NIRSAL was created by the Central Bank of Nigeria to address challenges in agricultural lending. Prior to NIRSAL, agricultural lending was only 1% of total lending due to risks and a lack of understanding of agriculture. NIRSAL provides loan guarantees and technical assistance to improve agricultural value chains and incentivize banks to lend. Since starting in 2011, NIRSAL has guaranteed over 6 billion Naira in loans with a pipeline of 20-25 billion Naira. Going forward, NIRSAL aims to guarantee 450 billion Naira annually and expand international capital sources for Nigerian farmers. Challenges remain around identification, high interest rates, inconsistent policies and the need for greater innovation in credit delivery and value

1. NIRSAL Presentation at the NSSP Research Conference (Nov. 14, 2012)
Strengthening Agricultural Credit for Value Chain Development: Potential and
Challenge
By Jude Uzonwanne, Head, NIRSAL PIO, Central Bank of Nigeria
All protocols observed
It is a pleasure to share our thoughts today at the NSSP Research Conference on
how to effectively utilize the financial system to unlock agribusiness’s potential.
We shall begin our observations and set the stage by telling you what the status
quo in Nigeria was until about 12 months ago.
 First, agricultural was financed primarily from personal savings, capital
provided by friends and family, and other non-formal sources. Bank
lending to agriculture amounted to about 1% of all formal lending in Nigeria
 Second, banks since they did not lend that much did not pay attention to
what those loans did or did not do, and assumed they would necessarily go
bad. Most banks assumed agric loans had a default rate of 15% - 20%.
 Third, lending usually focused on mid tier and large tier food related
companies, and rarely to small holder farmers
 Fourth, lending was usually backed by landed assets as collateral
It was into this context that NIRSAL emerged. NIRSAL was the output of a review
conducted by the Central Bank of Nigeria in partnership with the Bankers
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2. Committee. The Bankers Committee aggregates Nigeria’s commercial banks and
discount houses. The review of 2 decades of agric finance interventions and
schemes, as well as the state of federal policy, behavior by value chains, and
other related elements draw some startling conclusions:
1. Lending cannot succeed unless it occurs in the context of a well functioning
value chain. And such effective functioning cannot be assumed; it has to be
paid for i.e. a public good investment must be made even if the profits are
partially privatized
2. The Central Bank’s approach of direct lending has not yielded the results
sought as it distorts bank incentives to take capital risk, as well as
exacerbates moral hazard problems. The money at risk does not belong to
anyone!
3. Policy failures and inconsistencies are as equally damaging as a consistent
but wrongheaded policy
4. Banks have limited institutional memory and capacity regarding lending to
agribusiness; loan officers have to be trained and processes instituted
5. Subsidies are not inherently bad; it is the design and delivery of such
subsidies that have been poor, in the process corrupting incentives and
behavior e.g. fertilizer racket
6. The dismantling of the marketing boards went too far as it deprived the
markets of a well organized mechanism for advocating policy change, as
well as organizing input supply to farmer groups and marketing farmer
output.
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3. Based on these insights and others, NIRSAL was designed as a CBN sponsored
private corporation working in the public interest. NIRSAL which now has
Presidential permission to form a public limited liability corporation began life
with the following key attributes:
 It would prioritize sales of guarantees over making capital available for
onlending; guarantees will be issued to match loan durations
 It would provide for insurance to cover some of the risks in farming value
chains
 It would provide technical assistance that would fix the value chains and
make them less default prone
 It would rate the performance of banks subject to how well they lend
 It would create incentives to reward banks that lend well as well as punish
those that fail at it, forcing a broad improvement in bank capacity building
Based on that design, in Q4 2011, NIRSAL began work and by April 2012, had
developed a new set of rules for agribusiness lending. Based on those rules,
aggressive marketing and capacity building discussions with farmer groups, state
governments, value chains, banks and MFIs, progress is now emerging. For
example, banks once their own internal governance and evaluation mechanisms
were in place, started accepting NIRSAL type loan applications from their clients.
Where are we today?
