Where banks dread to tread

At the mention of agriculture, the big, confident commercial banks become deflated, as though they are being asked to bet on a venture doomed to fail. Despite the enormous potentials and requirements for food production in Nigeria, millions of smallholder farmers continue to struggle for funds, which banks are not willing to provide. Now, technology start-ups run by young individuals are gradually giving thousands of farmers a new lease of life, one project at a time. In a matter of time, they may get to actually teach the banks ‘how to make money and impact in one breath’, writes CALEB OJEWALE.

Tunji Olanipekun has been a farmer all his life.  Now 56 years old, he is four years from clocking the average age of most Nigerian farmers who are now getting too old for the tedious, manual way of farming in Nigeria.

- Today's Epaper -

The rigour of farming is not what really bothers Tunji, and left to him he would “continue farming for another 50 years if it was worth it, and has the strength.” His biggest worry, and perhaps, life-long regret is as he says “having little or nothing to show for over 40 years of farming,” having taken up the profession after his primary education. Like millions of other smallholder farmers across Africa, Tunji has remained a largely subsistent farmer, only able to cultivate about 5 hectares of land. Even though this is a progress of 4 and half hectares from what he inherited from his father, he still essentially has to live from hand to mouth, especially with a large family. He would not disclose how many children he has saying in his place, it is “a taboo to count how many children one has”. What is obvious however is that, like millions of farmers across Nigeria (like the rest of Africa), Tunji is trapped in an unending cycle of poverty.

In Nigeria, more than 80 percent of farmers are smallholders, accounting for 90 percent of local food production. Improving their productivity in terms of land under cultivation, mechanisation, and even input supplies has been a challenge yet to get a solution. Governments have found it an easy campaign pledge, but not much has been achieved, and the banks really do not want to touch it, not even with the longest pole.

 “When a farmer for instance wants to borrow N200,000, the amount of effort I put in as a banker, is probably the same as putting effort in a N10 million facility. Now, with a farmer borrowing N200,000, the interest I get from that loan, might not even be able to cover the monetary cost for going to look at their project,” said Kudzai Gumunyu, divisional head, Agricultural Business Finance at FCMB when asked why banks are not doing much in agricultural finance. Even though his statement may sound cynical to some people, his bank, FCMB, is even reputed to support agricultural finance more than many of its peers.

For others like Guaranty Trust Bank, Nigeria’s biggest bank by market capitalisation, big, multinational players like TGI, Olam, Flour Mills of Nigeria, are ‘better customers’ the bank is comfortable dealing with. This is at least, according to views expressed by George Uwakwe, chief risk officer of GTB.

Data from the National Bureau of Statistics (NBS) on Banking Sector credit to the private sector shows that between 2015 and 2017, Agriculture got an average of 3.36 percent of total credit. Agriculture got 3.54 percent of bank credit in 2015, and in 2016, decreased when it got 3.26 percent. However, in 2017 lending to agriculture increased marginally to an average of 3.29 percent for the year.

Still, these facilities mostly go to the ‘big corporate entities’ while the millions of smallholder farmers are left grappling for funds to survive. Ironically, the big companies that get the bank finance have to rely on importation of raw materials for their operations to run, because of acute shortages in local production.

The argument that agriculture is risky has been the reason given by banks to avoid lending to primary producers. Not just smallholder farmers, but even those with sizeable land holdings have difficulty getting finance from the banks. For the commercial banks, it would appear financing agriculture is simply not worth their time, yet, Nigeria has a $5 billion food import bill, which shows enormous potentials for revenue if local production is supported.

A radical fix in the horizon

The problem of access to finance in agriculture, at least for smallholder farmers now appears to be getting a radical fix through a new breed of mostly technology start-ups that are revolutionising agricultural finance; helping farmers remain productive, and in many cases, scaling up their production.

The platforms have so far offered Nigerians with disposable income and considerable appetite for risk, with an alternative investment vehicle, in this case agriculture, which many people are interested in, but often unable to venture into directly. Aggregating response from at least three of the platforms, over 30,000 smallholder farmers have been reached in the last two years, a figure doubtful any Nigerian bank can claim it has matched directly.

The best part, perhaps, is that when annualised, investors on these platforms get much higher returns than current Fixed Deposit and Fixed Income rates. These platforms offer returns varying from six percent in four months, to as high as 35 percent in 7 months. The returns vary by platform, with some offering better returns than others, which is also a function of the particular farm type being put up for sponsorship.

