THE Central Bank of Nigeria (CBN) has explained that Nigeria Incentive Risk Sharing of Agricultural Lending (NIRSAL) would be a risk-sharing barrier between banks, farmers and stakeholders in espect of agriculture lending.
The apex bank disclosed that NIRSAL was an institution formed to lower banks high-perceived risks in the agricultural sector via risk sharing mechanism and build business case for banks to lend to agricultural sector versus other sectors.
The Director, Development Finance Department, CBN, Paul Eluhaiwe revealed that NIRSAL was created to share risks with banks ranging from 30 per cent overall to 80 per cent of first loss up to 12.5 per cent, depending on the segment.
Speaking at agriculture new frontier exhibition in Lagos, he said: “For farmer first loss, the institution has set a portfolio approach of 12.5 per cent, which is suited to a segment comprised of many small loan exposures.
“The use of first loss is for covering banks in majority of cases on this segment where they are risk averse, and it covers only 80 per cent in order to ensure that banks have some skin in the game for the first losses as well.”
He also added: “The use of ‘deal based’ because of lower volumes of loans to process for these segments is adopted, stating that lower risk sharing for this approach required 30 per cent to -50 per cent because of lower perceived risk by banks, as these are typically banked customers for which the banks have existing relationship. Though in bankers’ workshop, bankers congregated around risk sharing of 40 per cent to 60 per cent.”
The NIRSAL, as a brainchild of successful collaborations between the ministry and the CBN, aims to de-risk agricultural lending to farmers and as well as lower the cost of lending for the banks.
According to Elihaiwe, the government had empowered NIRSAL to play an active role in helping to organise and coordinate value chain and work closely with the federal MDAs to tackle key issues related to inputs, for instance, seeds, fertiliser, among others in order to ensure that the increased food production and the proposed industrialisation elements relied on came to pass.
He added that its empowerment was to provide technical assistance to help organise farmers into cooperative groups that could act as recipients of working capital for crop production, and a partner to processors seeking stable, price competitive feedstock supplies.
“State governments, federal MDAs and select third parties are also recommended to work with NIRSAL to tackle specific infrastructure blockages in the value chain, for example, transportation on railroad, rural roads to link production to markets, irrigation to allow for multiple harvests among others,” he added.