" ITREALMS: Central Bank interested in agric financing – Moghalu

Monday, September 20, 2010

Central Bank interested in agric financing – Moghalu

DR. KINGSLEY CHINEDU MOGHALU, was a senior official of the United Nations for 17 years and founder of a risk management consultancy based in Geneva, Switzerland, before his last year’s appointment as the Deputy Governor of the Central Bank of Nigeria (CBN), in-charge of Financial System Stability. He spoke to REMMY NWEKE, at the recently concluded African Green Revolution Forum (AGRF) in Accra, Ghana on why CBN participated in the forum and efforts by the apex body to encourage Green Revolution in Nigeria.


GIVEN your position at the Central Bank of Nigeria, what would you tell us that has brought you here precisely?
Well, I am here in Accra, Ghana for the African Green Revolution Forum (AGRF) of which I am representing the Central Bank of Nigeria. It is a conference organized by the Alliance for a Green Revolution in Africa, which is a non-profit advocacy organisation headed by the former Secretary General of the United Nations, Mr. Kofi Annan.

The reason why I am representing the Central Bank of Nigeria here was because the governor of the Central Bank was invited to speak on a panel that was discussing
“Cost and Availability of Financing: New Innovations in African Countries” and I am representing him. As you may know, the Central Bank of Nigeria has played a very significant role in agricultural financing over the last 30 to 40 years.

So, it is a subject the Central Bank is very, very interested, both historically and also currently. The reason is because a major part of the reform agenda of the Central Bank is to ensure that banks finance the real economy and as I always say, there is no economy that is real than that of agriculture. So, that is the reason I am here.

What would be your take home on this forum?
First of all, in this forum, I have had the opportunity to share the leadership role that Nigeria is taking in terms of financing agriculture, the role of Central Bank and the role of the government and many participants in the forum have spoken to me about how much they appreciate the leadership that Nigeria is showing in this area.
As you may know also, we have recently signed a partnership with AGRA, the Alliance for a Green Revolution in Africa, which is the corporate organisation that organized this conference; whereby the Central Bank and AGRA would be implementing what we called Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL).

It is key as well as incentive-based and aims to bring together critical factors that are necessary for financing of agriculture and making financing reach the farmers, small-holder farmers and also the agric businessman. So, it is an entire approach that looks at financing the whole value chain of agriculture from small-holder farming to agric business, production and marketing and so on.

It also addresses the risks and bottlenecks that we have seen in the financing of agriculture. First of all, agriculture contributes about 40 per cent of Nigeria’s Gross Domestic Products (GDP), but the total percentage of lending that goes to agriculture by banks in Nigeria is not more than 1 or 2 per cent.

This is actually, the reflective of the situation across the whole African continent, with a very few exception such as Burkina Faso where the total lending is about 15 per cent of the total bank’s lending to agriculture.

So, what is the lending percentage in sub-region?
Most countries in West Africa especially, have total lending to agriculture which is less than 5 per cent and this is not good, because Nigeria, for instance, has population of a 150 million, it is a country that has more than 70m hectares of arable land; 40m of those hectares are agriculture land and can be used for agricultural productions.

And you know that in terms of economics, a country must be able to feed itself, and must be able to turn agriculture into business as well. It is not only feeding ourselves, but, it is about that agriculture is potentially big business that can create wealth for a lot of people in Nigeria. As you may recall, more than 60-70 per cent of the workforce in Nigeria are involved in agriculture; but how much wealth is that agricultural activities creating for us? This is what NIRSAL initiative is all about. The whole point is to invest about USD300 million and use it to leverage about USD 300 billion of financing from private sector commercial banks. That is the goal.

What are some components of NIRSAL?
There are a number of components that I think that are inherent in this model, NIRSAL. The first is risk sharing. There would be risk sharing between commercial banks and the farmers and other players in the industry in the financing activities.
There would be some technical assistance facility, because we have seen that there is a major gap exists in the banks; there is not enough competence about agricultural financing. So, that is why there is exaggerated perception of risks, there is a fear of lending to farmers or lending to agriculture.

Now also, there is need for the technical capacity of the farmers themselves to be improved; they need access to knowledge, they need access to crops, new types of crops that can yield much greater productivity in addition to capital. So, that is the second aspect of NIRSAL.

There is also what we call banking incentive mechanism that gives banks incentive in terms of risk sharing; you know, first loss, second loss and all sorts of sharing arrangement. Then, there is this agricultural bank rating systems that rate banks in accordance to how much they invest in agriculture. And all important insurance component, is one of the reasons that people shy away from agricultural financing; the view that agriculture in Africa depends a lot on weather pertains and so there is no strong insurance component for investors and farmers.

Therefore, this whole question of insurance of our commercial agriculture would be addressed under this initiative. So, this is where we are going and this is the future for Africa.

Now that CBN has partnership with AGRA, are we looking at involving how many banks locally?
All Nigerian banks are welcome at this stage of this initiative, but I should tell you that at this point that NIRSAL is under the Memorandum of Understand (MOU) we signed between CBN and AGRA, and over the next two to three months we would now development a comprehensive food programme on how it would actually work in practice. This would involve consultation with commercial banks, farmers and groups of farmers associations across the nation, because we want to make sure that all the stakeholders are on board.

I hope CBN is considering the importance of insurance being actively involved?
Yes, of course, the insurance industry would be involved in the consultations going forward.

There is this report that about N200 billion meant for agricultural credit and supposedly approved by the federal government to be given to farmers and allied trade as credit facility was stopped due to the way it was being managed. What is CBN doing about this now?

