By Babajide Komolafe

Banks have facilitated the creation of nothing less than 20,000 jobs and revived 13 grounded agricultural projects through loans to farmers under the Commercial Agricultural Credit Scheme (CACS).

Established in 2009, the scheme was designed to promote commercial agricultural enterprises through provision of long-term loans with concessionary interest rates. It was also aimed at enhancing food security by increasing food supply and effecting lower agricultural produce and product prices.

Vanguard investigations revealed that as at June 30, 14 banks had lent N131.492 billion to farmers to fund 148 commercial agricultural projects.

The banks are Access Bank Plc, Fidelity Bank, First Bank of Nigeria, Guaranty Trust Bank, Oceanic Bank Plc, Skye Bank, Stanbic IBTC, Union Bank of Nigeria, United Bank for Africa, Unity Bank Plc, Zenith Bank Plc, Citibank, Diamond Bank Plc and Sterling Bank Plc.

As at December 31, 2010, these loans had helped create 20,828 jobs. The jobs created are in the following categories: skilled-185, semi-skilled-231, and unskilled-20,412.

Investigations revealed that 17.65 per cent of the CACS loans were used to expand businesses; 19.61per cent were channelled into meeting infrastructural challenges (water, power, access road to locations); 9.8 per cent were invested in human capital and manpower development; 5.88 per cent were used in construction of additional factory complexes, poultry houses and warehouses while 13.7 per cent were used for acquisition of additional farm land.

It was also gathered that 11.5 per cent of the private promoters who benefited under the scheme, diverted significant proportions of their sanctioned CACS funds to the acquisition of land for their operations.

Though the loans were granted by the banks, they were, however, funded by the Federal Government from the proceeds of a N200 billion FGN bond issued by the Debt Management Office (DMO) for this purpose.

The banks following due diligence, process applications for the loans from commercial farmers or state governments (on behalf of farmers cooperative societies in their states). The approved applications are forwarded to the CBN which disburses the loan to banks for on-lending to the applicant farmers.

Commercial agricultural projects by nature have long gestation period and hence, require long-term funding. Thus, the loans granted by banks under the scheme have a maximum tenor of seven years and a maximum interest rate of nine (9.0) per cent (with the CBN bearing the interest rate subsidy).

The scheme also allows for moratorium in the loan repayment schedule. Hence, the CACS provides cheap, long-term credit to commercial farmers with flexible repayment terms.

These favourable terms, according to an agriculture credit official in one of the participating banks, who spoke under condition of anonymity, has enabled beneficiaries of the loans to perform satisfactorily.

“Beneficiaries of CACS have been performing satisfactorily and are happy since they pay lower interest rates under the scheme than commercial rates that would otherwise have been applicable,” he said.

But the scheme is not an all-comers affair as some thought when it was introduced and as a result, banks were bombarded with loan applications.

Among other things, would-be beneficiaries must: Have a clear business plan; provide up-to-date record on the business operation; have outgrowers programme where appropriate.

Also, the borrower must have an asset base of not less than N50 million excluding land. Also state governments that want to borrow under the scheme for on-lending to farmers’ cooperative societies, must: submit an expression of interest; present an Irrevocable Standing Payment Order (ISPO) in favour of the participating bank, duly signed by the State Governor,

Commissioner for Finance and the State Accountant-General; have appropriate/functional structures on ground or set up structures for the deployment of the funds, which must include existing, registered cooperative societies/unions. The cooperative must be at least six (6) months old with proven track record of repayment.

Cassava farm

“The conditions though might be considered stringent,have enabled the system to weed out a lot of people and allow banks to focus”, commented the Head of Agriculture Department of a first generation bank.

To ensure strict application of the loans, and avoid the mistakes of previous schemes, the operational guidelines spell out the agricultural activities the loans can be used to finance.

These are: Production (cash crops and food crops, poultry farming, livestock, aquaculture); Processing (Feed mills development, threshing, pulverisation and other forms of transmutation for value addition); Storage (commodities, agro-chemicals and warehousing); Farm Input Supplies (fertilizers, seeds/seedlings, breeder stock, feeds, farm equipment and machineries); Marketing (agricultural commodities under the focal investment areas).

