Will Nigeria’s high interest rate impact investment in agriculture sector?

Nigeria's agriculture sector has faced challenges in the past quarter, with rising food inflation prompting the government to allow imports of food, particularly maize, into the market. While this short-term measure has stabilized prices, experts believe that it will not address the root causes of low productivity in the sector. Kola Masha, CEO of Babban Gona, highlighted the need for farmers to have access to credit and loans to improve their productivity. The recent increase in the key benchmark interest rate to over 24 percent by the Monetary Policy Committee (MPC) will make it even harder for farmers to access financing. However, the agriculture sector already has limited access to formal bank finance, with only about 3 to 5 percent of commercial lending directed towards agriculture. This underfinancing is a significant barrier to growth and development in the sector. Government interventions, such as the Central Bank of Nigeria's (CBN) donation of two million bags of fertilizers to farmers valued at a hundred billion Naira, aim to mitigate food inflation and support farmers. While these efforts are appreciated, some experts believe that a more effective approach would be to enable the private sector to drive growth and investment in the sector, rather than relying heavily on government support. Smallholder farmers, who make up a large portion of Nigeria's agricultural workforce, often resort to informal lenders who charge high interest rates. To bridge the $80 billion financing gap in agricultural production in Nigeria, experts suggest exploring models like the Community Agricultural Finance Institution (CFI) model, which has proven successful in financing smallholder farmers in Africa. Kola Masha's Babban Gona organization is focused on empowering smallholder farmers through a technology platform that enables them to access financing and improve their productivity. The organization aims to scale its model to support 15 million farmers across the region by 2043. By implementing a sophisticated risk mitigation mechanism and leveraging technology, Babban Gona has achieved a remarkable 99% repayment rate, showcasing the potential for success when the private sector leads initiatives in the agriculture sector. Overall, while the government's efforts to support the agriculture sector are commendable, there is a need for a more sustainable approach that fosters private sector involvement and addresses the systemic challenges faced by farmers. With high interest rates and limited access to formal financing, innovative models and partnerships will be crucial in unlocking the full potential of Nigeria's agriculture sector.