FINANCING AGRICULTURE –INNOVATION AND PERSEVERANCE

Tailored solutions have been initiated to strengthen the potato, rice, maize, and cassava value chain in Nigeria.

Finance for agriculture faces many hurdles both on the supply and on the demand side. Many financial institutions still perceive agriculture as risky without making effort to understand the cash flow cycle, mitigate the risks and design suitable financial products. Smallholder farmers regularly lack ‘formal credentials’ such as identification, land titles or a credit history. Moreover, most of them reside ‘off the beaten track’ – sometimes literally so.

Yet, agricultural value chain finance is an intuitively promising approach: engaging with input suppliers, producers and processors that sell and buy to each other on a regular basis provides comfort to partner financial institutions (PFI). Any concluded transaction and collected information strengthens the links in the chain, i.e. actors can vouch for others. Hence, this approach reduces the cost of loan appraisal, underwriting, and monitoring.

In the frame of the GIZ project “Promotion of agricultural finance for agri-based enterprises”, we enabled over 12,500 smallholder farmers and agribusiness managers in 11 federal states of Nigeria to use new or adapted financial services. Some of the project areas score among the lowest of Nigeria’s financial inclusion indicators, e.g. many of our trainees opened bank accounts, and/ or used ATM-cards for the first time in their lives.

We strengthened the rice, maize, cassava, and potato value chain in terms of agricultural finance. All of them have a strong end-user market in Nigeria’s urban centres. For instance, Nigeria imports large quantities of rice and maize, even though its domestic production has increased over the past decade. In practice, governance in our value chains is weak. Our team worked relentlessly to bring farmers, producers, off-takers and financial institutions together. This approach was successful for the potato value chain. The Sterling Bank financed the distribution of imported potato seedlings to eight farmer cooperatives. In total 79 farmers took the loan and produced potatoes.

In the cassava value chain, we partnered with IFAD to bring together farmer cooperatives, Nigerian commercial banks, and an international off-taker that processes cassava to instant pasta. In the end, the commercial banks withdrew from financing and cancelled the agreements at the last moment given the long cultivation period of 12 months and the short timeframe for off-take, which is 48 hours after harvest. The experiences of our AgFin project show that successful financing agricultural enterprises is a complex endeavour. For the PFI, it is important to have an agri-finance strategy that commits resources to serving agricultural markets.

One of our partners with such a strategy was the Jaiz Bank. The management at head office and branch level was eager to take full advantage from the partnership with our project team. Our experts offered support in product development, brokering partnerships and training of staff. It is required to have a bank verification number for opening a bank account at the Central Bank of Nigeria. After having completed our training, smallholder farmers registered and opened a bank account; most of them for the first time, before accessing a loan.

The Jaiz Bank first developed and piloted group-based working capital credit for smallholder farmers who produce irrigated rice.

Subsequently, they expanded and adapted the approach for farmers cultivating rain-fed rice and for rice-processing MSMEs. Today, Jaiz Bank offers these savings and credit products in several regions of North Western Nigeria. The bank also pilot-tested financing cassava production by sequencing the repayment cycle and identifying a ready and able off-taker.

In total, six PFIs affirmed improved capacity through the training and support by our project. These PFIs integrated 11 adapted or newly developed financial products into their portfolios. Within two years, about EUR 4 million were lent out to producers and processors in the four agricultural value chains.

Savings accounts (incl. ATM access) for smallholder farmers