Financing the Agricultural Sector

Agriculture is the largest sector in the Nigerian economy, accounting for 22% of Gross Domestic Product (GDP) and roughly 70% of employment. Additionally, a large share of Nigeria’s food supply is produced by small and medium-scale enterprises (SMEs). One of the biggest constraints that this SMEs face is their limited access to finance. Indeed farmers and agribusinesses re-quire financing for start-up, expansion and working capital. There is a huge gap between the supply and demand of agricultural finance in Nige-ria, estimated at a minimum of USD $4billion per annum. For many SMEs, they are either too large to receive financing from microfinance institutions or unable to meet the stringent terms of commercial banks. Arguably, the key to unlocking Nigeria’s true potential for agricultural production and food security is through increased tailored financing for the sector. Several incentives have been created by the Central Bank of Nigeria (CBN) and the Federal Ministry of Agriculture and Rural Development (FMARD) to fill the gaps in finance. These include the Commercial Agricultural Credit Scheme (CACS), the Nige-ria Incentive-based Risk Sharing Agricultural Lending (NIRSAL), the Micro, Small and Medium Enterprises fund (MSME) and the Fund for Agricultural Finance in Nigeria (FAFIN).

Initiatives for Funding Agriculture

There is a range of incentives created to support small-scale farmers and agribusinesses in Nigeria. These incentives are briefly highlighted below: CACS In 2009, CBN in collaboration with FMARD established CACS to enhance the development of the agricultural sector by providing credit facilities at a single digit interest rate to farmers. Under CACS, ₦200 billion was earmarked for lending at 9% to the following agricultural value chains: production, processing, storage, and inputs. CACS was originally intended to end in 2015; However, it was recently extended by 10 years to September 2025. The table on the right shows the disbursement of credit under CACS. As at February 2014, the total amount disbursed by CBN under CACS to participating banks was ₦228.2 billion for 307 projects.

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