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April 22, 2009

Nigeria establishes agricultural credit scheme

by Oluwaseyi Bangudu

The Central Bank of Nigeria (CBN) in collaboration with the federal government of Nigeria, represented by the Federal Ministry of Agriculture and Water Resources, has established a Commercial Agriculture Credit Scheme, otherwise referred to as CACS, for promoting commercial agricultural enterprises in Nigeria, as part of its developmental role.

According to a communiqué released by the Central Bank of Nigeria on April 21, this fund will complement other special initiatives of the Central Bank of Nigeria in providing concessionary funding for agriculture such as the Agricultural Credit Guarantee Scheme (ACGS), which is mostly for small-scale farmers, Interest Draw-back scheme, Agricultural Credit Support Scheme, etc.

The scheme shall be financed from the proceeds of the N200 billion bond to be raised by the Debt Management Office (DMO). The fund shall be made available to the participating bank(s) to finance commercial agricultural enterprises.

In addition, state governments and the FCTA could also borrow up to 20 per cent of the bond proceeds for on-lending to farmers. The ceiling to the states may be reviewed as the need arises, by the Project Management Committee (PMC).

According to the Central Bank, the objectives of the scheme are:

- To fast track development of the agricultural sector of the Nigerian economy by providing credit facilities to commercial agricultural enterprises at a single digit interest rate

- To enhance national food security by increasing food supply and effecting lower agricultural produce and product prices, thereby promoting low food inflation

- To reduce the cost of credit in agricultural production to enable farmers to exploit the potentials of the sector

- To increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis

According to the CBN, the key agricultural commodities to be covered under the scheme are cultivation of target crops (rice, cassava, cotton, oil palm, wheat, rubber, sugar cane, Jatropha carcus, fruits and vegetable), Livestock (dairy, poultry, and piggery), and fisheries.

Credit support to the target commodities shall be administered along the entire value chain of production, storage, processing, market and enterprise development.

For the purpose of this scheme, a commercial enterprise, according to the CBN, is any farm or agro-based enterprise with agricultural assets (excluding land) of not less than N350 million for an integrated farm with prospects of growing the assets to N500 million within the next three years and N200 million for non-integrated farms/agro-enterprise.

This however, does not apply to loans obtained by state governments for on-lending.

The Central Bank of Nigeria shall select, through a competitive process, the banks that will participate in the scheme with adequate considerations for the bank(s)' capacity, assets, branch network, liquidity, experience in agricultural lending, credit risk exposures, etc.

The banks bear the credit risk of the loans.

For this phase of the scheme, the CBN has approved two banks to administer the fund namely, United Bank for Africa, Plc (UBA) and First Bank of Nigeria, Plc (FBN)

For corporate and large-scale commercial farms/Agro-enterprises to participate in the scheme, the borrower shall be a limited liability company with asset base of not less than N350 million and having the prospect to grow the net asset to N500 million in the next three years and complies with the provision of the Company and Allied Matters act (1990).

The firm should have a clear business plan, provide up-to-date records on the business operation if any, have an out growers' programme, and where appropriate, satisfy all the requirements specified by its lending bank.

For medium-scale commercial farms/Agro-Enterprises to participate in the scheme the borrower shall be a limited liability company with asset base of not less than N200 million and having the prospect to grow the net asset to N350 million in the next three years and complies with the provision of the Company and Allied Matters act (1990), among others.

To participate in the scheme a state government/FCT shall submit an expression of interest to put in place appropriate institutional arrangements by setting up a secretariat (Special Unit or Agency) staffed with experienced agricultural experts and credit officers dedicated to the administration of the fund to be borrowed, which shall be approved by the PMC.

In addition, participants shall sign an irrevocable standing payment order (ISPO) in favour of the CBN, to deduct at source the total amount in default from the state(s) on a monthly basis of state revenue allocation on behalf of the PB.

The key stakeholders of the scheme include the federal government of Nigeria, Central Bank of Nigeria, Federal Ministry of Agriculture and Water Resources, Debt Management Office, participating banks, borrowers (farmers, Agro-Processors, marketers, state governments, and the FCT).


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