Reviving Nigeria’s Bank of Agric for allied industries

Head of Agro-Economy, FEMI IBIROGBA, takes a look at the history of the Bank of Agriculture, its mandate and the realities of inefficiency, failures and unmet expectations as Nigeria needs more food to feed the growing population, cut down on importation and create more job opportunities with industrialisation of crops.

Credit is one of the fundamental inputs for sustainable food production, crop value chain development, food distribution and food security, but access to agricultural financing is impaired in the country, with aversion on the part of commercial and other conventional financial institutions for the sector.

And, it appears hope is lost on the efforts to reposition Nigeria’s Bank of Agriculture (BoA) as the bank crawls in performing its core mandates when private financial institutions are revving up in meeting the 21st Century financial requirements of businesses.

As of now, the bank goes the way of the old National Electric Power Authority (NEPA), Nigerian Telecommunications Limited (NITEL) and Nigerian Railway Corporation (NRC), just to mention a few, losing touch with the reality of the food cultivation and processing industry, and appears totally incapacitated to deliver its mandates.

The bank is a specialised development financial institution which philosophical motive has been eroded. There are three main schools of thought on the philosophical motives behind the establishment of development banks.

The industrial policy view stipulates such banks are established as a reaction to failures of capital markets to raise funds for entrepreneurship and industrial activities (Armendáriz de Aghion 1999, Gerschenkron 1962).

The social school sees development banks as a government intervention to resolve certain socio-economic issues, such as unemployment, lack of housing, energy dependency, among others (Shapiro and Willig 1990, Shirley 1989).

The political school views development banks as tools serving the interest of political elite’s objectives or as conduits pipes for gratifying industrialists who are politically involved or serving politician’s interest through their cronies (Ades and Di Tella 1997, Shleifer and Vishny 1994).

From all indications, BoA is serving the political motive, and it contributes insignificantly to the agro-allied sector. This is one of the reasons experts have called consistently for its revamp through a public-private partnership (PPP) and other strategies.

The bank history
THE bank was incorporated as the Nigerian Agricultural Bank (NAB) in 1972, became functional in 1973 and in1978, it metamorphosed into Nigerian Agricultural and Cooperative Bank (NACB) Limited.

The Federal Government streamlined the operations of its agencies in October 2001, and the NACB, People’s Bank of Nigeria (PBN) and the Family Economic Advancement Programme (FEAP) were merged, adopting yet another name, Nigerian Agricultural, Co-operative Rural Development Bank (NACRDB) Limited. It was expected to serve as an agricultural and rural development bank with multiplier effects on rural life improvement and economic empowerment.

In October 2010, it was renamed as the Bank of Agriculture (BoA) Limited with the following accurately defined but terribly implemented mandates.

The mandates include the provision of agricultural credit to support all agricultural value chain activities; provision of non-agricultural micro-credit savings mobilization; capacity development through the promotion of co-operatives, agricultural information systems, and the provision of technical support and extension services; provision of opportunities for self-employment in the rural areas, thereby reducing rural-urban migration and inculcation of banking habits at the grass-roots of the Nigerian society.

Strengths
THE strength areas of the bank include being the largest development finance institution and leading agricultural finance institution, no matter how moribund it has become. With 201 outlets nationwide, six zonal offices and a head office in Abuja, the structure is already laid, but grossly underutilised, hence, its inability to achieve the mandate.

The bank has the highest national interaction/interface with rural farmers, with institutional knowledge of rural and agricultural finance with its over 40 years of existence. Various partners at one time or the other include the U.S Agency for International Development (USAID), IFAD, World Banks and ECOWAS, Federal Ministry of Agriculture and Rural Development, Federal Ministry of Women Affairs, State and Local Governments.

Its mission is “To stimulate agriculture, improve lives and grow communities,” with a vision “To become the foremost self-sustaining Development Finance Institution in Africa.” However, the performance of the bank in an era when Nigeria re-emphasises agriculture as the base of a diversified economy has been abysmal, as farmers wave aside its contribution to the food production sector.

Under its Direct Credit Product, designed to finance agricultural productions and agro-allied activities, BoA said farmers and others could obtain “Loan [that] ranges from above N250,000 to a maximum of N50,000,000, with a limit of N5,000,000 to individual persons and above N5,000,000 to corporate organisations.

It adds that: “Loan tenor not exceeding five years, disbursement both cash and kind, backed up with viable, profitable and bankable business proposals.”

It also indicates that “Interest rate is 14% for agricultural production and agro-processing, while commodity marketing is 20%,” and to access such facilities, “Current tax clearance certificate is required and last three years audited statements of account or statement of affairs is required. Consent to a mortgage of the landed property being pledged as security for the loan requirements.”

Under the Large Credit Product, the bank indicates that it is developed to finance large agricultural production and agro-allied activities, and that loan volume ranges from above 50 million to a maximum of 1 billion for a single obligor. Interest rate, it adds, “is 14% for agricultural production and agro-processing while marketing is 20%.”

But the majority of the large-scale farmers have described the bank as dysfunctional, saying it is easier to get loans in commercial banks than from it.

Organisational structure and market engagement
CaNvassing re-engineering of the bank, an Agriculture Regional Manager of an old-generation bank, who prefers anonymity, said: “The Bank of Agriculture should be restructured along functional lines to capture business strata of the economy albeit … retail, MSME, commercial and corporate businesses.”

He also suggested that retail business should focus on primary production engaging smallholder farmers and livestock farming.

The agriculture financing banker said for BOA to succeed in its roles in national development and diversification of the economy, its present operating structure, ownership, capital base, market engagement strategy, funding sources, strategic partnerships and banking technologies must be revamped and strengthened to meet the realities of the emerging order and the requirements of its focus market, the agribusiness community.

The agric. banking specialist said: “BOA, as is currently structured, with complete dependence on the government funding for shareholder capital and a minimal attraction to the organised private sector and the banking public as a source of liability generation (which should be the main source of capital for financial intermediation, while shareholders’ funds serve as a buffer) cannot support the purpose of the agricultural revolution that is required to move the Nigerian economy forward.

“Fortunately, extant banking regulations and provisions are available to support certain thoughts in “unbundling” the bank for greater efficiency.”

In an interview with The Guardian on May 27, 2019, former Minister of Agriculture, Audu Ogbeh, had said the Bureau of Public Enterprise (BPE) had completed its work on the privatization and re-engineering of the bank. But the Public Relations Officer of BoA, Adebayo Fasakin, while reacting to an inquiry about the privatization move, said it had been “put on hold,” saying he would contact the Acting Managing Director, Mr Alwan Hassan, and get back to The Guardian. However, as of press time on Sunday, he did not respond.

Audu Ogbeh had disclosed that: “The lead consultant has now taken up the responsibility of marketing the idea to the public and when that happens, we will begin to sell shares. The idea is that farmers will own 40 per cent of the shares of the bank; the CBN will hold 10 per cent; the Ministry of Finance 10 per cent; and the private sector operators, 30 per cent.”

Ogbeh had explained that “farmers should see BoA as their bank, put their money in it because we are trying to raise between N200 and N250 billion for the bank so that farmers can borrow at five per cent [interest rate].

“As long as the bank makes enough money to pay their staff, there is no point overcharging farmers. We think in another two months or so, the sale of shares should be done.”

Alas! the only change in the bank, for now, is the appointment of an acting managing director.

Experts have, however, said running the bank like a civil service establishment, with the Federal Government paying salaries and pensions, would only perpetuate incompetence, underperformance, corruption and near-zero contribution to the agro-economic development of the country.