*35,160 farmers benefit from insurance product
The Nigerian Incentive-Based Risk Sharing System for Agricultural Lending, (NIRSAL) has confirmed that it has facilitated over N102 Billion as loans from Commercial Banks since its inception, across the various Agricultural Value Chains in Nigeria.
NIRSAL Plc, a wholly-owned corporation of the Central Bank of Nigeria (CBN), is a US$500million Non-Bank Financial Institution specifically designed to Redefine, Measure, Re-Price and Share agribusiness-related credit risk.
By its mandate, NIRSAL is not a lending institution but was created to stimulate the flow of affordable finance and investments into fixed agricultural value chains. This, it does through fixing of agricultural value chains, building long-term capacity, and institutionalising incentives for agricultural lending leveraging its five (5) strategic pillars namely: Risk Sharing, Innovative Insurance Technical Assistance, Incentive Mechanism and Rating.
Thus, NIRSAL serves as a catalyst that enables providers of finance and investment, lend and invest in agribusinesses leveraging on its Credit Risk Guarantees and Risk Management Products, Tools, Techniques, Methodologies and Strategic Partnerships.
In line with its strategic and innovative approach to delivering its mandate, NIRSAL has within a short period of time achieved, amongst others, the following:
- Development of Area Yield Index Insurance for the CBN’s Anchor Borrowers’ Program.
- Development of Hybrid Index Product with Royal Exchange Plc and submitted to NAICOM for approval.
- Signed agreement with PETKUS Technologie GMBH on new technologies for seed and grain processing in Nigeria.
- Implementation Plan for the NIRSAL Student Knowledge Enterprise and Practice Program (NSKEP) which is ongoing and will provide exposure for 400-500 level students in agribusiness disciplines to gain field experience and pursue entrepreneurship in agribusiness.
- Operationalization of the Financing Framework for the Acquisition & Rehabilitation of Tractors and Other Machines for redeployment into the field for productive use.
- N717Million was given as CRG cover to Mass International & Equipment Nig. Ltd and Machine & Equipment Consortium for Africa (MECA) for the purchase of tractors.
- NIRSAL Action Research-based Windmill for Irrigation was set up and the pilot project is at completion phase.
- Development of concept note and financing framework for Vendor Financing Lot Sharing System (VFLOS) which is currently fully operational.
- Consultation is ongoing with the National Agricultural Seeds Council (NASC) to assist in identifying quality seed varieties for NIRSAL Interventions.
- Distribution of inputs materials to smallholder farmers across the country under the CBN’s Anchor Borrowers’ Programme (ABP) was carried out and the issuance of credit trade terms to certified input suppliers was done under the Anchor Borrower (ABP) Programme.
- Development of Mapping to Markets (M2M) strategy for connecting the Upstream segment of the agricultural value chain (primary production) to Pre-Upstream input markets and Downstream output markets.
- Wheat Integrated Agribusiness Project Development (IAPD) model developed to solve the problems along the Wheat value chain from production to milling and markets.
- Integrated Commercial Livestock Programme (ICLP) model developed to fix and integrate all segments of the Livestock Value Chain. A Pilot project is in progress in Yola, Adamawa State.
- Stakeholder consultations and background research ongoing for NIRSAL’s Integrated Commercial Aquaculture Development Programme (ICAD) and Sesame Integrated Agribusiness Project Development (IAPD).
- Development of Secured Agro-Allied Commodities Transport & Storage Corridor (SATS-C) model to address the issues of produce quality and standards, multiple-road taxation, poor produce handling and haulage practices, high post-harvest losses and the emergence of a viable commodity exchange.
- Implementation of the Edo Agripreneur project which began at the onset of the 2019 wet season. The project achieved approximately a 100% increase in grain yields for the participating rice and maize farmers and has gone some way in reducing the importation of the staples and improved the livelihoods of families.
- Development of NIRSAL Agricultural Commodity Ecological Areas (ACEAs) which are geographical locations that possess a comparative advantage in terms of optimal climatic, soil, and economic conditions for the production of specific agricultural commodities.