There are currently five known platforms offering these services, with varying levels of confidence and trustworthiness; Farmcrowdy, Thrive Agric, Growsel, Agropartneships, and Porkmoney. All were contacted with questions, but only Farmcrowdy, Thrive Agric, and Growsel could respond in validating their operations.

Farmcrowdy in an emailed response, exclusively revealed it has so far raised and disbursed about $6million (N2.1 billion) into a combined 8,500 acres of farm cultivation across 10 states in Nigeria, raising over 1.2 million chickens, and reaching 8,000 small-scale farmers.

The company said this has been achieved through funding for Rice (Two cycles); Maize (Two cycles); Soya beans (One cycle); Cassava (Two cycles); and Poultry/Broilers (13 cycles).

Thrive Agric on its part, said since inception, it has launched six farm cycles, reaching over 10,000 farmers who have received funding of about $2.5 million (N900 million).

Growsel did not indicate a cumulative sum, but stated it has been able to raise funds ranging from $500 to $1,200 (N180,000 to N432,000) per farm in five different farm cycles covering; rice, soybean, maize, tomato and cassava.

“We are working with over 12,000 smallholder farmers, with about 1.2 million registered smallholder farmers undergoing screening and verification across different locations,” read a portion of Growsel’s response.

These platforms work by identifying farm projects in different localities, estimating what the production process will cost, from land preparation, inputs, and up to harvesting. This way, smallholder farmers are able to run through a production cycle with all costs covered, and all farmers have to do is focus on being productive. Farms identified for a particular crop production cycle are grouped as a single project, then put up on the website of any of the crowd funding platforms, where members of the public can finance the production cycle.

For instance, a maize farm project could be put up on any of these platforms at a sponsorship cost of N70,000 per unit, with 1,000 units of such available. This will often be 1,000 hectares of land and equivalent to at least 1,000 farmers, but usually more. The sum per unit will cover the cost of the entire production cycle up to harvest. Harvesting and sale is handled by the platform, which had put the farms up for sponsorship, and profit sharing is done. Most of the platforms claim this is done in 40:40:20 ratios, where the farmers get 40 percent, farm sponsors (i.e. investors) also get 40 percent, and the remaining 20 percent goes to the platform. While the final payouts cannot be ascertained, as a function of this ratio, what is clear is that; for any given farm, it is indicated upfront what will be paid back to farm sponsors as interest after a stipulated period of time. In this maize cycle for instance, it may have been indicated upfront to return 15 percent of whatever an individual invests. What is not clear is whether this actually translates to 40 percent of profit.

In August, a trip to Lade, a community in Patigi Local Government area of Kwara state, was an opportunity to meet some of 800 farmers cultivating 2,000 acres of rice. The four-hour drive from Ilorin on a bumpy road to Lade, was an opportunity to meet farmers who for the first time in many years, were getting an opportunity to increase their productivity.

These farmers, were beneficiaries of a fund raising round where each unit cost N90,000 and 2,500 units were sold out in about one month. In essence, N225 million was raised to support the rice production in Lade. This particular project was promoted by Farmcrowdy, and without such a platform, the farmers never would have been able to raise an equal amount of money to scale their production to its current state.

The motivation for farm sponsors

Felicia Ojo, a female banker in Lagos tried to start a farm some years ago in Iwo, Osun state. The locals as she said, frustrated her efforts and she ran back to Lagos. Years later, she found another importunity to invest in agriculture, this time, through crowd funding platforms. The bank where she works may find it difficult lending to farmers, but she has found a way of committing some of her own idle funds into agricultural investments.

“I was looking for an investment opportunity as a retired professional, and I found digital farming investment offered good returns over the secured Fixed Deposits and Treasury Bills,” said Amechi Ebeledike, a retiree in Lagos, who has invested with Farmcrowdy and Thrive Agric.

Ebeledike further said he “had fears and worries because of obvious reasons. Gradually confidence began to grow, but I still have reservations about activities of some outfits (especially those outside Lagos), hence not being able to invest freely but with extreme care and caution. No doubt I had and still have my fears about sustained success, hence I do close monitoring and continuous due diligence.”

