De-risking agricultural financing in Nigeria

Accessing finance for agribusinesses in Nigeria has long been a challenge due to the inherent risks associated with the sector. Lois Sankey, the Head of Agrifinance at Diamond Bank, shed light on this issue in a recent interview with CNBC Africa. Sankey highlighted the significant gap between urban-based commercial banks and rural smallholder farmers, leading to a lack of contact and information asymmetry. This disconnect creates both real and perceived risks for banks, making them hesitant to lend to smallholder farmers who play a crucial role in food production and exports. The root of the problem lies in the lack of capacity and business acumen among smallholder farmers, making it essential for banks to bridge this gap by providing education and training. Despite the challenges, there are profitable opportunities within the agricultural value chain that banks can tap into. Sankey emphasized the importance of investing in the riskier but crucial lower end of the value chain to enhance food sufficiency in the country. She also praised the Central Bank of Nigeria's (CBN) Anka Borrowers Program as a groundbreaking initiative that helps farmers access cheaper finance through group lending. The program's group dynamics provide checks and balances that reduce risk compared to individual lending. Furthermore, the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) has played a key role in de-risking agricultural financing by acting as a non-bank financial institution that takes on loans from the central bank and administers them through commercial banks. This innovative approach has significantly increased the number of farmers being financed and has paved the way for substantial growth in the sector. As a result, banks like Diamond Bank have registered thousands of farmers across various regions and value chains, indicating a positive impact of de-risking measures on agricultural financing in Nigeria.