AGRICULTURAL FINANCE POLICIES IN NIGERIA

1. AGRICULTURAL FINANCE POLICIES IN NIGERIA BEING PAPER PRESENTED AT THE 3RD AFRACA AGRIBANKS FORUM: “AFRICA VALUE CHAIN FINANCING” HELD IN NAIROBI, KENYA BETWEEN OCTOBER 16-19, 2007

2. 1.0 INTRODUCTION Agriculture is the mainstay of Nigeria’s majority population. It was the major foreign exchange earner before the advent of oil in 1970s. It could still be in that position if adequate attention in terms of policies, finance and provision of rural infrastructure is addressed.

3. INTRODUCTION CONT’D • Agriculture’s specific role in Nigeria’s economy include: • Provision of adequate food for increasing population; • Supply of adequate raw materials to a growing industrial sector; • Major source of employment; • Generation of substantial foreign exchange earnings, and • Provision of a market for the products of the industrial sector.

4. INTRODUCTION CONT’D • One of the major problems of Nigeria’s agriculture is inadequate funding by: • Government budget; • Private sector About 65% of Nigeria’s economically active population lack access to formal financial services, hence various efforts by government at all levels to address the issue.

5. 2.0 RATIONALE FOR GOVERNMENT AGRICULTURAL FINANCE POLICIES 2.1 Developmental Goals • Food security; • Poverty reduction; • Employment generation; • Reduction in rural to urban migration; • Less Dependency on importation of food items; • Increase in foreign exhance earnings

6. 2.2 Objective of Agricultural Financing Policies in Nigeria • To establish an effective system of sustainable agricultural financing schemes, programmes and institutions – that could provide micro and macro credit facilities for the micro, small, medium and large scale producers, processors and marketers.

7. 3.0 PLETHORA OF GOVERNMENT’S POLICY INITIATIVES ON THE PROVISION OF AGRICULTURALFINANCE SERVICES 3.1 The Policy initiatives include Schemes, Programmes and Institutions 1970 – 1996 Sectoral allocation of credits 1972 to date Nigerian Agricultural Co- operative and Rural Development Bank Ltd. (formerly Nigerian Agricultural Co-operative Bank) 1977 to date Agricultural Credit Guarantee Scheme

8. Policy Initiatives cont’d. 1977 – 1991 Rural Banking Programme 1977 – 1996 Lending as a percentage of savings mobilised in rural areas to rural dwellers 1980 – 1987 Concessionary interest rate 1990 – 2002 Peoples Bank of Nigria (PBN) 1990 to date Community Banks (CBs)/Microfinance Banks (MFBs) 1996 to date Nigerian Agricultural Insurance Corporation

9. Policy Initiatives cont’d. • 1997 – 2001 Family Economic Advancement Programme (FEAP) • 1999 to date National Poverty Eradication Programme (NAPEP) • 2001 to date Small and Medium Enterprises Equity Investment Scheme (SMEEIS) • 2002 to date Refinancing and Rediscounting Facility (RRF) • 2005 to date Micro Finance Policy • 2006 to date Agricultural Credit Support Scheme (ACSS)

10. 3.2 Reasons For The Failure of Past Initiatives • Lack of adequate skills to deliver services effectively; • Unwillingness of conventional banks to support micro enterprises; • Paucity of loanable funds; • Absence of support institutions in the sector – legal, infrastructure, training, etc. • Incompetent management, poor corporate controls, poor credit administration and asset quality; • Low management capacity of clients.

11. 4.0CHALLENGES OF AGRICULTURAL FINANCING IN NIGERIA • Most schemes, programmes and institutions are not adequately funded for effective performance; • The schemes, programmes and institutions do not fund projects with long gestation period, processing, warehousing and marketing; • Private financial institutions are still skeptical about government agricultural programmes due to cumbersome processing procedures and high transaction cost; • Undue political influence on lending procedures; • Inadequate infrastructure. • Weak legal system.

12. 5.0 THE WAY FORWARD • Adequate budgetary provisions/prompt payment of government’s proportion of shared capital; • Making NACRDB a wholesale agricultural financing institution; • Establishment of Microfinance Development Fund; • Review of existing institutional, schemes and programme policies to enable them support value addition to farm gate output i.e. processing, warehousing and marketing; • Drafting of financing policies that are targetted at some agricultural output – aimed at improved raw material for industry, reduction of import, earning of foreign exchange; where the country has comparative advantage.

13. 6.0 Conclusion • Having discussed the various policies put forward by Government to enhance agricultural financing, there is need to build synergy among the various credit delivery institutions (both public and private) for effective credit delivery to the agricultural sector.

14. Thank You