Tuesday, June 09, 2009

Agricultural loans and the banks

THE major bane of agricultural development in Nigeria has been the lack of government investment at all levels, and the profit oriented motives of the private sector. This has meant that the agricultural sector of the economy remains largely primitive, subsistent and unproductive for a very long time, leading to the present sorry state of affairs in the sector due to complete neglect. Viewed against this background, these agricultural loan facilities being flaunted by banks, supposedly meant to support farmers would have been a welcome development for the agricultural industry, but on the contrary, these loans are sweetened pills meant by banks to mitigate the effects of crash in crude oil prices internationally, and the crisis in the stock market, where they lost enormous sums of money.

Therefore, they cannot be relied upon to genuinely develop this important aspect of the economy, for their intentions is to recoup the money they have lost, through cash deposits from poor farmers, rather than serve their interest. Before the oil boom in the late 60s and early 70s, agriculture used to be the mainstay of the economy, and government at all levels with little or no support from the banks, invested heavily in agriculture, industries, education, health care delivery system, social infrastructure, etc, using public funds without ceding its responsibilities to the private sectors, as it obtains today.

But the oil boom and its attendant free money from rents and royalties paid to the government by the multinational oil companies that dominated the sector, led to the shifting of attentions from agriculture and other productive sector of the economy to petrol-chemicals, commencing the decay and eventual collapse of the agricultural sector in particular, and other sectors in general. The banks that were making billions of naira from the petroleum sector in cash deposits, owned by individuals and government officials, looting proceeds from petroleum, were not left out in this untoward direction by concentrating efforts on the oil industry. Interestingly, while banks proliferate in the nooks and crannies of the nation, throwing money on frivolous schemes that had no direct bearings with production, farmers seek loans without success except for some banks that maintained minimum loan facility for profiteers in the agricultural industry

This was how things stood with the commercial banks in Nigeria until 2005 when Professor Chukwuma Soludo, the Governor of Central Bank of Nigeria, asked the banks (89 in number) to recapitalise to the minimum of N25 billion. The argument advanced for this exercise, which brought the number of banks to 24 due to merger by those that could not meet the set capital base, was that it would reposition the banks and place them in a better stead to finance huge extensive developmental projects, particularly in the real sector of the economy including agriculture.

This exercise resulted in the growth of the banks with new branches springing up everywhere across the major cities, and was celebrated by self-deluded bourgeois ideologues. The banks were given a clean bill of health, and they were said to be poised to finance the critical sector of the economy. Rather than invest in the real sector of the economy like agriculture, manufacturing, iron and steel, etc that will bring about improved productivity in the economy, the banks went into the oil whose price has now crashed at the international market. In addition, they also invested colossal sums of money in the casino market, where they speculated wrongly in anticipation for quick returns, but the stock market has now crashed, and the banks have lost over 900 billion naira invested in shares.

Some commercial banks, particularly the so-called old generation banks, have maintained minimal association with the farmers, especially rich farmers that have been connected with the top echelon of the banks management over the years, especially Union Bank Plc and First Bank Plc. Apparently, this was why Union Bank Plc and First Bank Plc were voted the best farmers-friendly banks of the year, 2008 by these beneficiaries.

First Bank Plc currently has a loan scheme called Farmers First, which started sometime in 2008. Under this scheme purportedly meant for all categories of farmers, the individuals or group of farmers who want to access the loan (N1million minimum) are expected to meet the following requirements before they are eligible: own an existing farm for some time; open and run current account for a period of six months; deposit 25 per cent of the total sums intended to borrow; six months moratoria; agriculture insurance; and other sundry charges. These hurdles notwithstanding, many poor farmers who have scaled it are still denied the loans on flimsy excuses, grounds for the rich farmers. This is how things stand with the much-vaunted Farmers First Agricultural loan scheme of First Bank Nig. Plc allegedly meant to boost food production, and the obvious conclusion from the scenario is that this scheme, to a larger extent, is a rip-off, meant to garner more funds to shove up the bank's declining capital base in the face of current global economic crunch.

The 'successes' of Farmers First and the declining fortune of UBA brought by the crash in oil price internationally have, to a larger extent, prompted the bank management to float the N50 billion agricultural loans to support farmers nationwide. Although the bank insisted that altruistic reasons: food security; national economic development; poverty alleviation; wealth creation and empowerment; employment opportunities and rural development, have been the propelling motive that necessitated their noble actions, against their real motive, which is profit. Although the bank claimed the interest rate will go for a single digit of eight per cent and other conditional ties, farmers should tread softly, in case this turns out to be another cesspit to amass bank deposits.

In Nigeria, it is more rewarding for most banks to sponsor frivolous schemes like Reality Shows, Comedy Shows, Beauty Contests and all what not, than commit such funds to finance the productive sector of the economy. This is because they make more from such unproductive ventures than real production partly because the required conducive environments for investments are completely lacking: regular power supply, good road networks, amongst others, but mainly due to their profit motives.