Bank Of Agric, NIRSAL MFB Bosses Warn Mozambique About Challenges Of Govt-Backed Loan Schemes

… As NIRSAL MFB MD Makes Recommendation

The Managing Director of the Bank of Agriculture, Alwan Ali Hassan and the MD of NIRSAL Microfinance Bank, Abubakar Abdullahi Kure have advised the government of Mozambique about the risks associated with government-backed agriculture financing schemes.

The MDs gave the advice during a visit of a high-power Mozambican delegation to the Bank of Agriculture headquarters in Abuja and the corporate headquarters of NIRSAL MFB.

The push for Mozambique to have successful agricultural financing for smallholder farmers has received a boost with a high-power delegation sent to understudy Nigeria’s agric-financing model, a programme funded by the Food Agriculture Organisation of the United Nations

In Mozambique, smallholder farmers account for the vast majority of this sector’s production, with some 3.2 million smallholder farmers accounting for 95 per cent of the country’s agricultural production.

However, the southern African country hopes to change the narrative with the help of FAO. With a GDP of roughly $23bn, the government of Mozambique seeks to get more revenue from agro-exports to fund its budget deficit as well as conquer food insecurity.

THE WHISTLER reports that the delegation led by the National Director for Promotion of Commercial Agriculture, Ministry of Agriculture, Mozambique, Jaime Robert Chissico is undergoing a one-week understudy of the Nigerian model.

Other members were the representative from the country’s Central Bank, Ministry of Finance, the Policy Officer, FAO Regional Office for Africa, Mark Kofi Fynn and the Senior Private Sector Development Adviser, Private Sector and Property Lead, British High Commission, Maputo, Sergio Dista.

The MD told the delegation that the BOA was not set up for profit rather, he said the bank is meant to develop agriculture.

Hassan said, “Being a development financial institution, it is expected that after every period of time, the capital will be replenished because inflation will set in, you have some bad loans to take care of and the biggest worry is the perception that people have about establishments owned by the government.

“They believe that the money may not be a loan and they assume that it should have been a grant from day one. So, that perception is the biggest challenge that most agricultural banks all over the world face at the early stage of their life cycle.”

On the ownership of the BOA, he said the Central Bank of Nigeria has 40 per cent ownership while the federal government through the Ministry of Finance Incorporation controls 60 per cent of the equity.

The BOA MD while explaining the composition of the BOA board revealed that two new independent non-executive directors will be elected into the board.

“We have added two non-executive directors who are going to be independent directors. They will be selected by either the institute of directors or one way or the other. They will come here as independent directors. They do not have to own a kobo or share in the bank. But they will be people who have worked and made a name,” Hassan said.

On the sectoral allocation of loans, Hassan said primary production benefits most from its funding adding that the bank is structured in a way that has a limit to the amount of loan a branch and head office can allocate.

The MD of NIRSAL Microfinance Bank, Abubakar Abdullahi Kure, said the bank was set up as a Special Purpose Vehicle (SPV) with the mandate of providing cheap finances and entrenching financial inclusion.

But he admitted that there are limitations linked to government-backed agricultural financing schemes globally and that Nigeria is not immune to it.

Kure said, “Most of the jobs we do are for those that are at the bottom of the society and most of them are farmers. We give preferential treatment to smallholder farmers because they do a lot of manual work and they do not have the capacity to access finance.

“The bank is not really about profit, but if we make a profit, it is still okay. Agric, Small and Medium Enterprise Scheme (AGSMEIS) helps us target the agricultural value chain and other sectors to give SMEs loans and we give up to N10m as the maximum. We later reduced it to N3m to make sure it could cover the population.

“In disbursing the loans, we give 30 per cent cash as working capital to pay for labour. The idea is not to allow people to divert the funds. During Covid, we also gave Targeted Credit Facility (TCF). This also helped us to exit the recession on time.

“We also have the Anchor Borrowers Programme for agriculture. We use three models, state government-led, we also have prime anchor whereby they bring in their collaterals.

He noted that there are some levels of abuse that come with agric-financing. According to him, people feel everything government is a “national cake.”

The MD said, “I must tell you that if your government wants to do that, you need to strengthen your monitoring mechanism because there is the possibility of diversion. If your government wants to go there, you need to open your eyes very well to avoid diversion. The intent of the ABP is very good and that is why we are not giving all cash. When you give cash, they will divert it.

“Even when you give them items like seeds and pump, they will still sell them. If you want to look at our Anchor Borrowers Programme, you need to really redefine it. I will not advise you to copy directly the Nigerian model. There is nothing wrong with the government funding agriculture, but you will have to be sensitive that people will think this is national cake.”

“You need to weigh the type of intervention that your government wants to do so that you can achieve the objective. Monitoring and tracking have to be in place. The way weight people behave, they do not give room for you to steal because of the control.”