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On single digit interest rate for agric loans

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There is hardly any rational and well-meaning Nigerian who will disagree that single digit interest rate financing is necessary and indeed, desirable to upscale the development of agriculture and its associated businesses in the country. Similarly, the need for availability, adequacy and accessibility of finance for agriculture value-chain business is an imperative if the country’s quest for food security, industrialisation and non-oil foreign exchange earnings must be attained. These are even more critical given the country’s growing population, rising unemployment rate and imports.

As it is well known, food and feeding are very basic and essential. No nation, as a matter of reality, can be great without being able to feed its people. And for any country with high import taste, earning of foreign exchange is important for sustainability. Thus, every investment in agriculture value-chain portends good for this nation if properly planned and diligently executed.

These are some of the germane reasons President Muhammadu Buhari’s directive “to raise funds to support agriculture and industry at single digit interest rate” deserves support. The Minister of Agriculture and Rural Development, Audu Ogbeh, who said this the other day at an agribusiness conference in Abuja, explained that President Buhari gave the directive at the Federal Executive Council meeting. He lamented inaccessibility of finance for agriculture, inability of farmers to borrow money at an astronomically high 25% interest rate for any meaningful productive activities and Nigeria’s federal system of government that makes it impossible for the Federal Government to intervene in the affairs of the states. He also canvassed the need for “the private sector to put pressure on state and local governments to do the right thing”- whatever that ‘right thing’ means.

President Buhari’s directive is an excellent pointer in the right direction except that it seems not to have been directed at any specific individual, group(s) or organisation(s). The directive is to the whole universe with the attendant result that no one is targeted to be held responsible and accountable. And that is where the failure of the directive may begin from. Even, the minister was unable to pin responsibility on his ministry, ministry of finance, Debt Management Office, Central Bank of Nigeria (CBN), Development Finance Institutions (DFIs) or Deposit Money Banks (DMBs). Furthermore, in giving the directive, it is not clear whether Mr. President was anticipating a reversal of deregulation and liberalisation of the financial markets, that is, a return to direct control or simply an official intervention in interest rate management. Nevertheless, the paramount question is, has the All Progressives Congress, APC-led government not yet tried to find out why lending rates in the country are in double digit? If it has, is the President’s directive the primary feasible solution to the problem?

It should be apparent that with deregulation and liberalisation of the financial markets, the days of official policy fiats have long been confined to history. The markets, as presently operated in the country, are supposed to be ruled by operative market forces. That is what is expected to happen except there is some meddling by government.

Consequently, if the government desires single digit lending rates for the development of agriculture and industry, it can intervene by raising substantial funds and disburse same at preferred single digit rates. In truth, the government has been intervening in these directions through the various funding provisions and schemes by the CBN alone or in collaboration with other institutions, establishing and funding Bank of Agriculture (BOA) and Bank of Industry (BOI), among others. Even, government’s recent pronouncements indicated that it plans to set up and fund a new agriculture bank.

CBN for instance, has over the years, put in place huge amounts of money running into hundreds of billions of Naira, at single digit interest rate, to support agriculture and industry. Such funds and schemes include: N200 billion Commercial Agriculture Credit Scheme (CACS); N300 billion Power and Airline Intervention Fund (PAIF), N213 billion Nigeria Electricity Market Stabilisation Facility (NEMSF); N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF); N200 billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS); N300 billion Real Sector Support Fund (RSSF); Agriculture Credit Support Scheme (ACSS); and The Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL). In addition to these, the CBN in collaboration with banks has set up a fund for agriculture and non-oil exports which businesses can access either as equity (interest-free) or loan (at single digit interest rate). The fund is a contribution of 5% annual profit after tax of banks who are members of the Bankers Committee.

Considered against the foregoing and with the billions of cheap intervention funds made available by the CBN, albeit, the government, fund availability appears not to be the problem. But given the size of the country’s economy, much is still needed for optimum performance. The question, however, is whether the funds are being easily accessed by the needy target organisations, and if they are, to what extent. Further, are they making the desired impacts?

According to CBN reports, most of these funds have never been fully disbursed. Some observations suggest that most farmers and industrialists find it difficult to access the funds as a result of the conditions. This is particularly so because the funds are operated through banks who are made to be primarily responsible for the repayment of the facilities. Consequently, the banks set some safe-guards that make access difficult for intending borrowers. The fact that most of the funds are not fully disbursed tends to support the fact that there are obstacles, hence the need for thorough review in order to identify those obstacles to accessibility and their solutions.

Since the President’s directive is for funds to be sourced and availed at single digit interest rate, perhaps government wants to borrow (notwithstanding its already huge outstanding debts) or make budgetary allocations for the purpose. These could be used to enhance the funding of BOA, BOI and similar development finance institutions. Government may also wish to float some long-tenured bonds (whether the market will accept the coupon rate will be another matter given on-going Treasury Bills rates and Monetary Policy Rates). Aside from the foregoing highlights, where else will the country be focusing in raising the desired cheap funds in substantial volumes? These are some of the issues the government should give serious consideration.

The actual and sustainable solution to the problem of high interest rate is managing the economy to be productively functional. With regard to solving agriculture problems, in particular, Nigeria needs to return to the tested models that had worked in this country. Marketing Boards should be re-introduced for quality standards and price stability; Agric- Extension Officers should be re-introduced and empowered. Large Agro-industrial Parks should be created and funded across the country; functional Agric-insurance is needed; all forms of abuses/short-cuts must be avoided and of course, a lot of cross-country awareness and sensitisation programmes are compulsory. Finally, all stakeholders – public and private – need to understand and play their parts sincerely and transparently.


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