By Jimoh Babatunde with agency reports
An innovative tractor lease financing scheme, designed to help private operators own tractors and increase farmers’ access to tractor services, has been launched in Nigeria. The scheme is being implemented by a leading financial institution, First Bank of Nigeria Plc, in partnership with Springfield Agro Ltd – the representative of the Mahindra tractor brand in Nigeria – and the Tractor Owners and Operators Association of Nigeria (TOOAN) – a group representing small-scale tractor service operators.

PrOpCom is helping to facilitate the initiative through its Agricultural Mechanisation Intervention.
The current market for tractors is dominated by the government, whose efforts to meet farmers’ demand for tractor services have largely failed. Through Public-Private Partnership (PPP) schemes, the government sells tractors to farmers at a subsidized price, thus creating distortions in the market.

These PPP initiatives need to overcome several challenges, not least the issue of selecting farmer beneficiaries, a process that in the past has been based more on political patronage than on farmers’ ability to repay loans. The result is slow development of the tractor market with companies jostling for government contracts that are susceptible to overpayment and, ultimately, a failure to deliver tractors to farmers. For instance, existing schemes have seen tractors purchased at prices higher than in the open market.

The signing of the Memorandum of Understanding (MoU) at First Bank headquarters in Lagos on 17th June 2010 marked the launch of the private sector-driven financing scheme. This is the first time a financial institution in Nigeria is offering a product targeting the tractor market. It provides agricultural machinery companies and financial institutions with a new business model for machine targeted facilities.

Under the pilot phase of the tractor intervention scheme, 50 Mahindra brand tractors will be sold to operators and farmers in Ogun, Oyo and Kaduna States through lease financing, with repayment spread over 24 months. Each tractor costs N3.75 million (#15,000) and participating farmers are expected to make initial equity payment of N745,000 (#2,980). The Central Bank of Nigeria and PrOpCom are providing a guarantee for each tractor, and Springfield is supplying the product, with funding support coming from First Bank. Additionally, scheme participants are given comprehensive insurance cover, a 2-year warranty, maintenance support and technical training by Springfield.

Speaking at the MOU signing ceremony, Mr Ernest Ihedigbo, Head of Agricultural Finance, First Bank Plc, noted that the bank sees the tractor intervention scheme making a significant impact in the agriculture sector. “This scheme is an opportunity to prove that the private sector can really take responsibility for making the economy work without everybody having to sit back and wait for the government to do it right,” he said.

He added that First Bank looks forward to other banks replicating the tractor leading model, as the pilot scheme will be a useful guide to other institutions that may seek to adopt it. Ihedigbo urged customers to ensure that the scheme offers safe transactions and becomes an exemplary industry model for increasing agricultural productivity and employment opportunities throughout the nation.

TOOAN Public Relations Officer, Mr Kayode Kumolu, speaking on behalf of his organisation, said that the scheme will provide TOOAN members, who ordinarily had no access to funding, with the opportunity to own a tractor, thus enabling them to raise their incomes through a tractor service business.

Mr Julian Peach, Programme Manager at PrOpCom, noted the potential of the tractor leasing scheme to bring about large-scale change in the agricultural sector. By expanding access to tractor services, the initiative will empower farmers to increase farm productivity and improve livelihoods.

Sunil Mohta, Chief Finance Officer, Springfield Agro, said, “we are proud to be associated with this project. When the project was first brought to our attention it looked a little difficult but, as we moved on, we have solved, step by step, every problem. We will do everything to make this project a success.”