Financing the Agricultural Sector

Agriculture is the largest sector in the Nigerian economy, accounting for 22% of Gross Domestic Product (GDP) and roughly 70% of employment. Additionally, a large share of Nigeria’s food sup-ply is produced by small and medium-scale en-terprises (SMEs). One of the biggest constraints that these SMEs face is their limited access to finance. Indeed farmers and agribusinesses re-quire financing for start up, expansion and work-ing capital. There is a huge gap between the sup-ply and demand of agricultural finance in Nige-ria, estimated at a minimum of USD $4billion per annum. For many SMEs, they are either too large to receive financing from microfinance institu-tions or unable to meet the stringent terms of commercial banks. Arguably, the key to unlock-ing Nigeria’s true potential for agricultural pro-duction and food security is through increased tailored financing for the sector. Several incen-tives have been created by the Central Bank of Nigeria (CBN) and the Federal Ministry of Agri-culture and Rural Development (FMARD) to fill the gaps in finance. These include the Commer-cial Agricultural Credit Scheme (CACS), the Nige-ria Incentive-based Risk Sharing Agricultural Lending (NIRSAL), the Micro, Small and Medium Enterprises fund (MSME) and the Fund for Agri-cultural Finance in Nigeria (FAFIN).

Initiatives for Funding Agriculture

There are a range of incentives created to sup-port small-scale farmers and agribusinesses in Nigeria. These incentives are briefly highlighted below:

CACS

In 2009, CBN in collaboration with FMARD es-tablished CACS to enhance the development of the agricultural sector by providing credit facili-ties at a single digit interest rate to farmers. Un-der CACS, ₦200 billion was earmarked for lend-ing at 9% to the following agricultural value chains: production, processing, storage and in-puts. CACS was originally intended to end in 2015; However, it was recently extended by 10 years to September 2025. The table on the right shows the disbursement of credit under CACS. As at February 2014, the total amount disbursed by CBN under CACS to participating banks was ₦228.2 billion for 307 projects.

June 1, 2014
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