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 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 agriculture/agribusiness sector and the expanding opportunities for value chain actors, with the aim of unlocking banks’ balance sheets to agribusiness lending.
In the course of the first phase of these engagements, NIRSAL 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. More banks and other financial institutions have expressed interest to be engaged in the subsequent phases over the coming weeks.
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 Central Bank of Nigeria (CBN) created NIRSAL to collaborate with all public and private sector stakeholders to fix broken agricultural commodity value chains and de-risk the sector to enable 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. However, the same upstream segment is the source of all agricultural commodities’ raw material which the other segments are dependent on. Mr. Abdulhameed speaks about NIRSAL’s acquisition and planned utilization of geospatial technologies for identification of the most ecologically endowed areas for specific commodities, and for the aggregation of fragmented farmlands.
These technologies include the acquisition of Satellite Imaging data to be supported by Unmanned Aerial System (UAS) platforms adjudged to be the most efficient technological platform for monitoring large swathes of farmlands, remote sensing of crop health status and to serve as an early warning system to control risk events in the field.
NIRSAL’s engagements with banks started 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 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.
The comprehensive presentations from NIRSAL also elaborated the corporation’s risk management tools and general approach to Agricultural Finance with particular emphasis on its Credit Risk Guarantee (CRG) cover, the interest draw-back support and its 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, would be advised on what to produce and how much to produce in order to service the offtake market coordinated by NIRSAL in accordance with pre-agreed quantity, quality and price parameters.
The business logic and game-changing difference of the M2M concept lies in: the creation of thousands of large, integrated, financiable project tickets of grouped farmers with a minimum ticket size of 250 farmers mapped to a 250Ha Geo-Cooperative which are, in turn, mapped to downstream markets under guaranteed offtake arrangements. This involves the facilitation of working capital and asset finance for all relevant agribusiness actors in the target commodity value chain; the mapping of these actors to each other and to the Geo-Cooperative tickets; the domiciliation of all loan accounts with a financing bank or a consortium of banks and near-zero cash movement between the locked-in transacting parties. The ultimate enabler underlying these transactions that gives comfort to all parties is the NIRSAL CRG, backed by its bespoke Risk Management Tools, Techniques, Methodologies, Processes, Technical Assistance Facility & Global Partnerships that provide 360 degrees life-cycle monitoring support to each guaranteed project.
In all the interactions thus 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, while leveraging NIRSAL’s CRGs and other de-risking mechanisms, over N14.5 Billion in additional financing from banks’ balance sheets have been catalysed and a further N48 Billion are at various stages of approval. Consequently, banks’ staff are being nominated to constitute Joint-Technical-Committees with NIRSAL in order to pursue this new and innovative agriculture/agribusiness financing framework.
So far, the NIRSAL risk-led agricultural financing approach is adjudged to be in high resonance with Banks Risk/Return imperatives. The prior perception of high risk by Banks is gradually giving way to a new-found faith in the new business opportunities the sector has to offer. Going forward, the enhanced understanding of NIRSAL’s role in securing a safe, profitable and a globally competitive agribusiness economy is expected to elicit greater portfolio commitments from Nigerian banks in sponsoring the NIRSAL-led Agribusiness initiatives and developing joint frameworks aimed at facilitating a greater flow of finance to structured, agriculture-related investment opportunities in Nigeria.