- Creation of NIRSAL AgroGeoCoops® which involves the aggregation of contiguous farmlands owned by several smallholder farmers who are structured into Agro Geo-cooperatives with financial identities and Virtual Asset Titles (VAsT) created using geospatial technology. The NIRSAL AgroGeoCoop® formation initiative aims at structuring 4 Million hectares of land covering 8 Million smallholder farmers into 16,000 AgroGeoCoops® for the production of 18 priority commodities across NIRSAL’s Agricultural Commodity Ecological Areas (ACEAs) in Nigeria.
The mentioned activities and more speak to a N102 Billion total being financing facilitated from lenders for agribusiness since NIRSAL’s inception to Q4 2019. For clarity, the total amount leveraged by NIRSAL Credit Risk Guarantees and other Agricultural Risk Management Tools & Products is further broken down into the following Agricultural Value Chain activities:
- Agricultural Inputs: N6.7 Billion
- Mechanization: N1.7 Billion
- Primary Production: N18.6 Billion
- Processing: N34.4 Billion
- Logistics: N580 Million
- Growth Enhancement Scheme; N39.4 Billion
- Rural Financial Institution: N940 Million
In a bid to further de-risk Nigeria’s agriculture industry for investors and financiers, NIRSAL as the Agricultural Finance Risk Management Corporation of the Central Bank of Nigeria has dimensioned the entire Agricultural value chain into four (4) segments: The Pre-upstream, Upstream, Midstream and Downstream.
NIRSAL develops and deploys appropriate de-risking strategies that speak to the entire risk universe as they affect both the agricultural and agriculture finance value chains.
The institution’s Managing Director/CEO, Mr. Aliyu Abdulhameed, said that NIRSAL has paid out a total of N4.6 Billion as claims to providers of finance (Deposit Money Banks) on Credit Risk Guarantees that crystallized. An additional N1.2 Billion, he said, has been paid to prudent borrowers as Interest Drawbacks who have found their cost of funds and businesses boosted as a result.
It is important to state that through NIRSAL’s facilitation, over 400,000 jobs have been created and 2 Million lives positively impacted in the pre-upstream, upstream, midstream and downstream segments of the agricultural value chain, specifically in the areas of Mechanization, input supply, primary production and processing.
Insurance is a critical measure deployed by NIRSAL in managing and mitigating risk. It is an essential component of NIRSAL’s five (5) pillars. This Insurance facility is designed to expand agricultural insurance products to reduce credit risk and increase lending across the agricultural value chain.
NIRSAL’s goal is to expand insurance uptake by primary producers from 0.5 million to 3.8 million by 2026 and continually develop insurance products that will give financial institutions and Agricultural Value Chain players the comfort they need to lend to the agricultural sector while building the capacities of underwriters.
Prior to NIRSAL’s intervention, Agricultural insurance in Nigeria was indemnity based which only provided compensation equivalent to farmer’s cost of production. The uptake of this insurance product was very low.
Working with its technical partner, NIRSAL collaborated with NAICOM and NAIC (who led a consortium of four underwriters) to provide innovative and index-based insurance to protect investments in the upstream segment of the agricultural value chain, particularly those of smallholder farmers. Following the experience of the developed product, NIRSAL is in the final stages of developing the proprietary NIRSAL Comprehensive Index Insurance (NCII) product.
In this regard, NIRSAL is leading a consortium of Agricultural Insurance underwriters to strategically transition their product focus from indemnity-based insurance to Area Yield Index, Revenue Index, Hybrid Index and finally to the NIRSAL Comprehensive Index Insurance product. This suite of innovative products does not only provide compensation to farmers based on the cost incurred but also covers projected earnings.
As at December 2019, a total of 35,160 farmers cultivating 36,347 hectares have used the NIRSAL Area Yield Insurance Index product to protect a total harvest value of over N4.77 Billion. Insured farmers who suffered low area yields during the 2019 Wet Season have received appropriate compensation.
Abdulhameed pointed out that even at the maximum cover of 75% credit-risk guarantee on agricultural loans, NIRSAL has maintained a crystallized guarantee ratio of about 1% only, against the financial industry average ratio of 7.9%. More importantly, the business model of NIRSAL, as a corporation, has shown remarkable resilience and sustainability in that it has proven to be an astute agricultural finance risk management institution that has demonstrably sustained its operations, preserved and expanded its capital base, thus one can safely say that its future sustainability is strongly assured.
With Agriculture contributing over 29.25% to Nigeria’s GDP, it is safe to say that organizations like NIRSAL are positively driving the transformation of the economy through agribusiness.