Who insures N200bn FG agriculture loan?

By Ayeleso Oladele, Lagos

President of the National Association of
Insurance Correspondents (NAICO),
Mr. Nnamdi Duru (centre), presenting
an award plaque to past President of
the Nigerian Council of Registered
Insurance Brokers (NCRIB) and Chairman
of Prestige Insurance Brokers Limited,
Prince Feyisayo Soyewo (right), while
Mr. Kunle Ogendegbe applauds the action
at a two-day seminar on Public Speaking,
jointly organised by NAICO and Ottocom
Limited in Ota, Ogun State, recently.The Federal Government, through the Central Bank of Nigeria (CBN), recently disclosed its readiness to mobilise about N200 billion for agriculture loan to the farmers across the country at a single digit interest rate to further cushion the effect that the dearth of food may have on the country.

This, according to the outgoing Governor of Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, who confirmed that the loan would be given out at concessionary interest rate to enable the agricultural sector retool, is in line with the efforts of the Federal Government to address the problem associated with food scarcity.

According to him, “the CBN is aware of the need to create alternative revenue base for the country. This has been reflected by our policies towards lending to the manufacturing sector and more recently, the floating of the N200 billion agriculture bond.

“It is a national aspiration to grow the manufacturing sector in Nigeria, and we are also aware that agriculture plays an important role in the growth and development of any economy and also helps to boost Gross Domestic Product,” Soludo said.

This is a welcome development in the sense that, if properly channelled, it will reinforce the source of the nation's means of sustenance.

The Minister of Agriculture and Water Resources, Dr Sayyadi Abba Ruma, who announced that N40 billion out of the N200 billion had been earmarked for disbursement to small scale farmers, said that the chances of small scale farmers benefiting from the scheme could be ensured if the Nigerian Agricultural, Co-operative and Rural Development Bank (NACRDB) were involved in the scheme. Peasant farmers, he said, could mortgage their lands to NACRDB in order to enable them obtain collaterals worth the amount required.

But while the CBN in conjunction with the Federal Ministry of Agriculture and Water Resources are getting set to disburse this fund, a recent paid announcement in some national newspapers, on the selection of First Bank of Nigeria (FBN) Plc and United Bank for Africa (UBA) Plc to manage the N200 billion meant for the scheme stoke up protests in some quarters.

If past experience is any guide, there is the likelihood that some of the commercial farmers could draw loans from the fund and use same for purposes other than for what they were meant. Peasant farmers, if given appropriate opportunities to draw from the fund, have the disposition of utilising the loan aptly.

For proper utilisation of the fund, the government should put in place a transparency mechanism which will ensure that the disbursement does not only follow due process but also gets to target beneficiaries.

But the concern for stakeholders in the insurance industry has been the security of the facility through adequate insurance cover which would help mitigate risks associated with the facility. Risks are inevitable. Any form of disaster can destroy the government’s good intention to assist farmers. Crop insurance scheme, according to experts, are often fiscally expensive.

There are three categories of risks that are generally encountered in agriculture business which include price related risks, regulatory risk and production risk.

Price risks arise because of price fluctuations across the world, regulatory risk develops from possible changes in agriculture policies while production risks is a fallout of weather which includes pandemics such as the outbreak of Avian flu in the country some few years ago, and the recent news of swine flu in other countries, crop diseases, pest attack, floods, hail, drought, and any other natural risks are all examples of risks that farmers are prone to.

Experts have opined that the Federal Government and the management of CBN should ensure that the facility is properly insured, stakeholders in the insurance industry have enjoined the government and the CBN to ensure that insurance companies with the requisite capacity underwrite the risk.

Unfortunately, the two banks saddled with the responsibility to disburse the agricultural loans either have an insurance company with an exclusive life portfolio or in the process of floating an insurance company subsidiary with exclusive life insurance business.

Investigation revealed that since the announcement, several of the insurance companies have started repositioning themselves to give insurance cover.

An industry watcher, Mr. Andoasa Agabi, who spoke with the Nigerian Tribune on phone, stressed the need to allow only the companies with qualified professionals in the field to carry on with the responsibility. According to him, if any company wants to participate, there are lots of hurdles to scale before it could be qualified, which, according to him, includes approval from the insurance regulatory body, National Insurance Commission (NAICOM).

If what he said was anything to go by, as at today, the only company established by law to underwrite the sort of agricultural risk is the Nigerian Agricultural Insurance Corporation (NAIC), which was officially mandated to handle agric related risks in the country.