Findings revealed farmers are not necessarily handed cash. Instead, these platforms procure farm inputs such as seeds and fertilisers required for any specific farm project, finance the cost of whatever machinery requirements such as land clearing, and the only cash provided is for labour and other small costs that are a small fraction of the overall sum. This, it was gathered, is done to prevent farmers from using what should have been capital for their farm, to finance other non-agribusiness related activities.

Eugene Nwachukwu, who describes himself as an IT professional with a Bank in Lagos, is also an investor with both Farmcrowdy and Thrive Agric. He said his decision to invest in agriculture through these platforms was borne out of belief in the people behind them, and “an investment opportunity that surpasses the returns on Treasury bill.”

With personal interests in agriculture, Nwachukwu also described it as an opportunity to learn the process of farming successfully. “You can learn only if you have made some commitment,” he said

Even though these platforms appear to be making considerable impact in agric finance, some reservations have been made on the possible need for regulation.

Nwachukwu expressed the view that while they are truly offering an alternative for investors, there is lack of regulation. “At least I am not aware of the form of regulation they are subjected to,” he said.

The view resonates concerns of some people, who are wary of committing their funds to these companies. A contrary school of thought however suggests any attempt at regulation could go “the Nigerian way”, which would stifle them out of operations, which has so far been successful.

Farmcrowdy and Thrive Agric have especially received a boost in public confidence after Yemi Osinbajo, Nigeria’s Vice President visited both businesses at different times, and reported to have made some investments with at least one of the platforms.

It was also gathered that most of the platforms secure insurance for their farm projects, but in unforeseen events, this only covers the principal. Either of Leadway Assurance and the Nigerian Agricultural Insurance Corporation are listed on different platforms as the entity offering insurance. Also, there are options for farm visits for those who want to ascertain the reality of investments made.

“Up till this moment, I could not care less if any farm existed or not as long as my money is returned. But now, I know it is actually real,” said a female banker with one of Nigeria’s old generations banks after going on a farm tour organised by Farmcrowdy.

A viable alternative for the future of agric finance

On another trip to Lade, this reporter met Ibrahim Zhistu, who says he was one of 800 farmers who benefited from a funding round for their rice production. Asked what his experience was, his face beamed into a big smile as he said in Pidgin English, ‘those people really tried for us.’ Personally, he says he got N500,000 after the production cycle, a sum he never would have imagined in the past, even after toiling to get his own funds to push through the farm cycle. Zhistu who said he is known by the nickname ‘One Way’ in the community, like millions of farmers, earnestly yearn for such opportunities not to come ‘once in a lifetime’, but made a regular activity they can count on in order to expand productivity.

Also, if farmers like Tunji had access to such crowd-funding opportunities, perhaps, after 40 years of farming, he would not only be living comfortably with his family, but also could have significantly increased his land cultivation. Since banks do not have the confidence to lend millions of farmers like him the much-needed capital to finance farm cycles (and possible expansions), crowd funding could liberate him and other farmers like him from poverty.

The Central Bank of Nigeria estimates exposure to the oil and gas sector by commercial banks is about 40 percent of loan portfolio. The Financial Times on its part, reported that if the “entire upstream, midstream and downstream operations and supply chain were added together, analysts estimate oil and gas lending would make up as much as half of banks’ loan books.”

Ironically, while the Non-Performing Loans (NPLs) in Oil and Gas, a favourite of Nigerian commercial banks, has soiled the books of many of such banks, the dirt-associated agriculture has even by the confession of a number of bank executives, maintained one of the lowest rates in default.

The CBN monetary policy committee had in a communiqué, said it was “concerned with the rising level of NPLs in the banking system, traced mainly to the oil sector”. Yet, agriculture, which continues to be described as ‘the future’, is continually stifled to death, while Crude Oil that should ‘be the past’, at least going by government economic diversification rhetoric, continues to enjoy more bank patronage.

Commercial bank loans not only come at very high interest rates that are not feasible for most agribusinesses (and especially farmers), but even getting the loans at all, comes with great efforts. It is no small feat getting these costly loans, even when by some stroke of luck it is successful.

While banks hold back and describe agriculture as too risky, crowd-funding platforms with the use of technology are finally providing a new lease of life to millions of farmers across Nigeria, and with consistency, the cycle of poverty may finally be brought to an end. Similar (crowd-funding) models exist in some African countries, but with concerted efforts, it can become a tool to solve the problem of access to finance confronting millions of farmers across the continent.

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