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In this exclusive interview, Aliyu Abdulhameed, Managing Director/CEO, Nigeria Incentive-Based Risk Sharing System for Agricultural Lending Plc (NIRSAL), speaks on the mandate of NIRSAL to reduce credit risks, increase lending, and drive investment across the entire Nigerian agricultural value chain. He spoke with Jide Akintunde, Managing Editor, Financial Nigeria magazine.

Jide Akintunde (JA): Agricultural financing in Nigeria is ridden with risks, from climate risk to agricultural production, willful credit default based on longstanding state patronage system, poor agricultural value chain development, to lack of creditworthiness by the smallholder farmers, and more. Given these numerous and onerous challenges, what is the approach of NIRSAL to its mandate of derisking agricultural financing in Nigeria?

Aliyu Abdulhameed (AA): NIRSAL delivers its mandate of derisking agricultural financing by following a systematic and multipronged approach. At the core of this are the five pillars of our intervention, namely risk sharing, insurance, technical assistance, rating, and incentives mechanisms. Through these, NIRSAL pursues an end-to-end integration of the agricultural and agriculture-financing value chains.
    
To further elaborate, NIRSAL has a holistic approach that addresses the issues in the value chains of agricultural production and financing. This is what makes NIRSAL an institutional solutions suite. In the past, agricultural interventions in the country were standalone solutions without linkages. But NIRSAL offers end-to-end interventions, offering incentives for lending and technical assistance across the financing and food production value chains.

We offer commercial lenders a sense of shared risks by providing up to 75% credit guarantees. So far, we have issued over N67 billion in credit guarantees to cover loans by the commercial banks. We are also championing the development and utilization of dynamic insurance products to mitigate risks of agricultural failures to key actors.

Through our technical assistance pillar, we offer technology-enabled capacity-building, mentoring and monitoring support to smallholder farmers. We also facilitate access to markets, thereby helping the smallholder farmers to succeed.

NIRSAL discourages willful defaults and poor credit practices by agricultural value chain operators. To encourage lending, we recognize commercial lenders with high participation in agricultural lending through our incentive schemes and rating mechanisms.

JA: Smallholder farmers dominate Nigerian agriculture, in terms of employment and, perhaps, production as well. Therefore, to unlock Nigeria's agricultural productivity potentials, effective financial and technical solutions must reach the smallholder farmers. How is this possible, given the low level of financial literacy of the largely rural smallholder farmers and the poor organization of their farm enterprises?

AA: You are right. Land cultivation in Nigeria is primarily done by smallholder farmers, using manual farming practices on disaggregated hectares of land across the country. This results in low productivity and inability to achieve self-sufficiency in food production in the country.

NIRSAL is tackling these issues by aggregating farmlands in agriculturally-endemic areas into geo-clusters of 10,000 hectares, further broken down into geo-cooperatives of 250 hectares. Farmland aggregation is matched with coordinated farmer aggregation through outgrower schemes and other pooling mechanisms.

This approach enables NIRSAL to reach smallholder farmers with support comprising training, mentoring and follow-up to ensure compliance with good agronomic practices, from input quality control to harvesting in a controlled and coordinated manner. Furthermore, smallholder farmers are aggregately positioned to enjoy credit, mechanization, irrigation, transportation, infrastructure and other support services promoted by NIRSAL. This supports large scale deployment of interventions and solutions, and provides the benefits of economies of scale.

NIRSAL has immensely benefitted from the unrelenting support and visionary leadership of our Board Chairman, the Governor of Central Bank of Nigeria, Godwin Emefiele. He transformed NIRSAL from being a unit in CBN into the strong institution it is today as a public company. I would say NIRSAL is one of the two major initiatives for agricultural revolution in Nigeria. The other being the very successful Anchor Borrowers Programme (ABP) of the CBN.

More than 200,000 smallholder farmers across 29 states of the federation have benefited from the programme, which provides loans to farmers who are engaged in the production of some specific commodities such as rice, wheat, maize, cotton, soya beans, cassava and groundnuts. As of October, the CBN had disbursed N43.92 billion through 13 participating institutions to farmers groups and cooperatives.

JA: What is the breadth of the technological innovations that NIRSAL is promoting to enhance the Nigerian farm output?

AA: NIRSAL has made significant investments in technological solutions and innovations in the fixing of broken agricultural value chains and facilitation of agribusinesses. One of our flagship innovative solutions in this regard is our FAM-SMART model.

Using Geographical Information Systems and Pattern Recognition Systems, we have undertaken a field mapping of agriculturally-endemic regions across the country. This informs the geo-clusters and geo-cooperatives that we have defined. Besides aiding aggregation and coordination, the mapping helps in defining the locations for NIRSAL support, minimizing the risk of investing in areas that are not agriculturally viable.

We are also deploying technology in the monitoring of crop performance and growth, through the use of both remote and field sensing technologies. This entails the use of satellites and Normalized Difference Vegetation Index (NDVI), which is a simple graphical indicator that can be used to analyze remote sensing measurements. We also deploy drones and geospatial monitoring devices for early warning on field deviations. These would help trigger targeted remediation actions to ensure enhancement of farm outputs.
 
NIRSAL is blazing the trail in making available to rural farmers, a wide range of technological innovations in line with its vision to be the epicentre of agro-industrial revolution, driven by state-of-the-art technology.