Investigations reveal that the scheme has helped agricultural enterprises expand output. It was gathered that beneficiaries reported increased output of 3.5 metric tonnes per hectare of maize; Yoghurt and fruit juice increased to 3,000 litres/hr and 1,200 tonnes respectively; fingerlings production increased to 260,000 per day; poultry to 1,800,000 birds, layers raised to 963,100; pigs to 20,500; nestle milk increased to 11.376 metric tonnes; 20,834 tonnes of refined vegetable oil.

The scheme also enhanced the production efficiency of the enterprises through acquisition of latest technology. Confirming this, a bank agric credit official said: “Some have invested in completely new technology, something completely different from what they are used to.

“For example, in the poultry sector, we have businesses that were operating simple deep litter layer farms that have now converted to closed bio-security houses with tunnel ventilation and automated waste removal, automated feed, automated egg collection and automated egg grading functions fully built up, which is a complete departure from what they were doing.

So aside from the fact that the expanded scale in terms of the number of birds they can raise,  the system of production has also been changed with up-to-date technology, enhancing not only output   in terms of volumes but also production efficiency.

“Then in the area of crop processing like I mentioned vegetable oil processing, we have funded businesses that have had to shift from ordinary mechanical extraction of pure vegetable oil to solvent extraction which is the latest technology.

Agricultural credit operators told Vanguard that though the scheme has performed relatively better than previous agricultural schemes, it could have done better but for the numerous factors bedevilling commercial agriculture in the country.

These include weather, pest, diseases, etc; low returns; tenor challenges; fragmentation of players and small land holdings; uncoordinated aid projects; inadequate irrigation and collaterals; lack of mechanisation, infrastructure, storage inputs, credits and research.

But it was not a rosy story for the scheme since inception. It has had to weather some challenges. According to a bank staff involved in the operations of the scheme, one of these challenges was faulty expectations with the public expecting the banks to just disburse the money.

“What we had was a case of people who heard that the government was giving money to agriculture and they were writing all sorts of proposals. One client alone comes with a proposal of N35 billion, when you are supposed to do N2 billion per borrwer and that client wants to do everything in agriculture, he wants to do plantation, he wants to do fish farming, export and import and he has not done any one of these things before and no management on ground and this was the type of proposal that flooded the bank at inception of this scheme and the government, the politicians, the ministry and the media were all saying that the banks were sitting on the money and they were not disbursing.”

Also, the minimum asset base for agricultural enterprises to be eligible for the loans had to be reviewed downward to N50 million, when it was obvious that the initial criteria of N100 million was too high and would hinder access to the loans for many potential agricultural firms.

Also, the procedure for processing of loan applications had to be streamlined such that the Technical Implementation Team, chaired by the CBN, no longer perform due diligence on the loan applications once the banks have done that and approved the application for funding.

However, investigations revealed that there is still the challenge of delay in the disbursement of funds by the CBN. “One will think that once they receive these documents (loan application and bank’s approval), CBN would release funds after the banks have agreed to give the credit but incidentally, it is not working out that way, we experience delay, there are times when these documents are forwarded to CBN and it takes time for us to get funds released to us to pass on to customers. So we hope that can be streamlined so that such bottlenecks can be reduced,” an agricultural credit official said.

There is also the challenge of provision of security by customers and dearth of viable investment outlets in the agricultural sector.

Vanguard also gathered that there is widespread concern over the sustainability of the scheme especially after the seven years when the FGN Bonds issued to raise the funds mature and had to be repaid.

“The tenure of the scheme should be increased to ten years,” suggested a banker adding that the guidelines should be reviewed vis-a-vis issue of insurance. Presently, the Nigerian Agricultural Insurance Corporation (NAIC) is the only company that handles agricultural insurance. That monopoly of agricultural insurance has to be broken for all other insurance companies to underwrite agricultural projects.”

Surprisingly, some agricultural enterprises though qualified, have refused to access loans offered to them under the scheme due to fear of policy summersault and concerns about the economic stability of the country and the Nigerian environment in general.

An official told Vanguard that “there are instances where they have credit lines booked and approved but they are not yet sure whether to go ahead and take or not due to the vulnerability of our economic environment in terms of the economy and the Nigerian Government policies.”