May 30, 2019, Lagos, Nigeria – In continuation of its efforts to get more funds into agriculture by strengthening the handshake between finance and agriculture, the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending (NIRSAL) is drilling deeper by engaging the Management Credit Committees of commercial banks.
The purpose of the exercise is to apprise them of promising investment-friendly developments in Nigeria’s emerging agribusiness Sector and the expanding opportunities for value chain actors.
In the course of the engagements, NIRSAL has made extensive presentations on its Agribusiness models, financing frameworks, Tools, Techniques, Methodologies and Partnerships in meetings with Union Bank, Sterling Bank, Guaranty Trust Bank (GTBank), United Bank for Africa (UBA), Keystone Bank, Standard Chartered Bank, Heritage Bank and Unity Bank over the last five months.
The context for these efforts is that for years, the agriculture sector has received less than 3% of total bank lending, leaving it largely underdeveloped and its vast potentials for economic growth untapped. To address this, the CBN created NIRSAL to collaborate with all public and private sector stakeholders in fixing broken value chains and de-risking the sector for increased inflow of finance and investments.
NIRSAL’s meeting with banks, therefore, is to pitch its Agricultural Finance Risk Management innovations and Agribusiness models that take cognizance of banks’ desire to finance/invest but only in secure, risk-controlled, and structured environments. Leading the presentations at each of the Banks, NIRSAL’s MD/CEO, Mr. Aliyu Abdulhameed, presents “Unfolding Opportunities in Agricultural Financing” and gives an overview of NIRSAL’s work in the four segments of the Agricultural Value Chain namely the Pre-Upstream, Upstream, Mid-Stream and Downstream.
In these presentations, Mr. Abdulhameed focused on the Upstream Segment (primary production) which NIRSAL calls “the Black-hole” because of the high risks involved and banks’ consequent aversion to it. Moreover, the upstream segment is where produce comes from and, consequently, other segments are dependent on it. Mr. Abdulhameed speaks about NIRSAL’s acquisition and utilization of geospatial technologies for identification of the most ecologically endowed areas for specific commodities, combined with geo-spatial mapping and aggregation of arable lands.
Abdulhameed also introduced NIRSAL’s plan to acquire Satellite Imaging capabilities supported by Unmanned Aerial System (UAS) platforms as the most efficient technological platform for GIS mapping of large swathes of farmlands, remote sensing of crop health and as an early warning system for risk events in the field.
These sessions coincided with the successful NIRSAL-sponsored Bank Chief Risk Officers’ (CRO) Retreat held in Lagos in October 2018.
The retreat, moderated by the Risk Management Department of the Central Bank of Nigeria (CBN), focused on agribusiness and SME-related risks. It had CEOs and CROs of Deposit Money Banks, Merchant Banks, Credit Institutions and MSME operators in attendance.
Other presentations from NIRSAL elaborated the corporation’s risk management tools and general approach to Agricultural Finance with particular emphasis on its Credit Risk Guarantee cover and innovative index-based agricultural insurance products. Most significant is the Mapping To Markets (M2M) strategy under which NIRSAL is “pre-selling” smallholder farming Geo-cooperatives to finance. These Geo-cooperatives are developed and mapped in sync with the natural ecologies of specific commodities. The geo-cooperatives will have ready farmers who after being technically and financially enabled will be advised on what to produce and how much to produce in order to service the offtake market, coordinated by NIRSAL, according to pre-agreed quantity, quality and price parameters.
In all the interactions with banks so far, NIRSAL has received strong indications that banks are interested in “buying” its de-risked and structured Geo-Cooperatives. In the five months of these engagements with Deposit Money Banks, NIRSAL has catalysed Credit Risk Guarantees of over N14.5b and generated pipeline deals of over N48b, which today are at various stages of approval. Accordingly, bank staff have been nominated to constitute Joint-Technical-Committees with NIRSAL in order to pursue this new financing agribusiness logic.
NIRSAL’s risk-led agricultural financing is resonating with Banks. The prior perception of high risk by Banks is giving way to a new-found faith in the sector. The enhanced understanding of NIRSAL’s role in securing a safe, profitable and globally competitive agribusiness economy is expected to elicit greater portfolio commitments from the banks in sponsoring NIRSAL-led Agribusiness initiatives and developing joint frameworks aimed at facilitating finance for Agribusiness.