Agro-loan facility difficult to access; banks overcharge interest, complain Nigerian farmers

The problems bedevilling the Agricultural Credit Support Scheme initiated by the government persist. If solutions are not proffered to the problems, the objectives of the scheme may not be realisable in the long run.

Last year, the federal government floated the scheme with the objective of providing soft loan facilities for farmers at a subsidised interest rate of six per cent rate to enable farmers to improve their farming techniques and boost production. The federal government is to provide 50 billion Naira ($390 million ), while each state is to support the scheme with a matching grant of N200 million ($1.5 million).

Under the arrangement, there are accredited banks tasked with managing and disbursing the funds. The loan is paid back through the same channel. In other words, the banks only hold the money in trust for the government. But there are complaints against the banks in the management of the loan. The money is not getting to the intended targets.

According to the chairman of the Edo State All Farmers Association of Nigeria, Peter Okpere, the banks were "frustrating the farmers" efforts to access the loan. "The banks were placing so many obstacles in the way of the farmers to access the micro-credit loan. Some of the conditionalities of the banks simply cannot be met by our members. They ask for 10 per cent of the loan."

Why are the banks charging in excess of the six per cent the government announced at the inauguration of the scheme? This problem is not likely to be peculiar to Edo State, where no farmer has benefited from the scheme 12 months after take off. What this simply means is that the money is either idle in the banks or the banks are doing business with it. The latter is likely to be the case.

It is wrong for the banks to charge above the advertised interest rate, which will defeat the purpose of the scheme. It is not likely that farmers who can afford to pay 10 per cent interest rate on loans will patronise the scheme. Despite this, it may not be entirely out of place for the banks to impose some administrative charges in the management of the fund. If this had been well spelt out at the outset, the present confusion would not have arisen at all.

It is not impossible that farmers in Edo State did not speak the whole truth about their problems with the banks. For instance, some of these farmers may not have the necessary collateral to qualify them for the loan. Some of them may see the scheme as an opportunity to have their share of the national cake.

We suggest a meeting between the ministry of agriculture, the various implementation committees as well as the accredited banks to iron out the grey areas. The meeting should spell out in very clear terms all the details about the scheme's operations. Once this is done, farmers and the accredited banks would not have to quarrel unnecessarily.

The scheme is a good idea which, if well implemented, will give a new lease of life to peasant farmers in the country. Its success will result in bumper harvests for farmers and bring down prices of foodstuffs and agricultural products.

editorial in the Feb. 8, 2007 edition of The Tribune

**************************************************
Banks often take part in public loan schemes to small-scale farmers with extreme reluctance, considering them to be difficult to administer, unprofitable "political loans." These loans are often disbursed, or at least announced, as being no-collateral, making the banks nervous from the start. The banks complain that the small individual disbursements are expensive to administer compared to bigger, more "commercial" loans, especially in the case of having to chase a defaulting borrower.

With little or no collateral, the bank has no protection in case of default. In cases where there is collateral involved, it is politically and socially very difficult to legally seize a poor farmer's meagre assets and often not financially worth the trouble. The banks argue that the farmers generally know this and take this as "their money" anyway, which they accuse many of the farmers of accessing with no intention to repay.

For all the reasons and others, many banks believe the best time to recoup any of their costs is at the beginning, by racking up high deductible charges right at the beginning , before they pay out the loan.

Editor