by Ochanya Samuels
The coming of the Malam Sanusi Lamido Sanusi in June 3, 2009 as the Governor of the Central Bank of Nigeria [CBN] was turbulent – following the completion of tenure by the previous Governor of the CBN in the person of Prof Charles Chukwuma Soludo. It brought shockwaves to the many regions of Nigeria and to the financial world as the new incoming Governor sought sweeping reforms to the Nigerian Banking system to bail out Nigerian Banks operating at the verge of near collapse.
Just two months following his arrival, the new Governor led the CBN into bailing out of Afribank, Intercontinental Bank, Union Bank, Oceanic Bank and Finbank with 400 billion naira of public money, while dismissing their chief executives. \”We had to move in to send a strong signal that such recklessness on the part of bank executives will no longer be tolerated.\” – stated Sanusi. Sixteen senior bank officials faced charges that included fraud, lending to fake companies, giving loans to companies they had a personal interest in and conspiring with stockbrokers to boost share price.
Sanusi’s immediate jolt was felt instantly which generated a reactionary clatter in high decibels that quickly took a political dimension threatening the near distortion of the new CBN and its initiatives.
Economic development was top on the new CBN’s initiatives and it draws from the CBN Act of 2007 which explicitly provided and mandated for the CBN to play the developmental roles in the economy. Like other Central Banks in a developing economy, the development and sustenance of a vibrant real sector is germane to the efficacy of monetary policy tools.
Among the policy tools the new CBN has turned to stimulate needed economic activity in the real sector is the ground breaking initiative it recently launched on agriculture. Through a revolutionary approach designed by the new CBN, it boosts agricultural activity through softened lending programs.
According to official labor statistics, localized agricultural activity has been the largest employer in Nigeria. Specifically, 70% of available labor in Nigeria is employed in the local agricultural industry equivalent to 40.05million people out of the 57.21million total labor force. Interestingly, the large chunk of the labor market impacts the Gross Domestic Product [GDP] a messily 26.8% – indicating a wide untapped potential – to help boost the GDP per capital beyond the current $3640, and possibly an opportunity to decrease the segment of the population living below the poverty line from to the current 67.5million Nigerians [45% of Nigerian population] to below 34million.
Through this realization, the CBN sought to utilize its mandate in the CBN Act of 2007 to engineer the local agricultural sector into a vibrant sector to possibly affect the Nation’s GDP. It launched the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending [NIRSAL]. The NIRSAL, according to the CBN, is geared to make the risk of lending to local farmers who typically have little or no real collateral to present to lending Banks. The NIRSAL posits to provide shared risk to the lending Banks and to increase agricultural lending by $3billion over 10years equivalent to an increase from 1.4% to 7% of Nigeria’s total bank lending.
Historically the agricultural sector had not faired well due largely to limited available credit. This is because lending banks associate agricultural sector with high lending risk – the banks lack the skills to properly evaluate/ rank associated risks. Some lending banks did not trust the farmer would make enough profit to repay the loan. In affect, the lending banks did not want to carry the risk alone. For this reason, the monies previously made available by the past administration at the CBN failed to reach the intended final users – the local farmers.
Implementation of NIRSAL points to directly to sealing the gaps in the earlier interventions by designing into the program five solution components for the lending bank. The solution components are basically to provide incentives for the Banks to lend to local farmers at lowered risks and interest rates – they comprise of; Risk Sharing Facility, Insurance Component, Technical Assistance Facility, Bank Incentive Mechanism, and Agricultural Bank Rating System.
The NIRSAL as designed will not only cater to the farmer alone. The new CBN discovered that the local farmer depends on other factors to enable his crop reach the appropriate market in a timely manner. This requires the constructing, linking and servicing the commodity and financial value chains for all players to optimize their businesses by ensuring that operator, from the farm to the market, is properly funded, assisted and given adequate incentives to play their different roles appropriately. It requires ensuring that needed infrastructure, roads, irrigation, processing facilities, extension service, marketing support, insurance, improved seeds variety, fertilizer, and technical assistance are provided – so that every part of the chain functions unhindered.
Through the CBN’s Commercial Agricultural Credit Scheme [CACS] in collaboration with the Federal Ministry of Agriculture and Water Resources, established in 2009, the scheme sought implementation of the NIRSAL program of providing financing of agricultural value chain from input supply to commodity marketing. And the results, judging by data obtained from the field, indicate the new CBN’s scheme as having succeeded in its objectives.
Since the implementation of the scheme, under the new CBN, 20,826 new jobs have been created, 185 skilled, 231 semi-skilled and 20,412 unskilled. A reported increased in production output of 3.5metric tones per hectare of maize was recorded. Yoghurt and fruit juice increased to 3,000liters per hour and 1,200 tonnes respectively; fingerlings production increased to 260,000 per day; poultry increased to 1,800,000 birds manufacture of layers raised to 963,100; pigs increased to 20,500; nestle milk increased to 11,376metric tonnes; etc. In addition, 13 grounded large scale agricultural projects have been revived.
The success is credited directly to the NIRSAL program which enable for loan disbursement to the four main value segments of food processing [N46.14billion]; food production [N25.34billion]; food marketing N6.26billion]; and food storage [N1.08billion]. A remaining sum of N103.19billion awaits disbursement as at December 31, 2010.
Perhaps, as the NIRSAL comes into full gear, and the credit facilities continue to reach the sector previously ignored by the previous failed interventions, the near 41million labor force employed in the agricultural sector would find their activities generate appreciable income to positively affect the National GDP and considerably decrease the percentage living below the poverty line in Nigeria. Just Perhaps.