 Today, we have issued guaranteed on over N6 billion in loans. We have a
pipeline of about N20 – N25 billion through end of January 2013. We
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4. expect to see the volumes rise sharply through March 2013 subject to
market conditions.
 The average lending rate is 18%; NIRSAL also issues an interest rate subsidy
averaging 30%, bringing our average lending rate down to 12%
 The average duration of loans is 285 days; our guarantees match that
period; we are currently in final discussion stages for a 7 year guarantee, so
it is important to understand that NIRSAL matches what the market wants,
and the markets are becoming more risk seeking each passing quarter
 Loans have been issued for activities such as purchase of sorghum,
production of cassava chips for export, purchase of equipment for oil palm
companies, purchase of feedstock for oil mill (soya beans and fresh palm
fruit bunch), and cassava grits plants
Going forward, what do we see as the opportunity?
 First, we see a market for working capital and loans to agribusiness that is a
minimum of N600 billion per annum; we expect to be able to guarantee a
significant portion of that. The proposition is that 1 Naira from NIRSAL is to
leverage 10 Naira from commercial banks. It is foreseen that out of the 600
billion Naira needed every planting season, NIRSAL, at its full capacity,
would be able to provide 450 billion Naira.
 We see opportunity in expanding the international sources of capital
available to the Nigerian farmer and agribusiness. We intend to enter into
the market and issue long term debt instruments that can be used to invest
directly by NIRSAL or provide low cost liquidity to certain class of lenders, as
well as strengthen NIRSAL’s own balance sheet
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5.  We also anticipate a rapid expansion in our value chain fixing role,
especially as we rollout our technical assistance offering. That offering will
ensure that more value chains and its participants are ready to use credit
responsibly.
What challenges do we foresee? A few have emerged in the past year but are
really variations of tradition challenges. For example:
1. Identity issues; many banks still complain that the majority of farmers do
not have proper identification, hence they are not able to lend to them; we
are discussing a number of biometric based interventions to tackle that
2. Cost of capital remains high due to the Central Bank of Nigeria’s high
lending rate (12%), which in itself reflects inflation expectations for the
economy
3. Continued policy and financial mixed signals create confusion in the market
e.g. the periodic offer of free seeds
4. The speed at which commercial banks are gearing up to lend to agriculture;
they have made strong progress but we wish they could move faster
5. A culture in the financial and policy circles that does not seem to
understand the need for urgency and creativity in problem solving; often
idea that the way things have always been done is a detriment to progress
does not seem to sink in
6. Insufficient levels of innovation in financial services and other supporting
services for agribusiness e.g. solutions for credit rather than products, and
emergence of companies such as Oxfam and Technoserve that can
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6. aggregate farmers, find them markets, get inputs to them, and provide
agronomic advice during the season. That innovation in service design and
delivery remains sharply missing. Truly, the challenge is not always access
to credit; ideas and field systems for translating those ideas into profits is
perhaps more critical to success
Looking forward, we are cautiously optimistic that despite the challenges we see,
progress will continue to be made. The levels of lending are rising as banks and
other financial institutions improve their own institutional capacity to lend and
learn. In addition, we continue to see policy support despite occasional regressive
behavior. What will matter going forward is the level of innovation in action, and
behavior.
Today, what the market may need is not more guarantees but smarter and more
nuanced ways to deliver credit and move output. Credit delivery, whether in kind
or in cash, needs to reach the customer on a timely basis. And in a world with less
predictable rains, that certainty becomes more important to outcomes.
Therefore the future of Nigerian agribusiness will become about what innovations
are we able to develop and deliver to the market that simplifies the essential
challenge of this business. Given that innovation does not recognize borders, it is
vital that we NIRSAL also acknowledge that such innovation will push us to
periodically reinvent our business model as well. Change cannot be uni-
directional. As the banks and markets evolve, we expect that we must evolve in
order to remain commercially relevant. That is where the real transformation will
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7. occur: how banks, NIRSAL and other investors respond to the demands of the
agribusiness market.
Thank you.
- End -
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