MICROCAPITAL BRIEF: Agricultural Sector To Benefit from Central Bank of Nigeria’s $3.9b Loan

The Central Bank of Nigeria (CBN), the country’s apex financial regulator, recently announced plans to disburse the sum of NGN 600 billion (USD 3.9 billion) as loans to small holder farmers. This move is in line with the bank’s financial inclusion strategy which aims to ensure that a clear agenda is set for increasing both access to and use of financial services by 2020.Rural borrowers, especially those in the agricultural sector that previously relied on non-institutional lenders, reportedly will be the biggest beneficiaries of this scheme as they will garner better interest rates than those offered by money lenders. In this context, agricultural borrowers include those selling seeds, planting, harvesting, middlemen, and transporters.

Microfinance banks have been chosen to coordinate disbursement of the fund as they are reportedly closer to the primary producers, processors and distributors of agricultural products. However, prospective microfinance banks wishing to participate in the programme must meet certain conditions, including basic capitalization requirements of microfinance banks as laid down by the regulatory authority, registration with National Association of Microfinance Banks (NAMB) and carrying out operations in rural areas. Mr Olufemi Babajide, NAMB chairman, Lagos chapter, reportedly noted that “CBN has put the fund into a special purpose vehicle so that we can access and lend to our customers in the agric sector alone. They want us to start. They even gave us seven days to submit names of microfinance banks that will participate in the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL).” NIRSAL is a CBN initiative designed to support lending to the agricultural sector of the Nigeria economy.

By Chioma Okwudiafor, Research Associate

About Central Bank of Nigeria                                                       The Central Bank of Nigeria (CBN) was established in 1958 as Nigeria’s central banking authority. As defined by the Act of Parliament that created CBN, its statutory mandates are as follows: “to issue legal tender currency; to maintain external reserves; to safeguard the international value of the legal tender currency; to promote monetary stability and a sound financial system in Nigeria; and to act as banker and financial adviser to the Federal Government”. CBN has 37 branches across Nigeria and staff strength of 5995.  As of November 2011, CBN reports total assets of NGN 9.77 trillion (USD 61.9 billion).

About Nigerian Association of Microfinance Banks                         The National Association of Microfinance Banks of Nigeria (NAMB) is a trade group of microfinance banks (MFBs) that merged with the Association of Microfinance Banks in Nigeria (AMBN) in 2009. As of April 2011, NAMB has 820 member MFIs.

About Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL)                                                                  Nigeria Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) is a CBN initiative designed to support lending to the agricultural sector of the Nigeria economy.  NIRSAL offers three main products to the Nigerian agribusiness market: credit risk guarantees for loans and credits issued by a range of financial services providers to participants in the agribusiness value chain, strategic investment advice to value chain participants and governments (local, state and federal), financial and structuring advice to investors and value chain stakeholders seeking specific upside in a particular value chain.

Sources and Additional Resources:

Business Day Story: “MFB’s Set to disburse N600bn to small holder farms” http://www.businessdayonline.com/NG/index.php/microfinance/47033-mfbs-set-to-disburse-n600bn-to-small-holder-farmers-

MicroCapital Universe Profile: Central Bank of Nigeria
https://www.microcapital.org/microfinanceuniverse/tikiindex.php?page=Central+Bank+of+Nigeria+%28CBN%29

MicroCapital Story: August 1, 2012, “MICROCAPITAL BRIEF: National Association of Nigerian Traders to Provide Microcredit to 19,000 Rural Farmers”                                                  https://www.microcapital.org/microcapital-brief-national-association-of-nigerian-traders-to-provide-microcredit-to-19000-rural-farmers/

MicroCapital Story:  February 15, 2012, MICROCAPITAL BRIEF: Citibank Nigeria to Launch Citi Microenterprise Development for Rural Farmers Initiative                                  https://www.microcapital.org/microcapital-brief-citibank-nigeria-to-launch-citi-microenterprise-development-for-rural-farmers-initiative/

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