Yes, you are talking about the Commercial Agricultural Credit Scheme where there was a N200 billion fund. It is actually going on and has been drawn down by farmers and some state governments to the tune of N70 billion so far. But that is not good enough for us. And one of the reasons or one of the lessons we have learnt, although there have been many successes, but one of the lessons we have learnt is when you talk about tax, which is targeting large scale farming and is not addressing the small holder farmers as such.

So, with NIRSAL what we are moving to is a much more comprehensive and integrated approach to financing agriculture that really looks at the bottlenecks that we have identified from the past experience from programmes such as Agricultural Credit Guarantee Scheme (ACGS), which has been in place since 1973 and under that, about N36bn has been lent out to farmers with CBN guaranteeing 70 per cent of those loans. That is what Agricultural Credit Guarantee Scheme is all about.

So, some of these programmes have had quite significant impact, but we are not satisfied. It can be much better and we are always questioning ourselves; how can we succeed far more in creating wealth through the financing of agriculture in Nigeria.

And this is what has led to all the lessons that we have learnt, given the fact that private sector plays an increasingly important role in development, we have decided to move away from what you might call very government-driven intervention that provide money at low interest rates, because sometimes even after doing that, the banks feel it is not adequate as they should and one of the reasons is that they are not seeing this industry (agriculture) as a viable industry and that is why now, we have to be educating the banks, building on their technical capacity, assessing the risks of what they are going into and then sharing in those risks, but they will take the profits. That is why, we have to build capacity even for the farmers, so that these two groups can come together and we can get everybody’s eyes to be open to the full potential that is in agriculture.

We know that a lot of people who have persevered or who have gone against the tide to engage in large scale agriculture; we know they are making a lot of money.
Another thing that comes to front burner when the issue of agriculture is discussed is the issue of infrastructure in terms of transportation between the rural or produce areas to the cities where some of these produce are needed?

Yes, this is one of the lessons that have become very clear out of this conference and that is the fact that the government need to do much more and the development bank like the African Development Bank and World Bank, they need to do much more in financing infrastructure that will support agriculture and rural development and so on.

So, we need government to play a larger role in that area than just giving money directly for agricultural finance. The role of government is better if it takes up in providing enabling policy environment and infrastructure that supports agriculture.

Sir, is CBN intending to open this kind of AGRA partnership with other international organisations that may be interested in such?
Yes, because UNIDO, the United Nations Industry Development Organisation, is also part of this partnership that we are talking about. UNIDO comes from the angle of manu-agric business, which is, manufacturing and turning agriculture into a huge industrial-based business. So, UNIDO is also part of this initiative.

In other words, the likes of Manufacturers Association of Nigeria (MAN) and (NACCIMA) should be part of this?
Of course, they should be part of all this. Yes, indeed, they should, why not? Just add the agricultural co-operatives and small holders. It is a whole value chain that we want to finance, so that banks can look at that value chain and say for instance, where is the potential for them to invest profitably, whether it is at the production level or marketing level and even distribution level? There is a whole lot of the value chain that the banks may choose to finance.

What do you see as challenges for forming cooperatives, especially in agriculture for small holders?
I think that some times, the small holder farmers tend not to be people who are very educated and so, organizing themselves can sometimes be a challenge, but I think here you can have the Ministries of Agriculture at the State levels, really helping these farmers to form very good and effective coordinating bodies among themselves.

The government can also provide support for them in various ways like guaranteeing market price and things like that if they are able to come together. So, government can provide an incentive for coming together. You know that kind of thing and there are various innovative policies that can be pursued.

One of the key issues in this conference is the issue of Green Revolution for Africa. Where do you see Africa in the next two years or even now we are talking about the Millennium Development Goals (MDGs) target by 2015. Where do you see Africa, especially West Africa?

I think what we have seen in this conference is a call to action. Some progress have already been made by several countries, for example, in Ghana, we have seen the progress they have made. In Tanzania, we have seen a lot of progress and in Malawi, we have also seen a lot of progress. Malawi has now become a breadbasket from importing food, it is now a net export of food. I think it is important to mention the progress that has gone on in these countries as examples to what can be achieved. But we must be realistic, because not every African country is at the same stage when it comes to agricultural policy or even the political commitment to agriculture, which you know that NEPAD - New Partnership for Africa’s Development - has tried to co-ordinate.

But in terms of how many countries have increased the percentage of their budgets that has gone to agriculture, not every country is in this place. I think that in the next 10 to 15 years, which is more realistic, from my perspective, that is, when Africa should be able to achieve the Green Revolution, if we do the right things today. When I say that, I mean actually beginning to do the right things, not just talking about doing the right things.

In fact, if we do the right things, over the next five years we will see the significant change and in 10 years, we will be able to achieve the Green Revolution, if the continent as a whole is disciplined and comes along with coordinated disciplined about the whole issue. We have seen Malawi do it and we know it happened in many other countries and if it happens in Nigeria, it will happen in the rest of Africa.

How do you see the political will playing a role in this?
Political will is always the centre. I mean, development doesn’t just happen if the political will to formulate the strategies and be discipline in implementing it is not there. Now, one thing that we need the political will for is that in Nigeria and in Africa as a whole is policy continuity. We need political will so that when good policies are developed it should continue with any other government in power. That is where the political leadership in our countries can play a very essential role.

What would be your message as the conference rounds up, particularly to the Nigerian farmers?
Well, my message to the Nigerian farmers is that there is hope coming their way. That we in the Central Bank and government of Nigeria are working very hard to realize the aspiration of the Nigerian farmers and Nigerian people that Nigeria should become a food basket of West Africa.

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