Minister of Agriculture and Rural Development, Dr. Akinwumi Adeshina, in this interview with IFEANYI ONUBA, speaks on the problems of agricultural financing and the controversy surrounding the government’s plan to give cellphones to farmers
The Federal Government has signed a $3bn funding agreement with the United States Agency for International Development, what is the significance of this deal to Nigeria?
We faced a lot of problems in getting access to our farmers and there are three main issues here. One is that the interest they face is quite high; the second is the quantum of lending and the third is the term of financing they get.
What this facility is going to do is to reduce the risk of lending by banks. Last week Saturday, I was with the CBN governor with all the bank managing directors in Lagos and we all discussed. They were thrilled with the reforms going on in the agriculture space. They were thrilled to know they had leveraged $8bn of investment commitment into this sector in one year and they were also thrilled by the fact that of the N3bn that was lent last year to seeds and fertilizer companies, the default rate was zero per cent.
I must say we are the first country anywhere in the world where you start a programme and the default rate is zero per cent in the first year.
So, on this facility, the central bank would put out risk sharing instruments, which will leverage the excess liquidity from the commercial banks. The total amount that we are looking at is $3bn overtime. But the Nigeria Incentive-Based Risk Sharing System for Agriculture Lending facility has about four components.
One is to reduce the risk faced by banks; so if the banks are lending, the facility will cover part of the risk if there is a loss.
The second is that it will provide technical assistance to the banks and already, the CBN governor has directed all banks to have agricultural lending desk; so, that will provide back and front end technical support to banks to understand the sector and to be able to lend reasonably well and also effectively too, to the sector.
Third is that the facility will also rate banks from the quantum of lending and the part of the value chain they are lending too from small farmers to large farmers.
And finally, it depends on the developmental impact that their lending is leading into. Part of the facilities is an insurance facility that would insure the farmers and the businesses.
So, all in all, it is an endorsement of the fact that the central bank and the banking community recognises that there is a revolution on the way in Nigeria in agriculture. And agric as a business is working and they are ready to put significant financing behind it.
What stage is the reform in fertilizer distribution in Nigeria?
You know the fundamental thing in agriculture is that if farmers can’t have access to fertilizer, then of course you can’t have significant productivity and growth in the sector.
When we came as a government over one year ago, what we met on ground was a very corrupt fertilizer system. People were bringing sand and supplying to government as fertilizers, people were bringing undersized bags and supplying to government; people would buy grains from the market and sell to government as seeds. And of course, for four decades, what we had been doing on fertilizer in this country was totally subsidising corruption; we were not subsidising farmers and that is why the expenditure of government had continued to rise on fertilizer while our productivity of agriculture continued to decline and poverty continued to rise.
So my directive from the President was to clean up the mess and we did. It took us 90 days as a government to clean up the most corrupt sector in this country and people need to know that. And today, you don’t find fertilizer companies supplying fertilizer to government; they sell their fertilizers directly to farmers and that’s the way it should be.
How successful is this reform?
Last year, we launched the Growth Enhancement Scheme where we used cell phones to end the corruption in the fertilizer sector in this country. Those cell phones in the hands of farmers were used to send them their vouchers on their own mobile phones. They used it to buy fertilizer by adding a little bit of money from the input suppliers and that is transparency and accountability.
For the first time, I can tell you from government who got fertilizer, where they got it, how much and what they paid and with these, we ended the corruption using disruptive technology to cut off the middlemen.
How will those rural farmers access this funding programme from USAID? Do they need collateral?
This is good news for the Nigerian farmers because the NIRSAL facility will allow the banks to lend to farmers and to the agro dealers and agribusinesses.
The interesting thing is that the facility will reduce the interest rate being paid by farmers. If, for example, the commercial interest rate is 15 per cent, because of the risk sharing facility and because of the fact that the ministry of agriculture is fixing the agric value chain, it means the interest rate will go down from 15 per cent to maybe nine per cent.
So, it’s a facility that would reduce agricultural lending and interest rate payable by farmers.
How are you going to simplify the loan application process because of the bureaucracy in government?
Last year, when the banks lent to seed fertilizer companies for a total of about N3bn; and out of this N3bn, the farmers did not lose anything because the repayment rate was 100 per cent.
Nigerians need to know that this is a different sector. So this means that for farmers to be able to get access to financing this year, the challenges are more reduced because the banks have already seen that this is a sector in which the loss rate is the lowest.
So, we are going to help the farmers to organise themselves into cooperative groups because it’s easier to lend to cooperative groups than to individual farmers.
Secondly, the agro dealers that are going to benefit from the facility are going to be registered into corporate entities. We are going to get their data and put it on a data base of all the banks, they will look at their transaction history and access the risk of lending to anyone of them. Until we started this, the banks did not know the agro-dealers and the farmers.
The database that we are developing in the ministry of agriculture will help the banks to target them better.
Finally, on the issue of the collateral, the reason banks ask for collateral is because if they think you are a high risk borrower, they will make sure they have something to hold on to. But in this particular case, we are linking farmers to companies that are buying from them. So, if a farmer is supplying you maize and you are a feed miller, the feed miller gives a contract to the farmer groups. That is enough for the farmers to show to the banks that they have a contract and they can lend to them even without having collateral.
We need new ways of lending that are not based on collateral and that’s the way the world is going.
What should we expect this year from the government in the sector?
This year, we want to reach more five million farmers with that technology and so those are the major reforms that we are doing. Let me just make this point that the days are gone when we take our farmers as a bunch of people in rural areas that should not participate in a modern economy, that should not participate in new technologies, while the rest of us benefit from that in the cities.
No, I will not sit over an agriculture sector where poverty reigns. We are going to modernise this sector; we are going to empower our farmers; we are going to do whatever is necessary to make Nigeria’s agriculture productive, efficient and competitive.