An Overview of the N50 Billion Naira Agricultural Credit Guarantee Scheme Fund. Daily Law Tips (Tip 696) by Onyekachi Umah, Esq., LL.M, ACIArb(UK)
Introduction:
The National Bureau of Statistics in Nigeria, reports that 40.1% of Nigerians are poor, on the “average 4 out of 10 individuals in Nigeria has real per capita expenditures below 137,430 Naira per year.” Over years, the federal government of Nigeria preaches to shift its economy from petroleum-based wheels to agriculture-based wings. Commercial farming in a technologically backward nation with high poverty rate, means that the federal government of Nigeria must pump in funds and ensure high liquidity for farmers and all participants in the agriculture value chain. This works reviews the Fifty Billion Naira Agricultural Credit Guarantee Scheme Fund of the federal government of Nigeria, designed to provide guarantees for agricultural loans.
In this work, the following were considered; the Fund of the Agricultural Credit Guarantee Scheme, the Board of the Agricultural Credit Guarantee Scheme Fund, Persons That Can Access the Agricultural Credit Guarantee Scheme Fund, The Process of Accessing the Agricultural Credit Guarantee Scheme Fund, Collateral for Loan Under the Agricultural Credit Guarantee Scheme Fund, Repayment of Loan Under the Agricultural Credit Guarantee Scheme Fund, Offences Under the Agricultural Credit Guarantee Scheme Fund and Mandatory Reporting For the Agricultural Credit Guarantee Scheme Fund.
The Fund of the Agricultural Credit Guarantee Scheme:
On 8th March 1977, the federal government of Nigeria, signed into law, a federal law (The Agricultural Credit Guarantee Scheme Fund Act) designed to provide guarantees for loans granted for agricultural purposes by any bank in Nigeria. It guarantees the payment of the interest and principal of loan given by a bank to a farmer in line with the terms and conditions of the Agricultural Credit Guarantee Scheme Fund.
The fund was set up to allow banks (any lending bank) to offer loans to farmers and other operators in the agriculture sector, while the loan is guaranteed by the Agricultural Credit Guarantee Scheme Fund. Hence, where a borrower (loan debtor) fails to repay his loan, and the bank has exhausted all available means for recovery of the loan, the Agricultural Credit Guarantee Scheme Fund can be used to offset/settle the loan.
The Agricultural Credit Guarantee Scheme Fund is not a loan rather a guarantee (undertaking and assurance to repay loan) given by the Agricultural Credit Guarantee Scheme Fund to a bank on behalf of a farmer for a loan borrowed by the farmer from the bank. This was invented to ensure the availability of loans to all participants in the agricultural sector.
In 1977, the Agricultural Credit Guarantee Scheme Fund was One Hundred Million Naira but in 2019, the National Assembly (federal legislature) amended the establishing federal law and increased the Agricultural Credit Guarantee Scheme Fund to now be; Fifty Billion Naira. The amendment also affected other aspects, management and processes of the Agricultural Credit Guarantee Scheme Fund to allow more liquidity, coverage and flexibility in the agricultural sector. The amendment (Agricultural Credit Guarantee Scheme Fund [Amendment] Act, 2019) was signed into law by President Muhammadu Buhari on 24 June 2019.
The Board of the Agricultural Credit Guarantee Scheme Fund:
The Agricultural Credit Guarantee Scheme Fund is managed by the Agricultural Credit Guarantee Scheme Fund Board. The Agricultural Credit Guarantee Scheme Fund Board is a corporate entity that can own property, sue and be sued. Agricultural Credit Guarantee Scheme Fund Board is made up of a Chairman, a representative of the Nigerian Farmers, a representative of the Federal Ministry of Finance and a representative of the Federal Ministry of Agriculture and they all are to be appointed by the Federal Minister of Finance.
The secretary to the Agricultural Credit Guarantee Scheme Fund Board must be an official of the Central Bank of Nigeria and the secretariat of the Agricultural Credit Guarantee Scheme Fund Board is located in the Central Bank of Nigeria.
The functions of the Agricultural Credit Guarantee Scheme Fund Board includes; “(a) monitor the operation and evaluate the progress of the Scheme; (b) advise the Minister as to changes required to improve the operation of the Fund; (c) receive and consider the report of the management agent of the Fund and advise the Minister thereon; (d) determine the remuneration of external auditors and solicitors; (e) perform such other duties relating to the Fund as may be referred to it by the Minister; (f) publish names of defaulters of loans granted under this Act in the national newspapers; (g) approve the operational budget of the Fund; and (h) solicit the assistance of government loan machineries in the recovery of loans granted under the Act”.
