May 8, 2023

Agric sector growth defies N1.8 trn loan infusions

Agric sector growth defies N1.8 trn loan infusions

*Stakeholders cite insecurity, flooding, sharp practices

By Babajide Komolafe, Economy Editor

In apparent reflection of the impact of insecurity, flooding and extreme weather on farming activities, agriculture sector growth fell by more than half in five years to 2022, defying the  double digit increase in banks’ lending to farmers during  the same period.  

Financial Vanguard analysis of banks’ lending in the last 10 years  showed  that  loans to farmers grew by 197 percent  to N1.8 trillion in five years to 2022, faster than the 107 per cent growth recorded in the previous five years to 2016

As a result of the increased lending to farmers, the agricultural sector share of total banks’ lending rose  to 6.16 per cent in 2022, from 3.3 per cent in 2017, translating to 2.86 percentage points increase in five years.

This is in contrast to the decline recorded in the previous five years, when the agricultural sector share of total banks’ lending fell from 3.4 per cent in 2011 to 3.3 per cent in 2016, representing 0.1 percentage point decline.

Importance of agric sector

Te agricultural sector contributes over 20 per cent to the nation’s Gross Domestic Product, GDP, and accounts for about 35 per cent of jobs in the country. But access to loans has been a major constraint as banks consider the sector high risk and hence unwilling to lend to farmers.

Thus for many years, the share of the agricultural sector in total banks’  credit has been lower than 5.0 per cent, with annual growth in lending to farmers below 2.0 per cent. 

To address this challenge the Central Bank of Nigeria, CBN, in 2011 announced a ten year target of seven percent credit allocation to the agricultural sector. To achieve this target, the apex bank introduced some measures, including the establishment of the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and intervention funds like the Commercial Agricultural Credit Scheme (CACS) and the Anchor Borrowers Programme (ABP).

The seven percent target was further affirmed in the NIRSAL document, with the CBN saying that part of the value proposition for the initiative was to, “increase lending to agriculture from 1.4 percent  to 7 percent of total banks’ credit to the economy within 10 years, with NIRSAL becoming economically self-sustaining”.

This target translates to 400 percent growth in agric sector’s share of total banks’ credit from 2011 to 2021, and hence annual growth rate of 40 percent.

The 197 per cent growth in banks’ lending to farmers between 2017 and 2022 translates to an annual growth rate of  39.4 per cent, which is 0.6 percentage points below the CBN target of 40 per cent.

Also the share of agriculture in total bank credit stood at 6.16 per cent in 2022, representing 0.84 percentage points below the 7 percent target of the Central Bank of Nigeria, CBN.

Thus the industry is set to achieve the CBN targets by the end of this year, though two years behind the 2021 timeline. 

Growth defies rise in lending

But, in spite of the increased lending to farmers, agriculture sector growth fell by more than half during the five years to 2022.

Data from Nigeria Bureau of Statistics showed that the agriculture sector’s real Gross Domestic Product GDP grew from N16.607 trillion in 2016 to N19.09 trillion in 2022, translating to 14.9 per cent growth during this period and annual growth of 2.98 per cent. 

This however represents a decline from the 23.7 per cent growth recorded in the previous five years to 2016.

Agribusiness experts and investment analysts who spoke to Financial Vanguard, confirmed that there has been improvement in banks’ lending to farmers, adding that this is largely due to the CBN intervention funds, influx of big corporate players and increased marketing efforts of banks. 

They however blamed the decline in the GDP growth of the sector to the challenges of insecurity, flooding and extreme weather.

 “I can confirm there is an increase in bank loans to agriculture as I have witnessed a few numbers of beneficiaries close to me”, said Adebanjo Daniel, an agribusiness consultant and Executive Director, Agrotrends Nigeria Integrated Services.  

He added, “The 197% growth in lending to agriculture is not actually of natural will of the banks, but by the driven policy of intervention by authorities (CBN).

“Within the last five years commercial banks’  agriculture  desk has been more functional, participating in various agricultural conferences to pitch their various agribusiness loans to agric players.”

Also citing government intervention as the driving force behind the improved loan growth to farmers, Managing Director/Chief Executive, Kadeb Farms, Kunle Adeniyi, Kadeb Farms, said: “I sincerely doubt if anything has happened over the last five years that has made the sector attractive to the bank’s, perhaps certain policies of the government forces the banks to lend to the agric sector. 

“I know there is such a thing as an agric loan that is dispersed through the commercial banks, of course based on satisfaction of certain conditions.”

On his part, Tunde Abidoye, Head of Equity Research, FBNQuest Securities Limited, cited the increased formalisation of the agric sector reflected in the entry of major corporate organisations. 

He said: “Although banks have also been gradually increasing their interventions in the agriculture sector, I believe the CBN’s credit interventions to the sector have been more significant.