Barely a week after the Minister of
Agriculture and Rural Development, Dr. Audu Ogbeh, spoke on the fears of
an impending famine in the country, the Governor of the Central Bank of
Nigeria (CBN), Mr. Godwin Emefiele’s warning to financial institutions
participating in the CBN-guaranteed intervention funds to desist from
granting loans with interests above nine per cent has further put
development in the agricultural value chain under focus.
Emefiele gave the warning in Abeokuta,
Ogun State, during an interaction between the Presidential Task Force on
Agricultural Commodities and Production and young farmers at the Owowo
Model Farm Estate. He also assured the young farmers of the bank’s
funding support through their respective PFIs, and asked them t*o report
any bank that charg*es them above 9 per cent interest on loans
guaranteed by the CBN. He also urged operators in the sector to report
any erring PFI to the apex bank for possible sanction.
The warning, coming shortly after the
alarm by Ogbeh, that famine was imminent in the country if certain steps
were not taken urgently, may have flagged some questions around the
country’s agricultural value chain. Keen observers would wonder -why a
country with massive potential in the sector could not guarantee food
security for its citizenry or, in the least, guarantee lower food
inflation.
This appears to gain more traction
considering that various interventionist funds have been put in place to
galvanise potential in the sector towards ensuring food security in the
country and diversification of the country’s revenue base away from the
oil and gas, and services sectors.
While the warning from Emefiele
underscores low compliance rating among the PFIs, some observers opined
that it is also a signal that the CBN is determined to improve on
monitoring and enforcement of guidelines attached to intervention funds
for critical sectors.
Commercial Agriculture Credit Scheme (CACS)
According to information sourced on the
website of the CBN, one of the -*intervention funds dedicated to the
sector is the Commercial Agriculture Credit Scheme. The site stated
that, “As part of its developmental role, the Central Bank of Nigeria
(CBN) in collaboration with the Federal Ministry of Agriculture and
Water Resources (FMA&WR) established the Commercial Agriculture
Credit Scheme (CACS) in 2009 to provide finance for the country’s
agricultural value chain (production, processing, storage and
marketing). Increased production arising from the intervention would
moderate inflationary pressures and assist the bank to achieve its goal
of price stability in the country.”
The site also listed the primary
objectives of the scheme to include, “Fast-track the development of the
agricultural sector of the Nigerian economy by providing credit
facilities to large-scale commercial farmers at a single digit interest
rate; enhance national food security by increasing food supply and
effecting lower agricultural produce and products prices, thereby
promoting low food inflation; reduce the cost of credit in agricultural
production to enable farmers exploit the untapped potentials of the
sector; and increase output, generate employment, diversify Nigeria’s
revenue base, raise the level of foreign exchange earnings,” among
others.
The scheme, which is a sub component of
the Federal Government of Nigeria’s Commercial Agriculture Development
Programme (CADP), is financed through a N200billion Bond raised by the
Debt Management Office (DMO).
Reactions to the New Directive
Speaking with THISDAY, Chairman, Nigeria
Agribusiness Group, Sanni Dangote, welcomed the directive but noted
that there was need for segmentation of the agribusiness. He added that,
while the nine per cent interest rate favour operators in the
agribusiness sector, it does not favour the primary segment of the
agricultural value chain.
Dangote argued for a lower interest rate
for operator involved in activities that require long gestation period
including tree and pineapple plantation, land development among others.
He stated that, “it is fine for agribusiness because it is a short term
window and brings quicker returns; some activities require longer period
of gestation even with the moratorium in place.”
He said: “It is a good development and
we welcome it. However, there is need for the CBN to do a proper
segmentation of the agribusiness sector because nine per cent is still
too high for the primary segment of the sector. For those in the primary
segment, at best it should be six per cent.”
Besides, he argued that the call on
sector operators to report erring PFIs would not work. According to him,
the call would have been more effective if it came with a guarantee
that the whistle blower will enjoy some guarantee against blanket
blacklisting from PFIs.
“Under the present circumstances, nobody
will report any erring bank for fear of being blacklisted by the bank. I
would have preferred if the call came with assurance that the CBN will
guarantee an operator a loan at another bank if he is refused a loan at
the bank he reported as offering double-digit interest rate,” Alhaji
Dangote said.
In his own submission, a former acting
Managing Director, Unity Bank Plc, Dr. Muhammad Rislanudeen, recalled
that, “Intervention funds were introduced as part of efforts towards
strengthening the economy and financial institutions themselves after
the stress test conducted in 2009. They were meant to bridge a funding
gap especially for small and medium enterprises as well as agriculture
financing.
“CBN initiated the power and aviation,
small and medium enterprises as well as commercial agriculture credit
facilities sometimes around 2009 with specific aim of providing more
funding to real sector, income enhancing and employment creating sectors
that have long-term benefit of supporting growth at single digit
interest rate. It is even more relevant now with economy in recession
and most of those critical sectors contracting due in large part to high
cost of doing business inclusive of high interest rate charged by
banks.
Rislanudeen noted that, “In the
guidelines for those intervention funds, it is clear that banks will
charge single digit interest rate of 7 per cent for SME, power and
aviation loans and 9 per cent for agriculture loan inclusive of all
charges. The central bank is therefore right to insist on single digit
interest rate in compliance with extant guidelines.”
His view was shared by economist and
ex-banker, Dr. Chijioke Ekechukwu, as he justified the need for the apex
bank to closely monitor such funds which are aimed at reflating certain
sectors of concern to the economy. According to him, “Part of the core
functions of the CBN is, occasional interventions to stimulate the
economy, grow and regulate same. Depending on what sector of the economy
that needs intervention. It could be aviation, power, textile or
general real sector as experienced recently. Intervention funds
therefore are aimed at reflating certain sectors of concern to the
economy considered necessary to grow the economy. Intervention Funds are
meant to provide cheap loans to the players in these sectors.
“When a loan is considered cheap in this
context, interest rate should be between 5 per cent to 9 per cent
(single digit) per annum. CBN has recently deployed intervention funds
in Youth Entrepreneurship Development Programme, Anchor Borrowers
Programme; Micro, Small and Medium Enterprises; Commercial Agriculture
Credit Scheme and Development Funds.”
He added that, “These loans are availed
through Participating Financial Institutions(PFIs) like BOI and some
selected commercial banks. CBN has mandated these PFIs to ensure that
these loans are given at single digit interest rates. This is to be able
to achieve the ultimate purpose of such interventions. The higher the
interest rate, the higher the risk of default in repayment by the
debtors or beneficiaries and the higher the prices of their output.”
“Some other times, CBN cushions the loan
burden of commercial banks by moving them out of their books as loans
to the books of PFIs to save the lives of these ailing banks or to
encourage them to extend more loans to certain sectors.
These are how relevant these funds are
to the economy. They are indeed used to control some macro-economic
indices” he explained.
