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Agriculture and Small Medium Enterprise lending – The business that’s here to stay in Nigeria

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With a GDP of US$510 billion, Nigeria is the largest economy in Africa, and 26th largest in the world. Driven by oil and gas, Nigeria’s economy is strongly influenced by the global crude oil prices. When oil prices plummeted to a new low in the last 18 months, the performance of oil company stocks was highly affected, thus raising an alarm on their non-performing loans for banks who lent to these oil companies.


A lot of regulatory changes are being proposed currently to counter the aftereffects, with Nigerian banks being directed to diversify their revenue streams by striving on non-oil based businesses. The next bet that the banks can rely on, which also acts as the backbone of Nigeria, is agriculture. Providing employment to about 30% of the population, and contributing to around one-sixth of GDP, agriculture in Nigeria was comparatively mismanaged for quite some time with inconsistent and poorly regulated government policies and lack of basic infrastructure.


Ironically, in spite of ranking 6th in the world in farm output, the country had to rely on imports to sustain itself. To improve this sector, the government has already embarked on a transformation journey around commercializing the small, medium and large scale enterprise levels. The Managing Director of IMF (International Monetary Fund), Ms Christine Lagarde, in a conference in Nigeria, encouraged the Nigerian banks to support the real sector and small and medium scale enterprises. Also, the Central Bank of Nigeria approved the disbursement of around N75 billion ($376.5 million USD) as loan to farmers under NIRSAL (Nigerian Incentive-Based Risk Sharing in Agricultural Lending). Initiated by Bankers’ Committee and the Federal Ministry of Agriculture and Rural Development, this loan guarantee scheme is a public-private sector initiative to transform the country’s agriculture sector.


NIRSAL of Nigeria seeks to address all the technical, administrative and financial needs of farmers along with agriculture value chain commodities. Designed to make finance accessible to farmers, it plans to integrate end-to-end value chains of agriculture (like input producers, farmers, agro dealers and processors, manufacturers) with the financing part (like loan product development, credit distribution, loan origination, managing and pricing for risk, and loan disbursement).


How does Agriculture and Small Medium Enterprise lending play a key role in reviving the economy of Nigeria? With financial institutions and regulatory bodies focusing in this sector, there is a strong possibility of a rise in business from Small Medium Enterprise lending and Agriculture loans in Nigeria. Also, the government is working to promote and create an environment that supports this rise.


To handle the business growth from SME and Agriculture Loans, banks should be well equipped with products that enable these sectors such as loans that are offered for short durations (like daily, weekly), loans for agriculture backed businesses, etc. Technology plays a very crucial role in enabling banks to extend their reach in these sectors. M-Pesa (mobile payments) in Kenya is a well-known case of technology enabled banking services. Now, Central Bank of Nigeria (CBN) has started promoting cashless transactions, deliberately and systematically as they want to increase efficiency, minimise costs and increase transparency. This need of technology backed lending services in Nigeria could be the next stepping stone for them to enable growth in Small Medium Enterprise and Agriculture Loans, reach customers through various channels such as mobile and also manage their risks to ensure that they overcome the crisis brought upon by the oil sector.


Having overtaken South Africa in 2014, to become Africa’s largest economy, Nigeria, as a country is yet to show its full potential in the global forum. However, it is important that the banks gear up for this change. Agriculture and Small Medium Enterprise sectors will further strengthen the economy and make it self-sustainable.

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About the Author

Arup Das, Vice President and Lending Product Head (P&L Management)

Mr. Arup Das is the Vice President and Lending Product Head (P&L Management) at Nucleus Software where he is responsible for taking the flagship product to the next level of global leadership. Before joining Nucleus, he held a variety of roles in strategy and product management with leading companies including CISCO, IPValue and Mphasis.

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About Nucleus

At Nucleus Software we are committed to providing efficient, modern yet proven software solutions for the global Banking and Financial Service industry. We have been pioneers in developing Retail Banking Software, Corporate Banking Solutions, Transaction Banking, Cash Management and Internet Banking Software since 1986. Our success spreads across more than 50 countries, and we serve our customers globally through our direct and partner operations across US, Europe, Asia-Pacific, Africa and the Middle East. We are known for our world-class expertise and innovation in lending and transaction banking technology. Our two flagship products, built on the latest technology are: FinnOne™ and FinnAxia™.