The truth behind disastrous lack of Agricultural lending

Banks are not lending to Agricultural producers and have in the last 12 months refocused on the Oil sector.

This is disastrous in the long term for Nigerians and particularly problematic for the voiceless, rural masses desperate for paid employment.

The reasons for this are simple, yet soul crushing.

Agriculture lending is long term.

The nations banking sector has gorged on quick high interest yielding loans to Oil and Gas oligarchs for so long, that they have forgotten what it is like in the real world.

Providing credit to a petroleum products importer involves a bank providing a 60 day line of credit  (sometimes revolving) yielding up to 25% interest.

The stupendous profit margins produced by the  business of these government cronies allows them to pay the fees, the bribes both to state bodies and the banks, and still make money.

This is due to the state run oligopoly created by current regulation (a whistle blowing story for another day).

All this means is that myopic and ill educated bankers can only see profit margins through the prism of 60 day turnarounds and enormous profit.

Agriculture lending generally needs 3 to 9 years before the business sees a return on their investment and anything more than a 7% interest rate is a heavy burden to bear.

Not attractive when your Oil and Gas client offers to buy you a Toyota Prado if you approve his dodgy funding.

State Run Intervention Funds

State run intervention funds are corrupt and do not help.

The intervention funds, when announced are usually gobbled up by large oligarchs to put into their, and their friends’ trousers or to further finance their rice or tomato interests.

Genuine entrepreneurs and international businesses are left with the remaining dregs.

If there are some meager rations left, then the number of people taking a cut or adding interest to the original fund’s low interest source results in the cost becoming extravagant and unmanageable for most.

Inexplicably, for Government Intervention funds aimed at agriculture, the tenor of these loans are usually short (3 years) leading to the acknowledged position between lender  and borrower that there will have to be a restructuring in a few years after inception.

From the borrowers perspective, this provides the Cosa Nostra banks an opportunity to take over your flourishing business and if they choose to play hard ball, there is no certainty.

Sharp practices in the Retail banks

Sharp practices in the retail banks, through which the intervention funds are distributed, lead to further fleecing of the farmer.

It is relatively well known in the sector that once the CBN approves your funding and releases it to the retail bank, the retail bank then holds the capital and refuses to release it to the borrower.

Various excuses are found to enable this.

The upshot is that the interest starts mounting up for the farmer without having received any funds and the bank have the excess capital it can use for more short term lending to oil companies.

Financial magic!

Collateral required by Banks

Finally and perhaps the main reason for the sector being held back is the stipulation of collateral required by the banks to secure the funding.

In most cases, even though they make huge interest on the loans and plan to claim any assets in a couple of years through declaring the farmer to be non-performing, the banks ensure no one  but oligarchs gets funding by saying that collateral must be posted of around 200% of the value of the loan (land can not be offered).

This means that all decent sized funding is out of reach except to the corrupt or the connected.

Conclusion

The FG states that it wishes to expand Agriculture and diversify the economy.

There is no evidence of making this the case.

The only difference to the sector since intervention funding schemes like NIRSAL were introduced, is that the people who run the Agriculture desks at the CBN and retail banks are all wearing Rolex watches.

Meanwhile, agriculture in previously failed states like Cote D’Ivoire takes off and eclipses our motherland.

Admittedly, there are large rice and tomato concerns being developed in Nigeria – but the names of the benefiting owners are the usual suspects who have built their wealth on the backs of the poor.

(source of lending data: Business Day)

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