Also, “the Federal Minister of Finance may give the Agricultural Credit Guarantee Scheme Fund Board, directions of a general character or relating generally to particular matters with regard to the exercise by the Board” of its functions under this the law and it must comply with such directions.
Persons That Can Access the Agricultural Credit Guarantee Scheme Fund:
The Agricultural Credit Guarantee Scheme Fund not being a loan is rather a guarantee for the repayment of loans given to farmers by banks. The Agricultural Credit Guarantee Scheme Fund is accessible only through a bank. So, where a farmer approaches any bank for a loan for agricultural purposes, the farmer can also through the bank apply to the Board of Agricultural Credit Guarantee Scheme Fund for a guarantee for his loan. This is a huge assurance that spurs banks to quickly offer loans.
The law has specified the type of farming and agricultural purposes for which a farmer can apply for its loan to be guaranteed under the Agricultural Credit Guarantee Scheme Fund. So, a farmer can have his loan guaranteed under the Agricultural Credit Guarantee Scheme Fund, where the farmer seeks to use his loan to do any of the following: “(a) the establishment or management of plantations for the production of rubber, oil palm, cocoa, coffee, tea and similar crops; (b) the cultivation or production of cereal crops, tubers, fruits of all kinds, cotton, beans, groundnuts, sheanuts, beniseed, vegetables, pineapples, bananas and plantains; (c) livestock production including cattle ranching, piggery, poultry, and fish culture, fish captures and storage; and (d) farm machinery, purchase and hire services, (e) production of farm machinery, implements and equipments for production, processing, storage and transportation and (f) any purpose connected with activities in the agricultural value chain”. It also includes, integrated agricultural project, incorporating production and processing, provided that the primary production element accounts for not less than forty per cent of the raw material required by the factory.
The Process of Accessing the Agricultural Credit Guarantee Scheme Fund:
A farmer must first approach a bank in search of a loan for agricultural purposes. The bank will then make an application to the Board of the Agricultural Credit Guarantee Scheme Fund seeking for the Agricultural Credit Guarantee Scheme Fund to guarantee (undertake) the loan sought by the farmer.
Obviously, an application must either be accepted or reject. Where an application for loan is rejected by a bank, the bank must give reasons to the farmer, specifying what steps should be taken by the farmer to enable the farmer to comply with the bank’s requirements. This is designed to encourage farmers and ensure that farmers are not denied loans simply because of technicality and complexity of systems and procedure.
Collateral for Loan Under the Agricultural Credit Guarantee Scheme Fund:
Any agreement for loan, where the loan is guaranteed by the Agricultural Credit Guarantee Scheme Fund must be in line with the form, terms and conditions provided by the board of the Agricultural Credit Guarantee Scheme Fund. The lending rate of such loan must be determined by the Board of the Agricultural Credit Guarantee Scheme Fund.
The security that a bank can request from a farmer where the bank intends to give a loan to the farmer that will be guaranteed by the Agricultural Credit Guarantee Scheme Fund, can be one or more of the following: (a) a charge on land in which the borrower holds a legal interest or a right to farm, or a charge on the crops on such land; (b) a charge on the movable property of the borrower; (c) a life assurance policy, a promissory note or other negotiable security; (d) stocks and shares; (e) a personal guarantee; and (f) any other security acceptable to the bank.
It is important to note that, any bank loan that is to be guaranteed under the Agricultural Credit Guarantee Scheme Fund does not need to have any security (collateral) where the loan is not more than One Hundred Thousand Naira (N100,000.00) and granted to a small scale farmer.
Repayment of Loan Under the Agricultural Credit Guarantee Scheme Fund:
To avoid abuse, where any bank loan is guaranteed under the Agricultural Credit Guarantee Scheme Fund, and the loan is for the purchase of farm items (like, livestock, machinery or farming equipment), the loan must be paid by the bank, directly to the seller/supplier of such items and proof of delivery of the items to the borrower (farmer) will be issued to the bank by the supplier.
