Page 34, THIS DAY, Vol 16, No. 5868.
Wednesday, May 18, 2011
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Insurance N200bn Agric Loan and Insurance Cover The Central Bank of Nigeria (CBN) recently released over N133 billion to 13 banks for onward lending to farmers under the Federal Government Commercial Agricultural Credit Scheme (CASC). But ·the Nigerian Agricultural Insurance Corporation (NAIC) argues that the disbursement of the loans is a contravention of relevant sections in the law establishing it which provides that all agricultural loans must be insured. Nnamdi Durn reports . . Overview of Agric Devt Programmes he Nigeria's fm;t national plan (1962- 1968) introduced more modem agricultural methods tllfough fann ·settlements. cooperative (nucleus) plantations, supply of improved fann implements (e.g. hydrau lic hand presses for oil palm processing) and a greatly expanded agricultura\ extension service. Some of the specialised development schemes initiated or imple. mented during tltis period include Fann Senlement Schemes and National Accelerated Food Production Programme (NAFPP), launched in 1972. There were also a number of agricultural development intervention experiments including the Operation Feed the Nation (OFN) launched in 1976; River Basin and Rural Development Authorities established in 1976; Green Revolution Programme inaugurated in 1980 and the World Bank-funded Agricultural Development Projects . Whi le each of the above programmes sought to improve food production , the ADPs represented the first major practical demonstration of the integrated approach to agricultural development in Nigeria. The ·experiment which staned with World Bank funded agricultura\ development projects across the country between 1974 and 1982.
but they released like N 1 billion to each of the State Govemments without recourse to NAlC and we are not going after the State Governments, the loans were disbursed by these banks who ought tQ have complied by paying us all the prentium," Yusuf explained. "In our opinion, that section of the law has been breached by the current disbursements being made by various banks not taking NAlC and the Act into consideration but they continued to insiSt that the guidelines issued by CBN did not carry NAIC along. We believe that the Legal Depanments of the various banks need not go to court for clarification for them to know that an Act of the National Assembly supersedes the guidelines issued by CBN or any other regulatory body:' he added.
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Commercial Agric Credit Scheme (CASC) CASC was set up by the Federal Government for promoting commercial agricultura\ enterprises in Nigeria as pan of the Federal Government Commercial Agriculture Development Programme (CADP). It is supposed to complement other special initiatives of the Central Bank of Nigeria in providing concessionary funding for agriculture such as the Agricultural Credit Guarantee Scheme Fund (ACGSI') which is mostly for small scale fanners . interest drawback scheme, agricultural credit support scheme, etc. The Central · Bank of Nigeria and the Federal Ministry of Agriculture and Water Resources shall collaborate to ensure the success of the scheme which government is 'expected to finance from the N200 billion 7 year bond raised by the Debt Management Office (DMO). It is to be made available to the participating banks to fmance commercial agricultural enterprises. Also, state governments could borrow up to N I billion for on-lending to fanners ' =perative societies and other areas of agricultura\ development providing such initiatives. l1le scheme is meant to fast track development of tlle agricultural sector of the Nigerian economy by providing credit facilities to commercial agricultural enterprises at a single digit interest rate; enhance national Jood security by increasing food supply and effecting lower agriCUltural produce and product prices , thereby promoting low food inflation and reduce the cost of credit in agricultural production to enable fanners exploit the potentials of the sector. The scheme is also to· increase outpUl, generate employment, diversify the rev.fnue base, increase foreign exchange earnings and provide inpuffor the industrial sector on a sustainable basis. Agricultural commodities to be covered under tl,e scheme . include cash crops (cotton, oil palm and fruit trees. Rubber, sugar cane, jatropha careus anp cocoa), food crops (rice, wheat, cassava, maize/soya , beans/ntillet,10matoes and vegetables). PoUltry (broilers and eggs production), livestock (meat, dairy and piggery) and aquaculture (fingerlings and catfish). l1le scheme as well covers food processing (feed mills development, threshing. pulverisation and other forms of transmutation for value addifion), storage (commodities, agro-chemicals and warehousing), farm inputs supp lies (fertilizers, seeds/seedlings, breeder stock, feeds, fatm equipments & machineries) and marketing (agricultural corrimodities under the foeaJ investment areas). The tenor of loans under the scheme is between 7 and 10 years at interest rate not higher than 9 per cent while the interest subsidy of the scheme shall be borne wholly by CBN Key stakeholders include the Federal Govemment, CBN , Agric I~lini stry. DMO, paJticipating banks and borrowers. .
