Banks lending to agriculture remains low as lenders cite insecurity, climate risks and weak infrastructure as major challenges

Commercial banks in Nigeria have identified high risks, weak infrastructure and persistent market uncertainties as major factors discouraging increased lending to the agricultural sector despite growing pressure to improve financing for farmers.

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The President of the Association of Corporate Affairs Managers of Banks, Rasheed Bolarinwa, disclosed this in an interview with Sunday PUNCH, stressing that lenders remain cautious because of the peculiar challenges associated with agricultural business operations.

According to Bolarinwa, although banks recognise agriculture as critical to food security and economic development, the sector remains one of the riskiest areas for credit exposure.

“Many banks are interested in agriculture because of its importance to the economy, but they are also cautious due to high-risk factors, repayment issues, operational risks and market uncertainties,” he said.

The concerns surrounding banks lending to agriculture come amid renewed calls by policymakers and stakeholders for stronger financial support for farmers across Nigeria.

Bolarinwa explained that agricultural activities are highly vulnerable to climate-related disasters such as flooding and drought, as well as pest infestations, insecurity, commodity price volatility and poor logistics infrastructure.

“Agriculture is exposed to several risks that are often outside the borrower’s control,” he stated.

He noted that intervention programmes such as the Agricultural Credit Guarantee Scheme Fund help reduce lending risks but do not completely protect financial institutions from losses.

According to him, banks also face high operational and monitoring costs when lending to dispersed smallholder farmers across rural communities.

On collateral requirements, Bolarinwa maintained that lenders must balance agricultural financing with the responsibility of safeguarding depositors’ funds.

“Traditional collateral remains important, especially where reliable financial records or alternative risk assessment tools are limited,” he said.

He, however, revealed that some financial institutions are gradually adopting alternative financing models such as value-chain financing, warehouse receipt systems, aggregation-based lending and cash-flow lending to support farmers lacking conventional collateral.

Bolarinwa further identified market volatility, inflation and foreign exchange pressures as additional factors affecting repayment projections and discouraging aggressive lending to the sector.

“The gap has persisted largely because agriculture remains a high-risk sector relative to many others,” he added.

Despite the challenges, he said banks are increasingly pursuing partnerships with development finance institutions and deploying digital lending initiatives, cluster financing and tailored agricultural products to improve access to credit.

The debate over banks lending to agriculture intensified recently after Olayemi Cardoso stated that agriculture must assume its “rightful place” within Nigeria’s financial system.

Speaking during the inauguration of the reconstituted board of the Agricultural Credit Guarantee Scheme Fund in Abuja, Cardoso observed that agriculture contributes more than one-fifth of Nigeria’s Gross Domestic Product but still accounts for less than five per cent of total bank lending.

The CBN governor explained that the scheme, which guarantees up to 75 per cent of agricultural loans, was established to encourage banks to lend to farmers, including those regarded as financially vulnerable.

He added that the scheme’s share capital was increased from ₦3 billion to ₦50 billion in 2019 to improve financing access for agricultural operators.

Cardoso also highlighted the struggles faced by smallholder farmers, who account for about 80 per cent of farmers in Nigeria and produce nearly 90 per cent of the country’s food supply.

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Reacting to the development, the President of the All Farmers Association of Nigeria, Mohammed Magaji, expressed concern over poor access to agricultural financing and accused commercial banks of remaining reluctant to support farmers despite available government-backed guarantees.