Where a farmer that borrowed any loan guaranteed under the Agricultural Credit Guarantee Scheme Fund, fails to repay the loan, the bank is expected to recover such amount from the borrower-farmer or his sureties, if any. Also, the bank may for that purpose dispose of any security obtained in respect of the loan. However, where a loan guaranteed by the Agricultural Credit Guarantee Scheme Fund becomes impracticable (impossible) to recover, the bank can apply to the Agricultural Credit Guarantee Scheme Fund to repay and settle the loan.
Offences Under the Agricultural Credit Guarantee Scheme Fund:
Any bank loan guaranteed by the Agricultural Credit Guarantee Scheme Fund must be used strictly and only for the purpose it was granted. Where a loan or any part of it is used for any other purpose, it is a criminal offence. It is punishable with fine that is not less than the loan amount of the loan that was misused or an imprisonment for not less than five (5) years.
Mandatory Reporting For the Agricultural Credit Guarantee Scheme Fund:
Every bank that gives loan that is guaranteed under the Agricultural Credit Guarantee Scheme Fund, must submit a report to the Board of the Agricultural Credit Guarantee Scheme Fund, as may be directed by the Board of the Agricultural Credit Guarantee Scheme Fund. The report will be a return on the activities of the bank with regard to loans granted by the bank under the Agricultural Credit Guarantee Scheme Fund.
Where a bank fails to submit its report, the Board of the Agricultural Credit Guarantee Scheme Fund can fine the bank N500.00 for every day for 30 days, and after 30 days the fine can be increased to N1,000.00 for each day.
Also, any bank participating under the Agricultural Credit Guarantee Scheme Fund must have an Agricultural Finance Department at its headquarters. That department of the bank is to be responsible for “(a) the agricultural credit administration in the bank; (b) the formulation and implementation of agricultural credit policies of the bank; and (c) the co-ordination of the activities of the Agricultural Credit Units in its zonal or area offices and branches.”
Conclusion and Recommendation:
The Agricultural Credit Guarantee Scheme Fund is a fund specially designed to assist lending banks to be sure that loans given to farmers for agricultural purposes will be repaid by the farmers and that where any farmer fail to repay the loan, the loan will be repaid by the Agricultural Credit Guarantee Scheme Fund of federal government. It is not on itself a loan, it is at best a bailout fund for banks that have bad debt resulting from loans given to farmers where the loans are guaranteed under the Agricultural Credit Guarantee Scheme Fund.
There is need for promotion of awareness on the existence and benefits of the Agricultural Credit Guarantee Scheme fund. Those in need of loan guarantee should be reached to benefit from the Agricultural Credit Guarantee Scheme Fund. It is commendable that the term of imprisonment and the fine provided by the Agricultural Credit Guarantee Scheme Fund Act are minimum punishment. This allows a court to ensure that adequate sentencing and punishment is issued to a convicted borrower.
In this present age, where liquidity is driven by technology (and not technology being driven by liquidity), with several formal and informal loan options, far from the banks, there is need to widen the scope of the Agricultural Credit Guarantee Scheme Fund. Non-Banking institutions should be allowed to guarantee their agricultural loans. This will include cooperative societies and organized groups that offer short- or long-term loans to farmers for agricultural purposes. Since the law mentioned small scale farmers that could need One Hundred Thousand Naira (N100,000.00), it shows that the law needs to run on a more robust and community reflective liquidity options and service points to allow the ordinary small farmers participate and scale up.
References:
- Sections 1, 2, 3, 16, 318 and 319 of the Constitution of Federal Republic of Nigeria, 1999.
- Sections 1 to 23 of the the Agricultural Credit Guarantee Scheme Fund Act, 1977.
- Sections 1 to 8 of the the Agricultural Credit Guarantee Scheme Fund (Amendment) Act 2019.
- National Bureau of Statistics, “Poverty and Inequality in Nigeria 2019: Executive Summary” (NBS, 2019) <https://nigerianstat.gov.ng/elibrary?queries[search]=poverty > accessed 12 November 2020
- Adzer Iwanger, “FG Raises Agric Credit Scheme Fund To N50bn” (SME360, 2 September 2020) <https://www.sme360.ng/2020/09/02/fg-raises-agric-credit-scheme-fund-to-n50bn/ > accessed 12 November 2020
- Central Bank of Nigeria, “Agricultural Credit” (CBN) <https://www.cbn.gov.ng/devfin/acgsf.asp > accessed 12 November 2020
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Feel free to reach the author, ask questions or make inquiries on this topic or any other legal issues via onyekachi.umah@gmail.com or +2348037665878.
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