Will A New Financing Model Enable Small-Scale Farmers Save Nigeria From Food Crisis?

By Gbenga Ogundare

In 2017, the International Food Policy Research Institute (IFPRI) warned Nigeria against impending famine and malnutrition.

The IFPRI Director-General, Shenggen Fan, said Africa’s most populous country has been sliding down the scale of agriculture while its third-world counterparts like Brazil, India, China, and others are moving up.

“We want to see to your government redoubling its efforts in the promotion of research-driven agricultural sector as the surest way of running a sector beset with avoidable problems here and there,” Fan told the Nigerian Senate Spokesperson, AliyuSabi Abdullah.

Amongst the avoidable problems, Fan was referring to is access to finance the conventional way Nigeria still operates: commercial lending. Yet around the world, innovations in agricultural finance are taking shape.

Very handy now is social lending, a big shift from commercial banks’ hawkish approach plaguing smallholder farmers across the nation.

By international standards, a farm less than 10 hectare is small-scale, and 80 percent of Nigerian farmers huddle in that bracket. Around the world, there are 450 million of such, according to the Council on Smallholder Agricultural Finance (CSAF). These agrarian millions, hardworking as they are, make up 75 percent of the world’s 2.1 billion poorest people.

But the CSAF with its 11 members and three partners since 2013, has been using social lending to better a lot of this “missing middle” in the agricultural value chain. For one thing, its lending approach is the dream of every borrower—confidential, responsible, gender-sensitive, and sustainable.

The impact, with just $682 million lent out in 2016, is visible on 775 businesses, 2.3 million farmers, including over 700,000 females, across 65 countries.They all made $7.6 billion in combined revenue. Farmers from sub-Saharan Africa make up 33 percent of the borrowers.

But in Africa, where most of the beneficiaries of this international social lending scheme come from, fund availability is hardly the problem, innovation is.

Nigeria threw around huge sums as intervention funds in the sector. The Central Bank of Nigeria (CBN) handed out $500 million to the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) it introduced in 2011—to provide to players in the value chain. Of the amount, N75 billion was funneled out as loans to the farmers, and N21.7 billion was spent on insuring 225 farmers on the Credit Risk Guarantees scheme.

Between 2012 and 2013, N880 million was spent on a similar scheme by the Nigerian Agricultural Insurance Corporation (NAIC). As far back as 2009, the federal government raised N200 billion from the debt market to finance growth in the agriculture sector.

The World Bank, too, intervened with $200 million – to be loaned out to small and medium-scale farmers.

Despite all these interventions, nothing seems to work as expected. The small holders are still under-served. “The average farmer doesn’t even know what these facilities are all about,” said SaniBalaTanko, owner of Tadan Fulani Farms in Bauchi.

In an interview he granted the Daily Trust in October, Tanko stated that a lot of things have been said – like government at various levels are assisting farmers. Not much, though, is apparent. “Perhaps, it’s at the top or they sort of encourage the rich farmers at the detriment of the upcoming farmers,” the ex-group head of First Bank said.

Whatever exploitation he suspected must have been in the lending process, where banks warehousing the funds are just two—First Bank and UBA—and the requirements are way above smallholders Tanko called up-coming farmers. Even where the Bank of Agriculture is involved, the conditionalities are no easier than those commercial banks require: state C of O, two-digit interest rates, credit analysis by bank staff not borrower—all of that for N5 millionnaximum.

The bottom line, in this approach, must be in favour of the banks—not the farmers. Or in favour of the most significant link in the value chain.

That is where social lending, as practised by the CSAF, makes the difference. The core of this lending model, according to the organisation, is for lenders to grow the smallholder agric market “as opposed to simply competing for the easiest-to-serve clients that are already being reached—and to meet long-term economic, social and environmental goals”.

The market size, globally, of smallholder farmers is $22 billion. Microfinance banks, commercial banks, and state and agricultural development banks lent an estimated $9.3 billion up till 2013. So there’s $12 billon gap for social lending.

Nigeria can then estimate its own size, and fashion out its own model of this system of lending.

In the UK, Peer-2-peer kicked in 2005. It works by bringing together those who have enough to spare and those who need some more to borrow. It’s a sublime form of co-operative society, looking beyond government for lending support. Members know one another, and the agency bringing them together works out a lone-digit interest rate for a loan secured with borrower’s social standing, and collaterized with farmland. And between 24 and 48 hours, the loan is ready.

As a mark of its success, the Peer-2-Peer Finance Association in the UK reported it administered £4.4 billion to farmers as of 2015.

Replicating that will be pretty easy in Nigeria where the farmers have already aggregated themselves. There is an umbrella body for the farmers– All Farmers Association of Nigeria (AFAN). Under this are the Nigeria Cassava Growers Association, and others. They can come together and pool resources to finance one another.

The Nigerian government can equally adopt the CSAF model. Rather than administer its intervention funds through commercial banks that make lending a hell of experience, the government can either back up responsible social lenders or not-for-profit organisations.

However, social lending does not promise to be a cure-all for the maladies confronting agriculture financing for smallholders in Nigeria. It has its own glitches.

CSAF identifies lack of management as the biggest problem among the borrowers, leading to non-performing loans. That is followed by crop failures. Fund misuse comes third.

But all of that could be grain for the mills of Nigeria’s small-scale farmers. And it will form part of the weapon to stave off the demon of food crisis staring Nigeria in the face as its population figure balloons with advancing years.