AGRICULTURAL CREDIT GUARANTEE SCHEME (ACGS):

OVERVIEW

byPAUL NDUKA ELUHAIWE

Deputy Director & Head of Agricultural Credit Support Division, Development Finance Department,

CENTRAL BANK OF NIGERIA

17TH AFRACA GENERAL ASSEMBLY KINSHASHA- D.R. CONGO November 2010

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Outline of Presentation Concept of ACGSF Features of ACGSF Acceptable Securities Innovations under ACGSF Performance of the ACGSF Challenges Way Forward Conclusion

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Concept of ACGS In Nigeria Agriculture remain the main stay

economic activity.

Of the 150million population, 70 percent live in the rural area, 65 percent of these are engaged in agriculture for a living

Agriculture accounts for about 60percent in the

60s and 42 percent of GDP now. It provides 88percent of non-oil earnings

Yet as at today only about 1.4 percent of commercial banks loans go to the sector 3

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Credit to Agriculture and Rural Sector in Nigeria Tabale 2 Source CBN

S/N PARAMETER 2003 2004 2005 2006 2007

1 Aggregate credit to the economy (N’ billion) 1,203.20 1,519.24 1,991.15 2,524.30 4,813.49

2 Banks’ credit to Agriculture( N’’ billion) 62.10(5.16) 67.74(4.46(4)

48.56(2.44(6)

49.39(1.96(4)

149.58(3.11(1)

3 Credit Guaranteed by ACGSF(N’ billion) 1.16 2.08 3.05 4.26 4.43

4 Small & Medium Enterprises Equity Investment (SMEEIS) Amount Invested (N’ billion)

7.07 8.53 12.05 17.04 21.15

5 Agric contribution to GDP (%) 41.0 40.98 41.19 41.72 42.2

6 National Population (‘million) 125.62 129.17 133.77 140 N.A

7 Agric Population( ‘million) 27 28,72 28,88 31.19 N.A

8 Credit per agric population 2,300 2,358 1,681 1,583

`Note: Figures in Parenthesis are share of credit to Agriculture (%); Table1

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Concept of ACGS The Federal Government and the CBN realised the danger of

the neglect of agriculture and the need to ensure: Food security,

Stem the drift to the urban areas

create employment in the rural areas,

Monetary and price stability,

Maintain external reserve to safeguard the international value of the Naira, by reducing the expended foreign exchange on food import ,

The promotion of a robust and sound financial system that will engender growth and economic development.

Concept of ACGS One of the plethora of initiatives to address the poor state of

Agriculture and its funding was the ACGSF.

Established by in 1977 by Decree No. 20, became operational in1988 for these core reasons;

Shortage of credit for primary production and the reluctance of banks to lend to agribusiness due to lack of understanding of the sector;

Inherent risks associated with agricultural production;

Inability of farmers to provide the necessary collaterals;

High cost of administration of agricultural loans;

Agriculture not perceived as business opportunity.6

Features of ACGS

An initial fund of N100 Million subscribed to by the Federal Government and Central Bank of Nigeria 60:40 ratio. The fund was increased to N3.0 Billion in 2003 and fully subscribed and grown to about N5.5Billion as today.

Guarantees loans granted by DMBs and MFBs to the agricultural sector subject to a limit of 75 per cent of the amount in default net of what is realized from collaterals.

Target clientele- farmers: individuals, co-operative societies and corporate entities.

Agricultural activities that the Fund can guarantee are: Cultivation of arable and tubers crops, Animal husbandry, Fish farming and fish capture, Management/production of cash crops, Processing where it is integrated with at least 50 per cent of farm.

The ACGSF has an independent Eight-man Board that gives policy direction while CBN is the Managing agent. 7

Acceptable Securities under ACGS A charge on land in which the borrower holds a legal interest,

or a charge on the assets on the land including fixed assets;

A charge on the moveable property of the borrower;

A life assurance policy, a promissory note or other negotiable security;

Stocks and Shares; A personal guarantee; and Any other security acceptable to the bank.

Limits of lending are:

(a) N20,000 – N100,000.00 without tangible security

(b) N1,000,000 with tangible security for individual borrower

(c) N10,000,000 for Cooperative Societies, Limited Liability Companies.

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Innovations Under the ACGS

ACGSF

TFM (Trust Fund Model)

IDP (Interest Drawback Proggram)

SHGs(Self-Help Groups)

Innovations Under the ACGS

To encourage banks increase their participation under the ACGSF, theCBN introduced new products viz: (SHGs and TFM and IDP)

Self Help Group Linkage with Banks (SHGs). Introduced in 1992, to promote savings mobilization and credit delivery. Groups can borrow as much as four times the value of the savings.

The Trust Fund Model (TFM). Introduced in 2001, to reduce the risk which banks are exposed to in their lending to uncollateralized agricultural borrowers.

