FUNDING COMMERCIAL AGRICULTURE IN ENUGU STATE: How to access and benefit from the Agricultural Credit Guarantee Scheme Fund (ACGSF) of Central Bank of Nigeria (CBN) Presented by: Tobin Jonathan

Introduction:

The thrust of the developmental initiatives of the CBN has been hinged on:     Increased credit flow to strategic sectors reduced financial exclusion rate quantitative easing measures and stimulation of agricultural value chains Interventions have been delivered through:    Policies and regulations Programmes and schemes Institutional collaborations

Nigeria Agricultural terrain at a glance Population Size 174.5m

Agric contribution to GDP Agricultural mechanization index 21%-48.6% from 2000n till date Population 6-7 tractors per 100sq km Agric raw materials export (% of merchandised export) GDP <8.0% Gross Domestic Product $510Bn

Reasons for CBN’s intervention in agriculture:

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Potential to boost food supply and attain self sufficiency in food production

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Employment generation

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Provision of raw materials for our industries

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Contribute to GDP

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Enhance the overall living standard of the average Nigerian

NIGERIAN AGRICULTURAL CREDIT GUARANTEE SCHEME (ACGS)

Establishment:  Decree No.20 of 1977 Ownership:  N3 billion capital base   Federal Government of Nigeria (FGN) Central Bank of Nigeria – 40% - 60% Objective of the Scheme:  The scheme was borne out of the need to provide an effective credit risk management tool for facilities extended to famers by banks and also stimulate small farmers’ productivity across the agriculture value chain The Scheme offers leverage as a partial substitute for banks’ collateral requirements for agriculture lending

Highlights of the Scheme:  Scheme provides 75% gurantee of amount net in default  The activities covered under the Scheme are crop, livestock and fishery production; Processing where 50% of the raw material comes from the processors farm.

 The establishment or management of plantation for the production of rubber, oil palm, cocoa, coffee, tea and similar crops   Beneficiaries – Individual, Co-operative societies, corporate entities Loan limit up to December,1999 maximum loan without tangible collateral security was N5,000.00, maximum loan under the scheme with security was N100,000.00

 Loan limit from January,2000 maximum loan without security was N20,000.00 while maximum loan the Scheme can guarantee with tangible collateral security was N 10,000,000  Effective from June, 2014, the minimum loan limit without collateral was increased to N50,000.00 while the maximum loan limit was also increased to N50,000,000.00

 Form of Security acceptable under the Scheme include: charge on land on which the borrower holds a legal interest, or a charge on the assets on the land including fixed assets, crops or livestock; charge on the moveable property of the borrower; life assurance policy , a promissory note or other negotiable instruments; Stocks and shares; personal guarantee and; any other securities acceptable to the bank

Operational procedure of the Scheme:

 Lending bank will be required to furnish the CBN with the following:  A copy of application for credit facility from  A copy of application for guarantee form  A formal letter from the lending bank specifying that the pledged security is adequate and realizable or a letter of domiciliation of salary from the beneficiary’s employer if it is a salary fed account  A copy of Nigerian Agricultural Insurance Corporation (NAIC) certificate Upon submission, the Development Finance Office of the CBN in the State will do the following:  CBN to organize a pre-guarantee farm visit to project location in conjunction with the lending bank  CBN to issue or decline guarantee of project(s) after such inspection  CBN to sustain routine monitoring of projects to facilitate repayment and build capacity  Furthermore, the lending bank will provide regular (quarterly) information on the status of the beneficiary’s loan account to the CBN.

INNOVATIONS UNDER THE SCHEME:

Self Help Linkage Banking Programme:  Inculcate the culture of savings and banking habit in group members  Enable them to build up resources for financing their farm projects without recourse to bank borrowing on the long run  Operational Procedure:  Under the programme, farmers are encouraged to form themselves into groups of between 5 and 15 on the basis of common purpose (informal and informal).  The groups are encouraged to undertake regular savings with a partner bank of their choice. After operating such savings for six months, they could then apply to the partner bank for loan.  The amount saved provides part cash security for loans to saving groups. The group savings security would not be drawn on until the loans are fully repaid.  Bank loans to the groups are normally in multiples of the balance in their savings account at the time of the application for the loan.

Innovations under the Scheme (contd)

Trust Fund Model (TFM): Objectives of the TFM:  A framework for enhancing credit supply to the agricultural and rural sectors of the economy  To reduce the risk exposure of banks in agricultural lending to uncollateralized farmers under the ACGS.  Introduced to reinforce the confidence of banks in granting credit facilities to farmers Operational Procedure:  Under the Model, oil companies, State/Local Governments and Non-Governmental Organizations (NGOs) place funds in trust with lending banks to augment the small group-savings of the farmers as security for agricultural loans.

 The Trust Fund secures 25% or more of the intended loans of the prospective borrowers; farmers’ savings secure another 25% of the loan while; ACGSF guarantees 75% of the remaining 50%, thereby leaving the lending bank with a risk exposure of only 12.5%.  TFM has provided an effective succour to the problem of collateral requirement for lending to small farmer borrowers.

 A tri-partite arrangement comprising the CBN, the counterparty and the lending bank is put in place. The roles and responsibilities of each party are signed and sealed

Interest Drawback Programme (IDP):  Provide interest rebates to farmers that borrowed under the ACGS to reduce the cost of borrowing and burden of high interest rate  encourage repayment therefore reducing loan   default and also reducing the contingent liability on the ACGS Fund Operational Procedure: Farmers borrow from lending banks at market-determined rates  IDP provides interest rebates to farmers that borrowed under the ACGS to reduce the cost of borrowing and burden of high interest rate.

 The farmer has a grace period of 3 months after scheduled tenure of loan.

 The IDP rate is determined by the monetary authority (CBN) at the beginning of each financial year and announced through the Monetary and Credit Policy Guidelines

Achievements of the Scheme:

S/NO.

ACTIVITY (as @ Sept, 2014) 1 Loans Guaranteed NUMBER 912,572 2 Loans Guaranteed by Enugu State (Inception to date) 3 Loans Repaid 4 Loans Guaranteed by Enugu State (Inception to date) 5 Claims Settled 6 Interest Drawback Claims paid 8,070 683,076 3,064 15,174 254,071 7 Formal Groups under Self Help Linkages 8 Cooperatives under Self Help Linkages 9 Trust Fund Model (TFM) 10,061 12,920 58 Stakeholders VALUE N80.81 billion N1,249,889.00

N54.36 billion N454,622 N584.8 million N2.02 billion N1.58 billion N2.5 billion N5.516 billion