. • Kwaga Yusrif insurance cover under-the scheme." Section 14 of the same law states that "a lending institution shall , subject to the prqvisions of this Decree and other directives that may be given by tlle Board , deduct the insurance premium due from the loan or credit at s.ource and remit same to the corporation not later than 30 days from the date of disbursement of pan or the whole of the loan or credit." Disbursements under CASC The Central Bank of Nigeria recently confmned that it has disbursed N133.11 billion out of the N200 billion agricultural loans under its Commercial Agricultural Credit Scheme to 139 beneficiaries across Lhe country from inception of Lhe scheme. It stated that beneficiaries of the fund were made up of 11 5 individua1s and private promoters and 24 state governments which accessed N I billion each. "In the month under review, two state governments; Bayelsa and Ogun accessed N I billion each urider tl,e CACS. This brings to 24 the number of participating State governments under the scheme. 11,e otller states are Adamawa, Anambra, Bauchi , Enugu , Gombe, Kebb i, Kogi, lmo , Kwara, Nasar'awa, Niger, Ondo, Sokoto, Taraba, Zamfara , FCT, Akwa-lbom , Rivers , Plateau , Edo, Kano and Benue. The state governments, according to CBN, requested the CACS funds for on-lending to fanners' unions and co-operatives and to finance other areas of agricultural interventions within their various states .
Nigerian Agric Insurance Scheme (NAIS) Nigerian Agricul~"rallns uran ce Scheme (NAlS) was established by the Federal Government in December 1987.The general objective of the scheme is to protect the Nigerian fanner from t1je effects of natural hazards, pests and djseases by introducing measures which shaU ensure an indemnity sufficient to keep the fanner in business. lbe government was worried over the vacuum created due to the unwillingness of conventional insurers to accept agricu ltural risks which they considered too riskY. The implementation of the scheme was thus initially vested in the Nigerian Agricultural Insurance Company lintited, which later turned into a corporation in 1993 by enabling decree No. 37 of 1993. NAlC's primary mandate is to provide insurance cover to all categ'lries of farmers including small , medium and large scale holders, ":' -~... -eil :er in groups or as individuals. The corporation was ruso err ?Owered to underwrite all agricultliralloans and credits. Section 13 Decree No 37 of 1993 which established NAlC provides tl13t "an farmer whose crop·or livestock is covered by Section 7 of this Decree may take out an insurance cover under the scheme but where the farmer is also a beneficiary of an agricultural loan or credit from the government, a bank or other financial institution (in this Decree referred to as a lending institution) , he shall take out an ,
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Controversy over Preinium Deductions Following the release of N133,l billion out of tl,e N200 billion Federal Government agricultural credit pool, NAIC requested the participating banks to remit to it tlle insurance premium portion of the money. . . "The affected banks should remit. the insurance premium element of tlle loan to NAlC and submit to it the list of fanners who benefited from the scheme to enable NAlC provide insurance cover against natural disasters such as fire, windstorm , flood , drought, pests and livestock diseases in order to restore fanners back to business in the event of loss:' NAlr;'s Company Secretary, Mr. Chike Okafor said. Giving a background to the controversy, NAlC's Managing Director, Mr. Kwatri Kwaga Yusuf said: "When the issue of this N200 billion CASe came up during tl,e time of the former Minister of Agriculture, Alhaji Abba Ruma, we alerted the Minister tl13t we have tlle law backing us on agricultural loans and that they should carry NAIC along as a stakeholder in that scheme. "Unforiunately, they did it without taking NAIC into consideration thereby sidelining the Act-establishing NAIC because Section 13 of the Act states clearly that aU lending institutions including government, banks and other financial institutions givi ng out agriculturlil loans must insure with NAle. "What the banks were supposed to do is to deduct the prentiums at source and inform the various borrowing stales that the prentium for NAlC has been deducted and whenever they are disbursing to the fanners or their cooperative societies, they should inform NAIC and~~~_ ~i!I . ~o_ ~nd J~sp~:t _the f~ ~d i~sue co~e_~ ~o_ ~"m
