Palm Oil: Producers Fault 9% Interest on Loans

palm oil
  • Palm Oil: Producers Fault 9% Interest on Loans

Local palm oil producers in the country have reacted to the 9 percent interest rate charged by the Central Bank of Nigeria on Anchor Borrowers Scheme.

According to them, the interest rate was too high and may not spur growth in the sector as the central bank had expected.

The Central Bank had restricted importers of palm oil from accessing forex at the official rate and launched a low-cost loan through the Anchor Borrowers Programme and the Commercial Agro Credit Scheme to stimulate growth in the industry.

However, local palm oil producers were saying operating tree crops with four-year maturity on a 9 percent per annum interest-loan would be suicidal even with the two-year moratorium.

Henry Olatujoye, the National President, National Palm Produce Association of Nigeria, said the interest rate was too high.

He said, “If one obtains a minimum loan of N1bn at an interest rate of nine per cent, one would be paying N90m every year.

“It takes four years for oil palm tree to fruit. It then means that the person will pay N360m on interest alone by the time the fruits come out.”

Olatujoye later adviced government to adopt the Malaysian model in growing the palm oil subsector.

He said, “In Malaysia and other countries that are large producers, the government invests in oil palm plantations belonging to individuals and families.

“They fund the plantations, paying family members every year to plant the crop under a special arrangement.

“In other parts, the interest on loan for palm oil is two per cent or less.”

Dr Victor Iyama, the National President, Federation of All Commodities Association of Nigeria, supports Olatujoye position.

He explained that the nine percent interest rate could only work with crops with three to four months gestation period and not crops with four years minimum.

He, however, suggested that the interest rate should be reduced to four percent to stimulate growth and encourage participation.

He said, “Ideally, agriculture loan should not attract interest rate of more than two per cent. In Japan and China, agriculture loan attracts interest rate of less than two per cent.

“If the interest on ABP is nine per cent; at what point should the borrowers start paying? Unless the interest will mature in four years when the crops start yielding; if not, then it is not sustainable.

“Tree crops should have special rate of interest and should not be included in the category of other crops in the ABP. Maybe they should attract four per cent interest rate (which is even too high) because of the peculiar situation in Nigeria.”

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya; Email: [email protected]

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