Food crisis looms as banks shun FG’s agricultural credit guarantee scheme funds

Climate shocks, insecurity, poor infrastructure scare lenders from sector

By AYOOLA OLAOLUWA

Nigeria’s push to unlock financing for agriculture is faltering as commercial banks operating in the country continue to shy away from lending to the sector, despite the Federal Government’s credit guarantee scheme designed to reduce their risk exposure, Business Hallmark’s findings have revealed.

According to industry stakeholders who spoke on the development and multiple industry data obtained by our correspondent at the weekend, lending to agriculture remains a small fraction of total bank credit, with many lenders citing persistent risks such as climate shocks, insecurity in farming regions, and poor infrastructure as major deterrents.

The concerned stakeholders said that banks reluctance to embrace the Federal Government’s credit guarantee scheme persists even with guarantees meant to cushion potential losses and encourage more aggressive financing.

The President of the All Farmers Association of Nigeria (AFAN), who spoke on behalf of farmers, disclosed that the agricultural credit guarantee scheme does not directly disburse funds to farmers. He blamed commercial banks for their reluctance to support farmers despite the existence of the scheme.

According to Magaji, a vast majority of commercial banks are unwilling to lend to the agricultural sector.

“ACGSF is not the one giving the money; they are only guaranteeing. That’s why they call it the Agricultural Credit Guarantee Scheme Fund. So the commercial banks are not willing.

“About 90 per cent of the commercial banks don’t want to lend to agriculture. At all, they don’t want to go into agriculture. So they are saying they don’t want to invest, they don’t want to go into agriculture”.

The AFAN president further noted that the stringent lending conditions imposed by banks have made it nearly impossible for smallholder farmers to access credit.
According to him, the collateral requirements are often excessive and difficult to meet.

“The conditions, the collateral, and what have you, it’s not something that small-scale farmers or those who want to go into farming can fulfil. Because it’s not easy for the farmers to fulfil all the conditions, the collateral”.

“They ask you for a very big collateral, which will take another, say four, five months for you to fulfil”.

Magaji also questioned the viability of repaying agricultural loans given current market realities.

“If you collect N100 million today, or just N5 million and invest in agriculture, how much are you going to sell your products to get your money back and pay the loan? So, it’s not easy.

“The prices of food items are very low now. It’s not sellable. So what can you sell to go for this loan? It’s not easy, honestly.”

He reiterated that banks remain largely unwilling to support farmers.

“And the banks are not willing. They are not willing at all. We cannot meet up with the collateral. The stringent conditions that the commercial banks are putting in place, I don’t think it’s easy to come by. It’s not easy to be fulfilled by Nigerian farmers”, Magaji lamented.

The development has raised fresh concerns about the effectiveness of policy interventions aimed at boosting food production and reducing import dependence.
According to food experts, the trend is particularly troubling at a time when food inflation remains elevated and millions of smallholder farmers struggle to access affordable credit to expand production.

A crop production expert, Dr. Jude Olusi, warned that without adequate financing, the country’s ambition to achieve food security and stabilise prices may remain out of reach.
He called for a review of the credit guarantee framework, urging authorities to address structural bottlenecks and restore confidence in agricultural lending.

“Without stronger incentives and enforcement mechanisms, banks will continue to prioritise less risky sectors, leaving agriculture critically underfunded”, Olusi warned.

Efforts to get the reaction of the President of the Association of Corporate Affairs Managers of Banks, Rasheed Bolarinwa, on the matter were not successful.

It would be recalled that the Central Bank of Nigeria (CBN) Governor, Yemi Cardoso, had said agriculture must get its rightful place in the nation’s financial system and national priorities, as the sector continues to receive less than five per cent of total bank lending in the country.

He spoke in Abuja during the inauguration of the newly constituted board of the Agricultural Credit Guarantee Scheme Fund.
Cardoso noted that despite agriculture contributing more than one-fifth of Nigeria’s Gross Domestic Product and employing a large share of the population, the sector remains chronically underfunded.
According to him, the ACGSF, which guarantees up to 75 per cent of the value of agricultural loans, was created to encourage banks to lend to farmers, including those often considered unbankable, while the 2019 amendment expanded its share capital from N3 billion to N50 billion to deepen access to credit.

He also stressed that smallholder farmers, who make up about 80 per cent of Nigeria’s farmers and account for roughly 90 per cent of the nation’s food production, still face major barriers such as a lack of collateral and credit history.