JA: A key financial tool for addressing enterprise risk is insurance. What work is NIRSAL doing in expanding coverage of effective agricultural insurance?

AA: NIRSAL has a mandate to facilitate the development and linking of insurance products to the loans provided by commercial lenders.  Working with a consortium of insurance providers in Nigeria, NIRSAL developed and launched the Area Yield Index Insurance product. This helps to ensure that farmers who are beneficiaries of NIRSAL-facilitated loans and credit facilities are protected from the risk of realizing a lower-than-expected agricultural yield due to weather and other external factors.

We plan to move insurance coverage from the current level of about 0.5 million to 3.8 million agricultural primary producers.

As you may already know, we recently signed a partnership agreement with two leading Moroccan agricultural insurance and re-insurance companies to expand the range of agricultural insurance products and coverage in Nigeria. This will enhance NIRSAL's technical capacity to enhance protection for small, medium and large-scale agricultural enterprises, offering them protection from natural disasters, such as floods, droughts and crop diseases. This collaboration agreement would lead to the design and development of named peril crop insurance products and index-based insurance for specific geographical area, weather and yield.

JA: Building stakeholders collaboration and cooperation would be critical to delivering results in the reform of Nigeria's agriculture. This point is well made with the fact that NIRSAL itself is a public-private partnership. With the benefit of NIRSAL's institutional form, how do you work to increase the pool of resources –  financial and technical – to advance Nigeria's agriculture?

AA: Since the inception of NIRSAL in 2011, it has been playing a key role in pulling together various stakeholders. We have continued to facilitate collaborations and strategic partnerships, which deliver horizontal and vertical linking of operators in the food production and agricultural financing value chains. We facilitate interaction between private sector businesses, public agencies and institutions with responsibilities for facilitation, oversight and regulation in the agriculture and financing space.

The reality is that Nigeria is blessed with four major factors, which define the country's opportunities in agriculture. These factors are land, water, labour and market. However, we also require a different set of four factors – which, for emphasis, are capital in nature –  to leapfrog the development of the sector. These are equipment capital, technological capital, human/intellectual capital and financial capital.

NIRSAL's work also includes the attraction of local and foreign partners and potential suppliers of the required capitals to match up with Nigeria's opportunities. We have made significant progress in this regard, evident in our wide range of existing financing frameworks, management contracts, partnership agreements and memoranda of understanding with several financial institutions, state governments,  and other stakeholders like the Machines and Equipment Consortium Africa (MECA), Nigerian Agricultural Insurance Corporation, Federation of Agricultural Commodity Association of Nigeria (FACAN), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), etcetera.


We are also expanding our frontiers into the wider African continent and beyond to pool in the required resources to advance Nigeria's agriculture.

JA: Although we cannot talk of the poor state of infrastructure in the country as an elephant in the room, given the fiscal policy focus of the recent years. What are the key initiatives of NIRSAL in contributing to removing the infrastructure bottleneck to expanding Nigeria's agricultural output and market value?

AA:  Again you are right, there has been significant increases in budgetary allocation for infrastructural development in the last two years. Agriculture will definitely benefit from this commitment of fiscal policy to revamping the road and rail transport infrastructures. Some of the projects run through the agricultural corridors. NIRSAL is working with various stakeholders to tackle specific infrastructure bottlenecks, which include rural roads to link production to markets and irrigation to allow for multiple harvests, apart from the huge transport infrastructures.

However, it is an established fact that Nigeria's current agricultural production is insufficient to meet up with the demands of both its local population and the export market. This huge production deficit is compounded by the colossal wastages and agricultural losses recorded annually due to the inadequacy of infrastructure and facilities for efficient and effective transportation, storage, preservation and processing.

NIRSAL is working assiduously to attract significant investments and capital to facilitate the development of distributed farm-to-shelf projects across the country. This entails the establishment of off-grid powered modular food processing plants and modern storage and warehousing facilities located within primary production clusters to create product hubs that pull in markets. We are also exploring solutions around the transportation of agricultural products using specialized uberised models, thereby compelling increased penetration of telephony and data connectivity services in rural areas.

JA: You have approached your work at NIRSAL with zest and your subject-matter expertise is easy to see in your various engagements. What motivates you on this job?

AA:  NIRSAL has a very important mandate. The prospects of the impact we can make in improving the welfare of Nigerian smallholder farmers, making the country more food secure and enhancing the inclusive prosperity through job creation in the country's agricultural value chains constitute a key motivation for me and my team at NIRSAL.

JA: What are the targets that NIRSAL is pursuing over the medium term?

AA: NIRSAL has very cogent medium- to long-term targets.  We are working to increase lending to smallholder farmers, in the pooled segment, by 50% of current total. We plan to increase lending to at least 3.8 million agricultural producers by 2020, through pooling mechanisms. To achieve this, we want to reduce cost of lending to agriculture through investment attraction and creation of blended funding models. In this regard, we are working to reduce banks' break-even interest rate to borrowers from 14 percent to between 7.5  and 10.5 percent.

We also want to increase leverage of NIRSAL's fund to $3 billion in order to increase bank lending to agriculture from the current 1.4 percent to 7 percent within the next ten years. With all these, we will ensure that at least 82 percent of smallholder farmers supported by NIRSAL live above the poverty line.