Interest Drawback Program (IDP). Introduced in 2003 to comple-ment the Scheme. With a capital of N2.0bn owned jointly by the Federal Govt. and the CBN in 60:40 shareholding ratio. Farmers borrow from lending banks at market rates but are given interest rebates of 40 per cent if they repay their loans as at when due.

All loans guaranteed under the Scheme were compulsorily covered by agricultural insurance.

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Performance of the ACGS From inception to date (October, 2010), 32 years, the Fund

has guaranteed a total of 688,295 loans valued N40.539bn.

A total of 488,786 loans (71.01%) valued N23.362 bn (57.63%) have been recovered.

A total of 9,192 claims valued N233.476 m have settled under the ACGS since inception.

A total of 114,785 IDP claims valued N607.39m have been paid to deserving farmers

. 56 Stakeholders signed MOUs placing N5.517.10bn.(TFM)

Currently eleven (11)DMBs and MFBs are participating under the ACGSF.

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Number of loans Guaranteed under ACGS (2005- October 2010)

122005 2006 2007 2008 2009 2010 OCT' -

10,000

20,000

30,000

40,000

50,000

60,000

Value of Loans(Naira) Guaranteed Under ACGS (2005 - Oct 2010)

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2005 2006 2007 2008 2009 2010 OCT' -

1,000,000.00

2,000,000.00

3,000,000.00

4,000,000.00

5,000,000.00

6,000,000.00

7,000,000.00

8,000,000.00

9,000,000.00

Number of Loans fully Repaid Under the ACGS (2005-Oct 2010)

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2005 2006 2007 2008 2009 2010 OCT' -

10,000

20,000

30,000

40,000

50,000

60,000

Value of Loans(Naira) Fully Repaid under the ACGS

(2005 - October 2010)

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2005 2006 2007 2008 2009 2010 OCT' -

1,000,000.00

2,000,000.00

3,000,000.00

4,000,000.00

5,000,000.00

6,000,000.00

Value of Loans Guaranteed (N) under ACGS by Purpose (2005-October 2010)

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2005 2006 2007 2008 2009 2010 -

1,000,000.00

2,000,000.00

3,000,000.00

4,000,000.00

5,000,000.00

6,000,000.00

LIVESTOCK

FISHERIES

MIXED FARMING

FOOD CROPS

CASH CROPS

OTHERS

Challenges Delay in the amendment of the ACGSF Act pending before

the National Assembly.

Delay in the reconstitution of the ACGSF Board since 2007.

Inadequate capital base to support large scale loans and finance the entire agricultural value chain.

Lack of infrastructure to support the expansion of the scope of the Scheme.

Poor project appraisal by DMBs due lack of skills.

Unwillingness of banks to cover long-gestation projects and enterprises.

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Challenges

Bureaucracy in loans approval resulting in late disbursement , leading to defaults.

Low patronage of the ACGSF by banks.

Limited leverage of commercial banks.

Banks still charge very high interest rates.

Lack of term loans for agribusiness.

Low systematic change in the banking sector towards agriculture.

WAY FORWARD Develop new and appropriate incentives mechanism

to leverage on banks balance sheets to increase the volume of credit to Agribusiness.

Requires multiple de-risking of the sector

Redesign the guarantee mechanism - simple Guarantee is not enough (first loss/last loss/shared loss

Review the current insurance (introduction of weather based index insurance)

technical assistance – build capacity of banks to serve agricultural sector efficiently

Knowledge, communication and innovation center

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WAY FORWARD Amend the Act setting up the Fund:

to raise the capital to N100 billion to be a able finance medium and large scale agribusiness.

to enable the Scheme to finance the entire agric value chain (from input supplies to marketing).

Design and implement publicity programmes to increase the level of awareness of the Scheme.

Re-build dilapidated and collapsed rural infrastructure.

Appropriate trade policy design to create market opportunities is necessary.

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WAY FORWARD Banks should be developing tailored products such as

term facilities for their for agribusiness clients.

The Scheme should design methodology for improving relationship between banks and farmers.

The scheme should create a viable platform for farmers continued education to improve on their adoption of new technology.

The Scheme should initiate new incentive mechanism to attract more banks.

CONCLUSION Lack of access to finance by farmers continues to inhibit

the productive capacities of the agricultural sector of the economy.

It is my candid view that the ACGS still remains a relevant

instrument for channeling funds to the agricultural sector to address the problems of food security, loss in foreign exchange expended on food import, poverty, unemployment and rural- urban drift.

To achieve these desired objectives a re-modeled and improved ACGS, strengthened enough to fully engage and leverage banks financing to agriculture should be considered.

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THE END

THANK YOU FOR YOUR

ATTENTION.

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