By Chika Nwosu
Commercial banks in Nigeria have highlighted high risks, weak infrastructure, and market volatility as the main reasons for their limited lending to the agricultural sector, despite mounting pressure to increase financing for farmers.
President of the Association of Corporate Affairs Managers of Banks (ACAMB), Rasheed Bolarinwa, explained that while lenders recognise agriculture’s importance to food security and economic growth, they remain cautious due to the sector’s peculiar challenges.
“Many banks are interested in agriculture because of its importance to the economy, but they are also cautious due to high-risk factors, repayment issues, operational risks, and market uncertainties,” Bolarinwa said.
Agriculture as a Risky Sector
Bolarinwa noted that farming is vulnerable to risks beyond farmers’ control, including:
- Climate shocks such as flooding and drought.
- Pest and disease outbreaks.
- Commodity price fluctuations.
- Insecurity in farming communities.
- Weak storage and logistics infrastructure.
He added that while intervention schemes like the Agricultural Credit Guarantee Scheme Fund (ACGSF) help reduce risks, they do not fully shield banks from losses, with recovery often slowed by administrative constraints.
Collateral and Alternative Models
On collateral requirements, Bolarinwa stressed that banks must protect depositors’ funds through prudent lending. Traditional collateral remains critical, but financial institutions are beginning to explore alternative financing models such as value chain financing, warehouse receipt financing, and cash flow-driven lending.
“These models are promising but still evolving and have not yet fully replaced conventional collateral requirements,” he said.
Market Volatility and Structural Challenges
Market volatility continues to influence lending decisions, with sharp swings in commodity prices, foreign exchange pressures, and inflation affecting farmers’ repayment capacity.
Bolarinwa also pointed to structural challenges—such as fragmented value chains, weak data availability, low insurance penetration, and poor infrastructure—that constrain scalable lending.
Partnerships and Policy Support
Banks are increasingly pursuing partnerships with development finance institutions, risk-sharing arrangements, and digital lending initiatives to improve farmers’ access to credit.
Bolarinwa called for stronger government support, including expanded agricultural insurance, improved infrastructure, mechanisation, and policies to reduce market uncertainties.
CBN’s Push for Agric Financing
Central Bank Governor Olayemi Cardoso recently stressed that agriculture must assume its “rightful place” in Nigeria’s financial system, noting that the sector still accounts for less than five per cent of total bank lending.
Cardoso explained that the Agricultural Credit Guarantee Scheme Fund, which guarantees up to 75% of agricultural loans, was designed to encourage banks to lend to farmers, especially smallholders who produce nearly 90% of Nigeria’s food supply.
Farmers’ Concerns
President of the All Farmers Association of Nigeria (AFAN), Mohammed Magaji, expressed frustration over poor access to credit, accusing banks of reluctance to lend despite the availability of the guarantee scheme.