Experts, BOA explain agric loan conditions as farmers lament poor funding
Agricultural financing is crucial to mechanisation, productivity and food security sustainability. However, farmers’ challenges in getting facilities hamper commercial production. Head, Agric Desk, FEMI IBIROGBA, presents intricacies and ways forward.
Financial experts and the Bank of Agriculture (BOA) have explained conditions attached to getting agric facilities while farmers narrate their ordeals getting loans.
With the forecast that the global food demand would increase by about 70 per cent by 2050, and an estimate of at least $80 billion annual investments needed to meet this demand, financing for farming activities has again come to the front burner.
Agriculture financing is empowerment of farmers, middlemen and processors to increase their food productivity, income and wealth, and enable them to feed 9 billion people by 2050.
Nigeria’s efforts towards economic diversification through the sector have also consistently suffered setbacks mainly because of grossly inadequate financing structures that have discouraged more farmers than helped them.
Estimated 500 million smallholder farming households, representing 2.5 billion people worldwide, rely on agricultural production for their livelihoods, and production financial inclusion has been the most difficult challenge of this group.
Realising the agric financial challenges, international organisations, foundations and individuals have channeled more resources especially to resource poor farmers in developing countries. However, agricultural financial inclusion in Nigeria appears elusive.
Farmers’ lamentation over poor financing
Farmers always expressed concerns about access to agricultural loan facilities from financial institutions, complaining of practically impossible conditions of the loans as complicated hurdles.
National President of the Poultry Association of Nigeria (PAN), Mr Ezekiel Mam, said generally, though the government was trying to empower farmers, the government bureaucracy was a problem, and interest rate on agric loans was very high.
The 9 per cent interest rate obtainable from CBN loans, he added, was too high for Nigerian farmers. If the government were serious, the rate should not be more than 5 per cent, because if one operates in Nigeria, one has to generate power and plus other costs, he said.
Mam said: “The purchasing power of the people is very low and interest rate is eventually 10% minimum because of administrative charges,”
The PAN boss said generally in Nigeria, the most difficult thing about agric facilities was the issue of collateral and guarantor.
The PAN boss advocated that “if a farmer can build a poultry house, that house can be collateral. Two, for a starter like a graduate, your certificate should be your collateral for a loan up to N5 million. If the government cannot give you employment, your certificate should be your collateral to access a reasonable sum for agric investments.”
Mam lamented that “getting a loan is so difficult in Nigeria that even when the loan is approved, somebody is waiting to get something from you. There is no transparency in our dealings.”
The National President of Catfish & Allied Fish Farmers Association of Nigeria (CAFFAN), Comrade Rotimi Oloye, admitted that truly, the government has good intentions of its various funding policies, but implementation by civil servants is the main challenge.
The CAFFAN boss said though the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL) and the Bank of Agricultural (BOA) facilities were with good intentions, most fish farmers do not get loans through them. Most loans, he added, are from commercial banks with high interest rates.
“What BOA says whenever we approach it for loans is that the loans are revolving; meaning that when the existing borrowers pay, it would pool it together and give to other applicants. But they have challenges recovering the loans because they were not given to real farmers,” Oloye said.
He contended that the Anchor Borrower Scheme would not work in the fishery sector because there were no off-takers in the sector, saying there was no single processor in the country using the locally produced fish as raw materials.
However, the National President of All Farmers Association of Nigeria (AFAN), Mr Kabiru Ibrahim, said AFAN itself would not seek or get loans from anywhere, but its members who qualified did get loans.
Ibrahim said, “Access to these loans has been liberalized through various windows and institutions through the Anchor Borrower scheme, NIRSAL and NEXIM supports.”
Conditions for loans
A Regional Agric Business Manager in one of the old generation banks, who preferred anonymity, said every loan has criteria and agric loans are exempted. The conditions, he said, include comfort, security of loan and collateral.
Comfort means when the banks feel comfortable, they lend. This can come from the guarantees offered by the CBN and NIRSAL. When the CBN assures commercial banks to go ahead and give loans to certain persons, the bank feels comfortable. The CBN guarantees the loan up to a certain percentage, and the bank feels comfortable lending.
NIRSAL PLC is an autonomous body that gives a guarantee after a farmer must have paid a particular sum called Certificate for Risk Guarantee (CRG), which is 2% of the loan the farmer wants. After that, NIRSAL would guarantee the loan. When you do that, the commercial bank lending facility would feel comfortable, knowing that if anything goes wrong, they can get some of the money via NIRSAL.
The manager said security condition of the loan means securing it in terms of near cash items or convertibles that a loan applicant can present. These include bonds, treasury bills and fixed deposits.
Collateral includes landed property and mortgage funds, etc, that are accessible to the bank. For property to be acceptable for loans, it must be titled, with certificates of occupancy, he explained.
The banker added that “we want to see how viable your business is. Most loans that are available do not support start-ups. There must have been histories and the major reason is that you must know the person’s technical ability to manage any fallout from the business. That is why banks are scared of lending to start-ups.”
On interest rates of loans
There are different products for lending at different rates. There is no fixed interest rate.
