The Problem Statement
The Agricultural Credit Guarantee Scheme Fund (ACGSF) is a policy instrument of the Federal Government of Nigeria on Agricultural Credit.
The Scheme was established by Decree Number 20 of 1977 but started effectively in 1978. It was established to provide a guarantee on loans granted by banks to farmers for agricultural production and agro-allied processing. Various studies have shown that credit plays an important role in enhancing the agricultural productivity of the farmer.
The general purpose of the Nigerian Agricultural Credit Guarantee Scheme Fund is to encourage banks to lend to those engaged in agricultural production and agro-processing activities.
Thus, the specific objectives of the scheme are the stimulation of total agricultural production for both domestic consumption and export; and the encouragement of financial institutions to participate in increasing the productive capacity of agriculture through a capital lending program.
The Policy Solution
The Scheme which is a sub-component of the Federal Government of Nigeria’s Commercial Agriculture Development Programme (CADP) is financed through a N200billion Bond raised by the Debt Management Office (DMO).
Loans to eligible entities under the Scheme are disbursed at a maximum interest of 9 per cent.
The subsidy arising from this stipulated rate and the market rate on all loans granted, and the administrative expenses of the Scheme are borne by the Central Bank of Nigeria (CBN).
The Central Bank of Nigeria and the Federal Ministry of Agriculture and Waters Resources jointly ensure that the scheme is implemented successfully.
This is achieved through the Project Steering Committee (PSC) comprising the Honourable Minister of Agriculture and Water Resources (Chairman), the Governor of the Central Bank of Nigeria, Representatives of the Federal Ministry of Finance and Commercial Farmers, respectively and the Programme Coordinator of the Commercial Agriculture Development Programme.
The day-to-day implementation of the Scheme is undertaken by a Technical Implementation Committee (TIC) made up of the Director of Development Finance Department, CBN as the Chairman, Head of Agricultural Credit Support Division, CBN and a Consulting Group as members, and the Programme Coordinator of the Commercial Agriculture Development Programme of the Federal Government as the Secretary.
NIGAC Constructive Position/Take
The lending institutions should make efforts to grant agricultural loans at the appropriate time to farmers who meet the conditions.
The late release of loan to a farmer leads to loan diversion/misuse which has been established to be a major cause of poor loan repayment.
Secondly, it benefits the lending institution to ensure that the loan granted to a farmer is “quite adequate” for the purpose, as granting of an inadequate loan for a purpose is a prelude for loan diversion and its consequence on the loan repayment ability.
The government should take a second look at the securities that may be offered to the bank for the purpose of a loan under the scheme.
There is the need for government to review the idea of a farmer using a certificate of occupancy on land as “Security” before any amount above N20,000 is approved.
It is a common knowledge that small farmers (especially in the rural areas) do not have the legal title on their farmlands.
Therefore, there is the need to review this subsection so that the traditional ruler or President-General of the applicant’s community or a civil servant of a particular category could stand as surety for loans under the scheme.
The scheme still needs publicity as most farmers especially in the rural areas are unaware of the scheme’s objectives.