, ginger and dairy value chains in a sustainable manner.
The project is to be deployed in Cross River, Enugu, Lagos, Kogi, Kaduna, and Kano States. It targets 60,000 beneficiaries, and 360,000 farm household members as indirect beneficiaries. It is anticipated that 35% of direct beneficiaries (or 21,000 individuals) will be women. Additionally, the project has a dedicated sub-component to benefit women and youth that will allow them develop agri-businesses that are expected to create jobs and improve their livelihoods.
APPEALS has found in NIRSAL, a trustworthy, reliable, and capable partner that shares the project’s development objective of enhancing the agricultural productivity of small and medium scale farmers and improving value addition along priority value chains in participating states.
NIRSAL will deploy its technologies towards the formation of Agro-Geo-Cooperatives for selected commodity value chains through geospatial mapping, soil suitability tests, BVN enrolment for farmers in addition to the creation of Virtual Asset Titles (VAsT), establishment of field governance structures, and training of farmers on good agronomic practices, team dynamics and social engineering.”
NIRSAL will also link producers to relevant consumer, industrial and export markets through value chain roundtables, business deal facilitation meetings, and legally binding trade documentation. NIRSAL will work with the state teams to structure agribusiness projects patterned after agreed sustainable models for APPEALS’ financing, while deploying NIRSAL’s partnerships and models for Technology demonstration and adoption.
Again, to protect primary producers under the project from losses due to pest, diseases, adverse weather conditions and general drops in expected yields, NIRSAL will deploy its Area Yield Index Insurance product.
To sustain this laudable project, NIRSAL will extend its technical advice to the APPEALS project with a view to instilling business discipline, adoption of a mandatory savings culture and reinvestment of profits for sustainability and expansion in the beneficiaries.
NIRSAL’s mandate and CRG terms
NIRSAL is a catalyst that enables providers of finance and investment to lend to and invest in agribusinesses, leveraging on its Risk sharing Facility to deploy the NIRSAL Credit Risk Guarantee (CRG) and Risk Management Products, Tools, Techniques, methodologies and strategic partnerships.
The CRG instrument is issued by NIRSAL to secure loans by up to 75% of losses over the life of an underlying credit contract in the form of agribusiness related term loans, and/or debt instruments such as short, medium, and long-term notes.
The guarantee covers the credit risk of default on loan principal and the accrued interest and is purchased at 1% fee (upfront payment) of the loan value and subsequent outstanding balances of the loan annually.
The purchase of a CRG also qualifies an underlying borrower, in principle, to access NIRSAL’s Interest Drawback (IDB)- an interest rate rebate scheme that NIRSAL offers to borrowers whose facilities are in good standing. The IDB serves as an incentive to reduce the burden of interest payment and encourage timely repayment of loans.
NIRSAL’s CRG covers loans of players in all segments of the Agricultural value chain ranging from pre-upstream operators all the way to the operators in the downstream segments of Agricultural Value chains.
NIRSAL’S engagement with TOOAN, Oyo Chapter
NIRSAL was approached by First City Monument Bank (FCMB) in July 2018, to provide CRG cover for a N500 Million loan for the acquisition of tractors by the Oyo State chapter of TOOAN (also approved by TOOAN’s national body) via the Bank of Industry (BOI).
Upon due consideration and based on several factors including NIRSAL’s negative experience with another state chapter of TOOAN, NIRSAL’s credit committee determined that the TOOAN Oyo State chapter’s application was “Outside of NIRSAL’s Risk Acceptance Criteria”.
This was not a casual decision but was based on rigorous analysis of the application. NIRSAL follows a careful risk assessment process to decide loans that are eligible for its CRG cover and would never decline any application without a valid reason.
The rejection of a particular application does not preclude accepting future applications that meet the relevant requirements.
Since its creation, NIRSAL has guaranteed over N85.5billion in agricultural loans along all segments of the agricultural value chain (pre-upstream segment- N45.6 billion, upstream segment- over N19 billion, and midstream segment- N20.9billion). Activities in these segments cover mechanization, agricultural inputs, primary production, and processing.
About N1.76billion of the CRGs issued were in mechanization.
In addition to paying claims on CRGs that crystallized to financiers, NIRSAL has paid about N1billion as IDB to borrowers. Furthermore, through NIRSAL’s facilitation, over 373,752 direct jobs have been created and over 1.8million indirect jobs in the pre-upstream, upstream, midstream and downstream segments of the agricultural value chain, specifically in the areas of mechanization, input supply, primary production, and processing.
Rating and incentive facility
It is part of our broad mandate to fix broken agricultural value chains. NIRSAL’s rating facility seeks to assess the performance of key stakeholders such as financial institutions and state governments on the effectiveness of their agricultural policies and programmes. The first phase of these ratings exercise is targeted at banks, insurance companies and state governments.
