Credit Risk Guarantee: NIRSAL Restates Commitment to Agricultural Investors/ Agribusinesses
The Nigerian Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) has restated commitment towards providing highly valued support to agricultural investors and agribusinesses to improve performance under its Credit Risk Guarantee (CRG) initiative.
The Principal Manager, CRG Operations and Portfolio Management, NIRSAL, Tahir Aminu Raji, stated this during a webinar organized by the Feed the Future Nigeria Agribusiness Investment Activity.
The aim of the webinar was to x-ray the CRG scheme of NIRSAL and discuss limitations or challenges preventing agribusiness MSMEs or financial institutions from using the CRG platform as well as suggest ways to mitigate the challenges.
“The CRG initiative provides a level playing field for businesses and investors through a risk-sharing agreement that insures lenders up to 75% guarantee on loans obtained by agribusinesses.
“It is issued by NIRSAL to secure loans over the life of underlying credit or investment contract which is purchased at 1% of each of the investment or loan value,” he said.
According to him, the guarantee fee covers the risk of default on the investment or loan principal and the accrued interest or coupon.
The scheme protects against bad debt through its project-monitoring, reporting and remediation office (PMRO), which not only facilitates success of agribusinesses but also guarantees investors’ return on investments.
The principal manager maintained that the CRG encourages financing of agribusinesses across all segments of the agricultural value chain by securing loans against losses within the contract period between the investors and agribusiness owners.
“Agribusinesses can now access higher loans to facilitate their enterprises by leveraging this opportunity,” he added.
Also, Raji disclosed that an interest rate support scheme, dubbed Interest Draw Back (IDB), which is an incentive to reduce the burden of interest payment, is offered to borrowers with timely repayment of loans.
“This would increase profit margins for agribusinesses and induce timely repayment of loans, thereby reducing loan default or crystallization.
“The IDB is paid every 90 days (per quarter) within the life of the loan or at the end of facility tenure for bullet repayment, provided the borrower is in good standing – that is all principal and interest payments are up to date, per the original or amended payback schedule agreed upon between NIRSAL, the lender and borrower,” he explained.
Furthermore, speaking on NIRSAL, Raji described it as an idea that came up to support and de-risk the agriculture sector, facilitate the flow of finance, and to share in the risk with financiers in particular.
“There are many problems or variables that could bring an agribusiness down such as drought, infestation of locusts or worms among others that are beyond the control of players.
“So, NIRSAL was then designed to re-define, dimension and measure re-price and share agric-based risks.
“It is a 500-million dollar non-bank financial institution,” said Raji.
On his part, Group Head, Agriculture Finance and Solid Minerals Group, Sterling Bank PLC, Mr. Olushola Obikanye, described the CFG as an initiative that has fixed critical gaps in the agricultural value chain.
However, Obikanye who expressed concerns over the 90 days remittance period, appealed to NIRSAL for a grace period of 180 days minimum when the loan facility is given.
The banker observed that many commercial banks are failing to participate because they believe the processes around the CRG are too cumbersome.
Remarking, Country Head-Agribusiness, Stanbic IBTC Bank PLC., Mr. Wole Oshin, noted that the CFG platform provides Nigeria an opportunity to make a difference as a country, urging NIRSAL to take note of lapses and make the market more deepened to enable agribusinesses to meet their customers requirement in terms of quality and sustainability.
Source: Agro Nigeria
