By Nnamdi Okafor
Commercial banks in Nigeria have pointed to high risks, weak infrastructure, and market volatility as key reasons for their cautious approach to agricultural lending, despite growing calls for increased financing to support farmers and boost food security.
Speaking with Sunday PUNCH, the President of the Association of Corporate Affairs Managers of Banks (ACAMB), Rasheed Bolarinwa, acknowledged agriculture’s importance to economic growth but stressed that lenders remain wary of the sector’s unique challenges.
“Banks are all agreed on the need to support agriculture to achieve self-sufficiency in food production. However, the challenge is more around the peculiarities of the agric business and the unique challenges within the sector,” Bolarinwa said.
Agriculture as a High-Risk Sector
Bolarinwa explained that farming is exposed to risks beyond the control of borrowers, including:
- Climate shocks such as flooding and drought.
- Pest and disease outbreaks.
- Commodity price fluctuations.
- Insecurity in farming communities.
- Weak infrastructure affecting storage and logistics.
He noted that while intervention schemes like the Agricultural Credit Guarantee Scheme Fund (ACGSF) help reduce risks, they do not fully shield banks from losses. Recovery processes under such schemes can also be lengthy due to administrative bottlenecks.
Collateral and Alternative Models
On collateral requirements, Bolarinwa emphasized that banks must protect depositors’ funds through prudent lending practices. Traditional collateral remains critical, especially where reliable financial records are lacking.
However, he added that institutions are exploring alternative financing models such as:
- Value chain financing.
- Warehouse receipt financing.
- Aggregation-based lending.
- Cash flow-driven lending.
These models, though promising, are still evolving and have not fully replaced conventional collateral requirements.
Market Volatility and Structural Challenges
Market volatility continues to weigh heavily on lending decisions, with sharp movements in commodity prices, foreign exchange pressures, and inflation affecting farmers’ repayment capacity.
Bolarinwa further highlighted structural challenges such as fragmented value chains, weak data availability, low insurance penetration, and poor infrastructure, which constrain scalable lending.
Partnerships and Digital Initiatives
Despite these hurdles, banks are increasingly pursuing partnerships and digital initiatives to improve access to finance. Efforts include collaborations with development finance institutions, risk-sharing arrangements, cluster financing, and tailored products for different agricultural value chains.
Calls for Stronger Policy Support
Bolarinwa urged government to provide stronger policy interventions, including:
- Expanded agricultural insurance coverage.
- More effective credit guarantees.
- Provision of energy and infrastructure support.
- Mechanisation of farm equipment.
- Policies to reduce market and pricing 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 make up 80% of Nigeria’s farming population and produce nearly 90% of the nation’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 existence of the guarantee scheme.