Understanding CBN’s Anchor Borrowers’ Programme

CBN

Festus Akanbi examines the dynamics of the Central Bank of Nigeria’s Anchor Borrowers’ Programme launched last week, saying the effort, which is part of the CBN’s development agenda will not only create millions of jobs but that it is also capable of lifting thousands of small holder farmers out of poverty

Last week, the Central Bank of Nigeria launched an Anchor Borrowers Programme said to have been pushed by 14 states of Kebbi, Sokoto, Niger, Kaduna, Katsina, Jigawa, Kano, Zamfara, Admawa, Plateau, Lagos, Ogun, Cross-Rivers and Ebonyi for rice and wheat farmers to advance their status from small holder farmers to commercial or large growers.

At the flag off in Birni-Kebii, the value of the programme to the nation’s economic revival was underscored by President Muhammadu Buhari who stated that the CBN Anchor Borrowers Programme had a potential of creating millions of jobs and lifting thousands of smallholder farmers out of poverty.

Under the programme, the Central Bank of Nigeria (CBN) is setting aside N40 billion out of the N220 billion  Micro, Small and Medium Enterprise Development Fund to be given to farmers at single digit interest rate of maximum nine per cent per annum.
It was therefore not a surprise that President Buhari pledged that the Federal Government would favour the programme because it squarely aligned with the government’s aspiration to achieve food security for Nigeria.

The Programme
The CBN said it established the Anchor Borrowers’ Programme (ABP) with a view to collaborate with anchor companies involved in the production and processing of key agricultural commodities.
According to the Governor of the Central Bank, Mr. Godwin Emefiele, “The fall in oil prices has given us a timely reminder that we have no choice but to diversify our economy away from oil, and into agriculture, manufacturing, services, and other non-oil sectors.

“The “Anchor Borrowers’ Programme” is one of the CBN’s policy initiatives to pursue the aforementioned development objectives, namely the creation of jobs, reduction in food imports, and diversification of our economy. The Programme aims at creating economic linkages between over 600,000 smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improving capacity utilization of integrated mills.”

He believed the effort would close the gap between the levels of local rice production and domestic consumption as well as complement the Growth Enhancement Support (GES) Scheme of the Federal Ministry of Agriculture by graduating GES farmers from subsistence farming to commercial production.

The programme is designed to help local farmers increase production and supply of feedstock to processors, reduce importation and conserve Nigeria’s external reserves. Under the Scheme, anchor serve as off-takers in recognition of their track record and experience in working with out-growers involved in production.

The apex bank explained that the scheme involves a finance model whereby the anchor firms, CBN, Nigeria Incentive based Risk Sharing System for Agricultural Lending (NIRSAL) and state governments organise the out-growers and ensure that they comply with contractual terms thereby reducing the incidence of side-selling. The financing institutions will serve as veritable channels for delivering credit to the out-growers.

Linking Small Holder Farmers to Local Processors
Considering the difficulty of bringing Nigerian farmers to the limelight, the CBN, as part of its developmental agenda, decided to come up with the idea of Anchor Borrowers’ Programme in order to create an ecosystem to link out-growers (Small Holder Farmers) to local processors; increase banks’ financing to the agricultural sector; increase capacity utilisation of agricultural anchor companies involved in production of the identified commodities and the productivity/incomes of out-growers/farmers and to build capacity of banks, farmers and agricultural entrepreneurs.

According to the apex bank, the objectives of the programme also include the need to reduce commodity importation and conserve external reserves; reduce the level of poverty among small holder farmers; create jobs; assist rural small-holder farmers to grow from subsistence to commercial production levels and to facilitate the emergence of a new generation of farmers/entrepreneurs.

Implementation Plan
To achieve this, the CBN has lined up a three-pronged approach implementation plan. This includes, the out-grower support programme.
Under the intervention, the CBN has set aside the sum of N20 billion from the N220.0 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) for farmers at a single-digit interest rate of 9.0 per cent. In addition, the major stakeholders in the agricultural value chain will work with financial institutions, including the insurance industry and CBN, to create the linkages required to sustainably ramp up production.

The second leg is the training of farmers, extension workers and banks.
The training component involves customised value-chain finance modules for banks and an “agribusiness” training protocol for farmers that is consistent with the aspiration of the ABP. This is a bullet training mechanism that “bundles” Farm Business School FBS), Good Agricultural Practices (GAP) and Cooperative Management in a coherent and seamless manner.

Risk Mitigation.
The apex bank explained that a comprehensive risk mitigation strategy has been incorporated into the ABP model.
In order to achieve its objectives, the programme will be involved in the identification and selection of Small Holder Farmers; Grouping of out-growers into viable cooperatives or clusters and registration of the cooperatives.

It will also ensure the determination of the economics of selection and engagement of banks and insurance companies’ Execution of MOUs; Capacity Building of out-growers, banks’ staff and extension agents; opening of bank accounts by cooperatives/farmers; loan application and disbursement; commencement of agronomic practices and distribution of agro-inputs at recommended periods (funds for agro-inputs are deducted from the loans and paid to the input suppliers) and fortnightly meetings to discuss developments by project management team.

The stakeholders in the selected value-chains will work closely with financial institutions, including insurance companies, NIRSAL and the CBN, to create the linkages and transparency required to sustainably ramp production of the identified commodities. The operating model defines key roles, requirements and obligations of stakeholders in the Programme. The key stakeholders includes the CBN, NIRSAL, federal ministry of finance and agriculture; state Governments/Agric. Development Programme (ADPs); anchor companies; financing Banks; insurance companies; development partners; farmers/Out-growers and project Management Team.

Under this arrangement, the CBN is to provide finance through the MSMEDF at 9.0 per cent interest rate; Coordinate the entire programme and serve as secretariat.

NIRSA is to provide technical assistance to farmers, extension workers and banks and organise farmers into groups/cooperatives.
Nigerian Agricultural Insurance Corporation (NAIC) on the other hand will provide insurance cover to the projects under the programme.
Development farmers will provide technical assistance while financial institutions will provide financing through the CBN MSMEDF at an all-inclusive interest rate of 9.0 per cent per annum; Disburse directly to co-operatives’ accounts and subsequently to the individual farmer’s account; Ensure that all payments due to suppliers are made on behalf of the farmers.

Anchor Companies (Millers) will be expected to identify and collaborate with CBN and NIRSAL to organise farmers into co-operatives; assist in identifying input suppliers for quality assurance; provide extension service experts to support and ensure achievement of the targeted yield;

Monitor harvest and facilitate full evacuation of produce and buy up produce from farmers at agreed price.
The farmers/Out growers on their own will be expected to organise themselves into cooperatives; ensure credibility of members; cross-guarantee one another and abide by the terms of the MoU; must be fully responsible for their farms and agree to work with extension agents attached to them and sell all produce to the off-taker based on the agreed price without side selling. They are also expected to abide with the agreed terms of lending and repayment.

Increasing Value of Agric Lending
The programme is expected to increase the total value of agricultural lending from 3.72 per cent as at 2014 to about 7.0 per cent of total bank lending within the next five years.
It is also expected to increase capacity utilisation in the agro-allied industry from the current level of less than 50 per cent to at least 70 per cent in the next five years.

The programme will also empower at least 600,000 farmers in the rice (100,000), oil palm (100,000), wheat (100,000), cotton (200,000) and fish (100,000) value chains in the next five years. It is also expected to create at least 1,000,000 direct and indirect jobs in the processing segment of the value chains of selected commodities including rice (300,000), oil palm (200,000), wheat (100,000), cotton (300,000) and fish (200,000) in the next five years.