The pilot phase of the exercise commence in May with six financial Institutions – Stanbic Bank IBTC, Ecobank, Sterling Bank, AIICO Insurance, AXA Mansard and LAPO Microfinance Banks.
At least three state governments will also be assessed during this pilot phase. The results of the pilot phase will be used to design a comprehensive roll-out of the ratings programme for all interested stakeholders.
The rating and incentive pillars represent the last two of the five pillars of NIRSAL to be activated. The first three are the risk sharing facility, the technical assistance facility and the insurance facility. These five strategic pillars provide the funding basis for NIRSAL’s de-risking operations and interventions across the agricultural value chain.
To successfully activate its rating and incentive pillars, NIRSAL has developed a scoring methodology for these three clusters to enable independent assessment of their agricultural activities. These scoring methodologies have been validated by the relevant stakeholders through a consultation workshop held in November 2018. The consultation programme was well attended by participants from Access Bank, WEMA Bank, Sterling Bank, First Bank, LAPO Microfinance Bank, Leadway Assurance Company Limited, AXA Mansard Insurance Plc, AIICO Insurance Plc, Royal Exchange General Insurance Company Ltd, Nigerian Agricultural Insurance Corporation (NAIC), Industrial and General Insurance Company Plc, Bauchi State Ministry of Agriculture, Ekiti State Ministry of Agriculture amongst others.
The scoring methodology to be deployed for Banks rates them according to their organizational commitment to agriculture, quality of their agricultural portfolio and recognises smallholder farmers inclusion and innovation in their agricultural lending activities.
Insurance Companies will be rated based on the innovative agricultural insurance products developed, customer acquisition and satisfaction and timely processing of claims.
The rating of sub-national governments will assess the ease of doing agribusiness in the respective states with a view to improving access to critical factors of production and providing the enabling and regulatory environment necessary for agribusinesses to thrive.
The results of the ratings exercise will also be used to develop a comprehensive Incentives programme which will reward innovation and encourage healthy competition among financial institutions and state governments to support the agribusiness sector and encourage smallholder farmers’ inclusion.
Maize and Soybean value chains
The technical session held was for banks and financial institutions, value chain support actors and other stakeholders.
NIRSAL’s mandate to fix broken agricultural value chains, facilitate finance and build long-term capacity cannot be achieved without the alignment of interests of actors across relevant value chain segments towards ensuring increased productivity and increased financial returns in a manner that delivers inclusive economic growth and development.
NIRSAL is delighted to be the organization championing this innovative Mapping-to-Markets strategy; a sustainable smallholder inclusive approach towards agricultural transformation in Nigeria.
It is evident that a value chain focused and market driven approach with clearly pre-defined responsibilities, risks and benefits sharing arrangement is the way to go in redefining Nigeria’s agriculture and agribusiness.
It is interesting to note that under this single pilot project and as a result of our deliberations and interactions, we have been able to extract significant commitments to be executed in this 2019 Wet Season: 3,750 hectares of brown-field farmland pledged by Benue, Niger and Ekiti states.
N4.5 billion has been pledged in available funding to smallholder farmers by Stanbic, Union Bank and Sterling Bank under the M2M initiative. 3,750 farmers will be supported across these three states. 107.5 metric tonnes of seeds worth approximately N65.5 million will be supplied by seed companies. 2,062 Metric Tonnes of fertilizer worth about N290 million will be made available by the fertilizer companies. 33,250 liters of Crop Protection Products worth N54.6 million committed.
8,750 Metric Tonnes of maize with a market value of N744 million and 2000 metric tonnes of Soybean worth N208 million will be produced and off taken under this pilot phase.
Downstream actors present committed to off-take the maize and soybean produced.
A revenue of N425,000 and N2260,000 will be generated by each farmer under this arrangement for maize and soybean respectively.
This pilot scheme will save the country about N1 billion via import substitution.
This is in no way a small feat as the ripple effects on economic growth, employment and standard of living would be immense. This is the type of positive impact that NIRSAL was established to create, and we are determined to make it happen.
Having achieved all these, and in line with the commitments from this Workshop, NIRSAL will facilitate: the signing and implementation of long-term supply contracts/off-take trade agreements addressing pricing, quality, delivery and payment terms, etc. between farmers agro geo-cooperatives and the downstream market offtakers; the signing and implementation of long-term supply and/or fee-for-service contracts between farmers agro geo-cooperatives and input suppliers, other upstream service providers for land clearing, irrigation, equipment leasing, tractorisation, mechanized harvest, etc. as well as other service providers along the value chain.