Central Bank of Nigeria

AGRICULTURAL FINANCE POLICIES IN NIGERIA

BEING PAPER PRESENTED AT THE

3RD AFRACA AGRIBANKS FORUM: “AFRICA VALUE CHAIN FINANCING”

HELD IN NAIROBI, KENYA

BETWEEN

OCTOBER 16-19, 2007

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1.0 INTRODUCTION

Agriculture is the mainstay of Nigeria’s majority population.It was the major foreign exchange earner before the advent of oil in 1970s. It could still be in that position if adequate attention in terms of policies, finance and provision of rural infrastructure is addressed.

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Agriculture’s specific role in Nigeria’s economy include: Provision of adequate food for increasing population; Supply of adequate raw materials to a growing industrial

sector; Major source of employment; Generation of substantial foreign exchange earnings, and Provision of a market for the products of the industrial

sector.

INTRODUCTION CONT’D

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One of the major problems of Nigeria’s agriculture is inadequate funding by:

a) Government budget;

b) Private sector

About 65% of Nigeria’s economically active

population lack access to formal financial

services, hence various efforts by government

at all levels to address the issue.

INTRODUCTION CONT’D

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2.0 RATIONALE FOR GOVERNMENT AGRICULTURAL FINANCE POLICIES

2.1 Developmental Goals Food security; Poverty reduction; Employment generation; Reduction in rural to urban migration; Less Dependency on importation of food items; Increase in foreign exhance earnings

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2.2 Objective of Agricultural Financing Policies in Nigeria To establish an effective system of

sustainable agricultural financing schemes, programmes and institutions – that could provide micro and macro credit facilities for the micro, small, medium and large scale producers, processors and marketers.

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3.0 PLETHORA OF GOVERNMENT’S POLICY INITIATIVES ON THE PROVISION OF AGRICULTURALFINANCE SERVICES

3.1 The Policy initiatives include Schemes, Programmes and Institutions

1970 – 1996 Sectoral allocation of credits

1972 to date Nigerian Agricultural Co- operative and Rural Development Bank Ltd. (formerly Nigerian Agricultural Co-operative

Bank)1977 to date Agricultural Credit

Guarantee Scheme

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Policy Initiatives cont’d.1977 – 1991 Rural Banking Programme1977 – 1996 Lending as a percentage of

savings mobilised in rural areas to rural dwellers

1980 – 1987 Concessionary interest rate1990 – 2002 Peoples Bank of Nigria (PBN)1990 to date Community Banks

(CBs)/Microfinance Banks (MFBs)

1996 to date Nigerian Agricultural InsuranceCorporation

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Policy Initiatives cont’d.

1997 – 2001 Family Economic Advancement Programme (FEAP)

1999 to date National Poverty Eradication Programme (NAPEP)

2001 to date Small and Medium Enterprises Equity Investment Scheme (SMEEIS)

2002 to date Refinancing and Rediscounting Facility (RRF)

2005 to date Micro Finance Policy 2006 to date Agricultural Credit Support Scheme

(ACSS)

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3.2 Reasons For The Failure of Past Initiatives Lack of adequate skills to deliver services

effectively; Unwillingness of conventional banks to support

micro enterprises; Paucity of loanable funds; Absence of support institutions in the sector –

legal, infrastructure, training, etc. Incompetent management, poor corporate

controls, poor credit administration and asset quality;

Low management capacity of clients.

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4.0 CHALLENGES OF AGRICULTURAL FINANCING IN NIGERIA

o Most schemes, programmes and institutions are not adequately funded for effective performance;

o The schemes, programmes and institutions do not fund projects with long gestation period, processing, warehousing and marketing;

o Private financial institutions are still skeptical about government agricultural programmes due to cumbersome processing procedures and high transaction cost;

o Undue political influence on lending procedures;o Inadequate infrastructure. o Weak legal system.

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5.0 THE WAY FORWARD

Adequate budgetary provisions/prompt payment of government’s proportion of shared capital;

Making NACRDB a wholesale agricultural financing institution;

Establishment of Microfinance Development Fund; Review of existing institutional, schemes and programme

policies to enable them support value addition to farm gate output i.e. processing, warehousing and marketing;

Drafting of financing policies that are targetted at some agricultural output – aimed at improved raw material for industry, reduction of import, earning of foreign exchange; where the country has comparative advantage.

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6.0 Conclusiono Having discussed the various policies put

forward by Government to enhance agricultural financing, there is need to build synergy among the various credit delivery institutions (both public and private) for effective credit delivery to the agricultural sector.

Central Bank of Nigeria

Thank You