- CBN Moves to Make Agriculture Lending Less Risky
In order to enhance the effectiveness of the Commercial Agriculture Credit Scheme (CACS) as well as mitigate the risk faced by participating financial institutions in financing the agriculture sector, the Central Bank of Nigeria (CBN) has reviewed the guidelines for the scheme.
The review, according to a circular signed by the Director, Financial Policy and Regulation Department, Kevin Amugo, affected section 16 and 17 of the guidelines and introduced significant changes, including a requirement that henceforth, the Nigeria Agriculture Insurance Corporation (NAIC) should provide insurance cover for all agricultural facilities/projects under the CACS in line with the NAIC Act.
In furtherance of the above revision, the central bank has directed the immediate commencement of insurance premium payments by borrowers under the CACS scheme.
As part of its developmental role, the CBN in collaboration with the federal government, represented by the Federal Ministry of Agriculture and Rural Development (FMARD), had established the CACS for promoting commercial agricultural enterprises in Nigeria, which is a sub–component of the Federal Government of Nigeria Commercial Agriculture Development Programme (CADP).
This fund complements 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 and other similar developmental initiatives.
The scheme is financed from the proceeds of the N200billion, three year bond raised by the Debt Management Office (DMO). The fund is made available to participating bank (s), to finance commercial agricultural enterprises.
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; enhance national food security by increasing food supply and effecting lower agricultural produce and product prices, thereby promoting low food inflation; reduce the cost of credit in agricultural production to enable farmers exploit the potentials of the sector; and Increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide input for the industrial sector on a sustainable basis.
The scheme is under the management of the Central Bank of Nigeria through the Board of Directors and the Committee of Governors. The Committee of Governors is responsible for the overall administration of the scheme while Development Finance Department is in charge of the day-to-day implementation of the scheme.
Key agricultural commodities to be covered under the scheme are: Cash Crops -cotton, oil palm, fruit trees, rubber, sugar cane, jatropha carcus and cocoa.
Others include food crops such as rice, wheat, cassava, potato, yam, maize/soya; poultry -broilers and eggs production; livestock, among others.
” The Central Bank of Nigeria has approved the participation of all deposit money banks under the Scheme. All participating banks are required to sponsor projects from any of the target areas indicated in the Guidelines and bear all the credit risk of the loans they will be granting the single obligor for any project from a participating bank under N1 billion,” the guidelines stated.
The borrower shall: Be a limited liability company with asset base of not less than N100 million and having the prospect to grow the net asset to N250 million in the next three years and complies with the provision of the Company and Allied Matters Act (1990), have a clear business plan; provide up-to-date record on the business operation if any; have out growers programme, where appropriate; and atisfy all the requirements specified by its lending bank
To participate in the Scheme the borrower shall: Be a limited liability company with asset base of not less than N50 million and having the prospect to grow the net asset to N150 million in the next three years and complies with the provision of the Company and Allied Matters Act (1990).