Banks'Defence As at end of April , 20 11 ,13 banks panicipated in the scheme . They are Access Bank, Fidelity Bank, FiJ);t Bank of Nigeria, Guaranty Trust Bank, Oceanic Bank, SkYe Bank, Stanbic IBTC, Union Bank of Nigeria, United Bank for Africa , Unity Bank, Zenith Bank, Citibank and Diamond BanL . Responding .to NAlC's demand, some of the defaulting banks said that they were waiting for the CBN directive, mandating them to remit the prentium to NAIC before they can do so. In its response, one of the participating banks said "the CASC is a scheme under Ole direct supervision of tlle CBN and the guidelines regu lating its operations are clear and distinct. We have forwarded your request to the CBN and we are presently awaiting their official position on the matter which shall be cOnlfllunicated to you in due course." "We are unable to accede to your request until a directive is issued by CBN on the issues raised in your letter to banks panicipating in the CASe. "Without prejudice to the foregoing, we posit that tlle spirit and intendment of the NAlC Decree does not apply to the disbursement made under the case which operators strictly on guidelines drawn up by the CBN and which aims to provide facilities to commercial agricultural enterprises at a single digit rate of interest. We shall revert to you soon as we obtain directives!legal advice from the CBN:' it added. But reacting to tlle position of these banks, Okafor stressed that the NAIC Act which is a Federal law supersedes the CBN guidelines. He also noted that the failure to factor insurance element into the loan facility had rendered the scheme dead on amyal since the funds may likely be diverted to other ventures that are not allied to agricultural production . Face·ofT Imminent Blowing the lead on the controversy rocking the agriCUltural credit scheme, NAlC last week issued a 30-day ultimatum to the panicipating banks for them to rentit the insurance premiums tlley are supposed to have deducted from the N133.l billion agriculturalloans disbursed to states and farmers cooperatives so far. Okafor alleged that the affected banks disbursed funds to various states and agriCUltu ral cooperative societi<:s under the scheme with· out complyi ng with Section 13 and 14 of the law establishing NAIC which made it mandatory for all agricu ltural loans to be disbursed by government and banks to farmers to be properly insured by the corporation. "NAtC bas already diiected its solicitors who had given all the participating commercial banks 30 days to deduct the mandatory 2.5 per cent insurance prentium due from all the already disbursed agricultural loans and rentit same to NAle;' Okafor stated. "We have the backing of NAlCOM on the Act establishing NAlC and we have Uleir full support to take this action but the truth of the matter is that we don't want to go to court on a good day but if at the end of the day, that will be the last resort if tlle banks do not comply:' NAlC's Managing Director tlrreatened. Conclusion Looking back to what befell some of the rested agricultural development programmes initiated across the country including Operation Feed the Nation, Green Revolution and the rest, one can see very clearly why the Federal Govemment set up a specialist agricultural risk insurer and still maintains full ownership of the company notwithstanding its privatisation and commercialisation programme. Also going by the antecedents of Nigerians, loans meant for the development of agriculture in the country may be diverted to other ventures if beneficiaries of such loans are not closely monitored . Feelers from tlle agricultural sector point to the fact tl,at some state governments have either diverted the chunk of the funds to otlJer ventures or are making it very difficult for peasant fanners to access the loans. If NAlC were integrated into the CACS initiative being managed by CBN and ·the panicipating commercial , the funds would be fully secured. This is because NAIC will know who-gets-what, how much is ploughed into the agro-allied business and even provide extension services to beneficiaries of the loan towards mitigating disasters and maximising fann yield generally. Therefore. it is in the interest of not only the government but also the agricultural sector and Nigerians in general for agricultural loans to be adequately insured and this can only be done by NAle.