If lending off the balance sheet, the rate is cheap. This can come from the CBN, the World Bank and other interventions for onward lending to farmers. The rate is always cheaper than what the commercial banks offer. The rate is 9% maximum.
On balance sheet lending is when a commercial bank uses its own resources as loans to farmers or other applicants. The interest rate here is usually higher than off-balance sheet lending, and it could range from 18% to 30% depending on the lending bank, The Guardian was told.
Farmers’ preparedness for loans
The Guardian learnt most of the farmers are not well informed about the conditions and are not really prepared for these loans. “They don’t face the financial aspect the way they do on their farms. It makes it difficult for them to understand or connect to financing. Financial literacy is inadequate and makes it difficult for them to access funds,” the banker said.
Another factor is that most farmers don’t build financial structures. They don’t value their property for facilities. Also, some farmers see the CBN or agric loans as a right to the national cake and are not prepared to meet the conditions.
However, most banks and the Development Fund Offices (DFOs) of the CBN have been working to mitigate risks through intervention funds. They have been educating farmers and their groups on how to get funds.
It was disclosed that Anchored Borrower Programme (ABP) has 9% interest rate and the purpose is to ensure production of raw materials to the industry by pitching farmers with off-takers, e.g. cassava and rice farmers to ethanol and rice millers respectively. The banker said the public window-led scheme through state government could access up to N1billion for their farmers.
Shedding light on the loan processes, another agricultural business credit manager in a new generation bank in Abuja, who also craved anonymity, said “when commercial and microfinance banks take a decision on any borrower, whether large, medium or small scale, going through the standard credit analysis, we will then go to the CBN or other intervention funds to borrow and lend money to the borrowers. That is how the intervention funding works.”
She said whether it is CBN funds or the lending bank’s funds, there are minimum requirements and they include an existing relationship with a bank.
“You can’t just walk into a bank to borrow without an existing relationship. Banks find it easier dealing with a known customer. That relationship could be a business account, small or large,” she said.
For a farmer to borrow, he must present his business properly with accounting records. For instance, a fish farmers’ cooperative must have a minimum business structure, including a corporate business accounts, competence, record keeping, production cost analysis, monthly income and expenses, etc, before a loan could be approved.
The third condition, she said, is that “they must be able to present their income, cost, and profit, even if it is written in pencils. So, most times, especially in small scale end, they can’t give you all these details about their balance sheet and profit and loss accounts.
This point, she said, is usually the biggest problem, “and as long as we cannot cross this line, it makes lending difficult. 90% of conversations on loans end at this stage, as far as she was concern.
Triangulation of collateral
On collateral security, all loans have to be secure. Collateral is not restricted to C of Os, she said. It could be equipment for small scale farmers, and the best way is to handle collateral issue, according to the anonymous banker in Abuja, is to triangulate the transaction. This means there are three parties involved – the farmer group, the financing group and the off-taker group. For example, a group of cassava farmers can partner with a processor and the financing institutions.
Usually when you have that kind of triangle, it reduces the burden of collateral because the person who needs the raw material must have already been relating with the farmers and the bank, and could provide significant information about them.
“So whatever you can hold on to make them repay must be collected as collateral. If they know NIRSAL has guaranteed money up to 70%, they would tell you to go to NIRSAL. It is attitudinal issue affecting other sincere farmers,” she added.
She advised that agric entrepreneurs should know that there is no special exemption for their attitude when it comes to financing.
Also, an anonymous staff of Bank of Agriculture (BoA) in Ikeja said third party collateral might be acceptable for an agric loan.
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BOA on loan requirements
The BOA, on its part, made available a checklist of requirements for lending to corporate agribusiness entities to The Guardian.
Some of these are feasibility report/business plan acceptable to BOA Ltd; two copies of site plan of project land (where applicable); details of the foreign technical partners for the project and partnership agreements (where applicable).
Where real estate property is proposed for securing the facility, two copies of Certificate of Occupancy of the property as security; two copies of current valuation report of the property; an approved building plan for the security; three copies of coloured photograph of three sides (front, side and rear) of the property; 3 photocopies of a registered Deeds of Assignment or conveyance of the property.
Other requirements are details of the corporate entity, including two photocopies of Certificate of Incorporation/registration; two copies of Memorandum and Articles of Association, which should include agriculture as one of its objects clause, power of borrow and authorised share capital of at least 50% of the amount of the loan applied for.
Also, two copies of the company’s forms CO.2 and CO.7 from the Corporate Affairs Commission; the paid up share capital should be at least 50% of the authorized share capital; evidence of any increase is paid up or authorized share capital must be submitted; two photocopies of current Tax Clearance of the company for the past three years; two copies of three years audited statement of account or statement of affairs of newly Incorporated Registered companies; and two photocopies of current Tax Clearance of the chief promoter of the past three years, among others.
In all, farmers’ associations advocate a more simplified system of obtaining agric facilities, while experts also advised farmers to change attitude towards loan repayment, keep farm records properly, and make adequate preparation while applying for loans. The government is urged, especially at the state level, to access funds for farmers, channeled through their various associations.
This, it is argued, would fast-track agricultural mechanisation, financial inclusion and capturing, and would eventually help in boosting food production, industrial growth and employment creation.