Providing credit for agriculture

To address the issue of inadequacy of available credit finance in the agricultural sector, particularly loanable funds to small-holder farmers, the federal government introduced an inventory credit system called the Farmers Warehouse Receipt System.

The system is expected to significantly ease the challenges farmers and others face in securing bank trade finance, because of their inability to meet collateral requirements.

At the Abuja stakeholder’s forum on legal and institutional frameworks for warehouse receipt, financing and processing in Nigeria, organised by the Abuja Securities and Commodity Exchange in collaboration with the Central Bank of Nigeria (CBN), Joe Alegieuno, the Acting Director, Development Finance Department of the CBN, said the introduction and commencement of warehouse receipt financing and processing in Nigeria’s financial system has the potential to transform the country’s agrarian economy dominated by a large pool of small scale farmers.

Tremendous benefits

Mr. Alegieuno, who was represented by Muda Olaitan, the CBN Acting Director of Development Finance, said “The farmers stand to enjoy tremendous benefits which include access to negotiable instruments in the receipt financing, which can be traded, sold, swapped, used as collateral for borrowing or accepted against as a derivative instrument in future contract.”

He said the concept also provides the farmers with instrument that allows them to extend the sales period of their farm produce beyond the harvest season.

He added that the farmers stand to gain in terms of price stabilisation and improved access to credit while hinting that it will facilitate the realisation of national security food objectives as well deepen the Nigeria’s financial system. The CBN boss therefore solicited the support of all stakeholders towards a robust and inclusive draft bill on warehouse finance and processing since this will guarantee the efficient operations of warehouse receipt financing in Nigeria.

Discouraging low prices

Equally, Yusuf Abdurrahim, the chief executive of the Abuja Security and Commodity Exchange, said farmers often go away with low prices for their produce, which discourages them from further production.

He said, “For you to able to maintain your farmers in constant production, you have to provide an environment whereby they will get good prices for their produce so that they make a good margin that will encourage them to continue in production.”

He said the warehouse receipt financing is supposed to give the farmers the capacity to hold on to their produce and sell when the price has significantly improved to pay back their cost of production and give them reasonable profit margin.

“The banks are coming to give loans to such farmers against their commodities at single digit interest rate and that informed our collaboration with CBN. It will take the form of farmers coming together in small cooperatives by putting their produce together for storage,” Mr. Abdurrahim said.

He said the banks will advance the loan to the groups, which they will share, adding that the payment for that group loan will be against that stored commodity when it is subsequently sold.

The director general of the Security and Exchange Commission maintained that when the draft bill is passed into law, there will be a higher rural investment through the mobilisation of credit to agriculture as a result of the emergence of secure collateral for the farmers, processors and traders.

The DG, who was represented by Mrs. Jumai Katagun, the senior manager of Commodity Exchange of SEC, said jump-starting the scheme means “turning commodity into asset.”