The Managing Director/Chief Executive Officer of the Bank of Agriculture (BOA) Limited, Dr. Mohammed Santuraki  during the recently held Agriculture council meeting in Abeokuta took time out to talk on agriculture lending in the country, mechanization and why the bank remains the choice lending house for smallholder farmers in the country.

Here is an excerpt from the interview with JIMOH BABATUNDE

On access to funds by farmers through Bank of Agriculture

The requirement in agricultural sector in terms of funding is too large for one player to meet, but with the advent of  Agriculture Transformation Agenda (ATA)  and the Nigerian Incentive based Risk Sharing for Agricultural Lending (NIRSAL) program, which seeks to encourage banks to lend to agriculture, things are looking up as commercial banks are coming in.

You know the commercial banks have the largest pool of fund, so they are doing that but they need to do more like the Minister of Agriculture  pointed out.

At the level of Bank of Agriculture, (BOA), as  a development bank and  fully owned by the government, we  are also doing our best, but things are beginning to look up.

Part of the challenges we had was lack of lending resources, but this is being addressed like the minister pointed out. The President has approved the recapitalization of the bank of agriculture to the tune of N15b.

Even before this money was announced, we had also been re-engineering the bank, we have repositioned the bank into a more formidable institution and we are supporting farmers.

It is an ongoing thing. On the average, using our own resources, we do about N5b every year, we can do more, but the resources are not just there. We want to scale that up to about N20b in a year , so the N15b capitalization we are going to receive is going to support what we are doing.

We are working with other partners, this figures I have given you is just the fund on the part of the bank , we also have a scheme where we collaborate with governments. We are into partnership with most of the state governments in the federation. We just signed up with Lagos.

We are going to flag off with Lagos, we have done Sokoto state , we are in Osun state,  FCT and other states. What we do in these states are matching funds arrangement. Government put in money and we put in additional resources . We then use the money to support there farmers.

On support for mechanization

Beyond that also, critically for the first time, BOA is also working very closely with the mandate ministry, which is the ministry of agriculture.

As you know, the ministry has a very  big ambitious mechanization program worth about N3.6b. This is actually being driven by the ministry , we are a collaborator in this case . Soon , we are going to roll out.

Part of the problems of agriculture in this country is lack of mechanization. The fact that you use hoe and cutlass in farming is not farming but punishment. We need to scale up our farming and need to do the right thing as far as mechanization is concern.

We are supporting the ministry to do a mechanization program worth N3.6b in about 80 mechanization supports sites. Although it is going to be driven by the private sector,  but the government is supporting the initial creation.

We are going to have about 40 such centres throughout the country , we are going to provide about 400 tractor implements in the first stage and that project is already on going and it is part of the ministry program.

It is hiring  scheme, but in a different way. You know in the past government import tractors and give to farmers or set up hiring services that are never sustainable. So, what is happening in this case, is that we are going to have pools, we are going to have mechanization service providers which will hold at least five set of implement and they are going to be private sector. It is not government. The government will set it up, the promoters will pay some amounts, the bank will also contribute, the suppliers of tractors will also provide some trade finance.

We are going to empower tractor hiring providers to provide the services, the reason being that the average farm land holding is usually too small to make it effective for a farmer to go and buy a tractor. So the approach of pool services is very attractive when you have cases like this.

On loan recovery

You know agricultural lending is a very important   space , but it is also a space that is a bit risky. Now, what they are talking about is the inputs supply arrangement with agro dealers and so on.

You know it is a value chain , inputs to outputs . Now the top end of the value chain, which is inputs supply , is with a minimal risk because you don’t   have issue of weather, pest and so on .

But most of the lending we are doing up to this moment is for production and we are lending to small farmers, so our demographics are bit different .

In the past there used to be political interference   in what we do and now it has significantly reduced because of   the level of   professionalism   that we have in the ministry as nobody is giving  notes to farmers saying give this person loan.   If you want loan, you come and we assess you .

We have now strengthened the risk management of the bank   in terms of who gets a loan and the condition they have to   meet, but again you need to balance it   between   access and security for the loans. So what we have done is to make sure that farmers are properly identified .

One of the things we are also using is the co-operative approach , as you know our small holder loans are not secured by properties, they are secured by personal guarantees and peer pressure and so on.

Increasingly , we are improving this through cooperatives as they know each others and they bring pressure to bear and so on . So  in our experience some of these methods have paid off because the level of defaults has significantly reduced in the last two years as compared to what obtained in the past.

On routing agric loans through commercial banks

I don’t think it is right  to do so, because   the evidence does not support that. Last   year, the Central Bank   of Nigeria and the federal ministries of finance and agriculture went into agreement with the commercial banks to deliver N30b worth of credits and they had guarantees but I am not sure what they disbursed was up to N5m

So it is not true the commercial banks can do it better as the conditions for accessing commercial loans   is very tight and most farmers can not get through.

We are the only one in this country that can give loans at micro level based on cash flows and without physical collaterals. So I believe the space is wide enough   for   everyone to make its impact felt.

For the large farmers the commercial banks can do that because the big farmers have collaterals but for     medium scale agriculture, the Bank of Agriculture is the place to go to.

On the adeni pilot program

The adeni programme is based on the concept of ware housing , where farmer will bring their produce , because you know at the beginning of harvesting season, prices   usually crash so that is not the best time to sell.

Most farmers sell then because they need money either to pay loan or do other things. So the adeni program was a pilot scheme that we used to say let us do the ware housing scheme .

In the developed country they do it a lot. You go and put your produce in a warehouse and then the ware house issue you a receipt and banks can provide lending against that. What we did in the past was a pilot, but what we are trying to do now is to widen it , but to do that we must put in place the required   warehousing infrastructure.

That is why we are working with the commodities exchange. You know the law that will   require the acceptance   of ware house receipt as a bank security has not been passed. So what we are waiting for is for that law to be passed. We are working with the commodities exchange   commission   to support the passage of that law , but we are not resting on our oars as we have a bilateral committee now that is looking on what we can do before these loans are approved.

So, it is something we are also very passionate about. It is a warehouse receipt kind of lending. We want to do it in a bigger way.