Credit risk

NIRSAL Extends N73 Billion Credit Risk Guarantee to Food Processing Companies

In fulfilling its mandate of creating a stronger link between segments of the Agricultural Value Chain (AVC) in Nigeria and the subsequent linking of AVC to commercial bank financing, the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Plc has facilitated the flow of over N73 billion into Nigeria’s agribusiness industry to date from a variety of sources including depository banks, development financiers, private equity investment firms and other financial institutions.

NIRSAL Plc’s strategic support to agro-processors, which operate in the midstream segment of AVC, creates a profit-driven ecosystem in which farmers in the upstream AVC segment have a reliable market in the form of agro – processors who buy products from farmers.

NIRSAL Plc’s support comes at a time when developing economies are increasingly shifting from commodity production to both production and value addition for increased economic activity, bolstering foreign exchange earnings and development generalized social.

Other beneficiaries of financial facilitation from NIRSAL Plc include pre-upstream, upstream and downstream AVC operators involved in production and supply of inputs, provision of mechanization services, primary production and logistics.

This feat, which has made a significant contribution to the federal government’s agricultural promotion campaign, was achieved through NIRSAL Plc’s effective deployment of its credit risk guarantee instrument.

NIRSAL’s core product shares up to 75% of agribusiness credit risk with commercial banks and financiers, depending on the segment in which applicants operate. The riskier the farmer group or agribusiness operation, the higher the percentage of risk shared by NIRSAL Plc.

By protecting financiers and investors from potential losses in a credit transaction, NIRSAL Plc has boosted their confidence to lend to players in the agricultural sector, a sector once widely considered a no-go zone in financial circles.

Supported by the NIRSAL CRG, farmer groups and agribusinesses who, prior to the introduction of the NIRSAL CRG, had struggled to obtain loan approvals from commercial banks, now benefit from smoother approval processes for the loans they need to expand their operations, increase their profits and improve their livelihoods.

In order to provide additional support to farmers and agribusinesses in Nigeria, NIRSAL Plc, through its Interest Rebate (IDB) Scheme, goes the extra mile to reward diligent borrower behavior with discretionary rebates of up to up to 40% of interest paid on agribusiness loans supported by NIRSAL CRG. . To date, NIRSAL Plc has paid out over N1.64 billion, reducing the effective interest rate for borrowers with good credit history.

NIRSAL Plc’s constant engagements with commercial banks and the training of their agents are also essential to the origination of loans guaranteed by NIRSAL CRG. To date, more than 4,250 banking officers have been trained in NIRSAL CRG guidelines and agricultural lending effectiveness resulting in a better understanding of both, improved banks’ readiness for lending agriculture and increased bank lending.

When NIRSAL Plc was established, bank lending to agriculture was 1.4%. Since then, the NIRSAL CRG has helped push that figure up to 5.4% in Q3 2021.

NIRSAL Plc Managing Director Aliyu Abdulhameed said the organization’s support is having a positive impact on financiers, borrowers and the national economy. He said financiers are now able to invest with confidence in profitable agribusinesses.

According to Abdulhameed, the injection of finance into the agricultural sector through NIRSAL Plc has resulted in broad socio-economic growth. Agribusinesses have been able to expand their operations and increase their workforce, with NIRSAL CRG recipients reporting a 20-60% increase in capacity utilization, productivity, number of markets served and value of sales .

Specifically, NIRSAL Plc’s financial facilitation efforts generated an additional $2.5 billion in economic activity through agricultural products/outputs and other value chain economic activities, created 360,000 direct jobs and positively impacted the lives of 1.8 million Nigerians.

Following the success of NIRSAL Plc’s risk-sharing model, commercial banks pledged a total of $500 million to finance agriculture and agribusiness. In addition, NIRSAL Plc has been approached by other African countries to provide support in establishing and implementing model risk sharing facilities in their respective jurisdictions.

NIRSAL Plc’s latest achievement also coincides with the development of Nigeria’s Special Agro-Industrial Processing Zones Program across the country to which NIRSAL Plc is offering support. “In line with the financial facilitation mandate of NIRSAL Plc, SAPZ will mobilize private sector investment in selected areas to improve productivity and integrate agricultural production, processing and marketing,” he said.