Commercial banks have identified high operational risks, weak infrastructure, market volatility and low insurance coverage as major factors limiting credit flow to Nigeria’s agricultural sector despite increasing calls for stronger financing support for farmers.
The President of the Association of Corporate Affairs Managers of Banks, Rasheed Bolarinwa, said lenders remained cautious about expanding agricultural financing due to the unique vulnerabilities associated with farming activities across the country.
Speaking on the sector’s persistent financing gap, Bolarinwa explained that although banks recognise agriculture as critical to food security, employment generation and economic growth, the industry remains one of the riskiest sectors for credit institutions.
According to him, agricultural production is highly exposed to several factors beyond the control of farmers and lenders, including climate-related disasters, pest infestations, commodity price fluctuations, insecurity in farming communities and poor storage and logistics infrastructure.
“Agriculture is exposed to several risks that are often outside the borrower’s control. These include flooding, drought, pest and disease outbreaks, commodity price volatility, insecurity and weak infrastructure affecting storage and transportation,” he said.
Bolarinwa noted that while intervention schemes such as the Agricultural Credit Guarantee Scheme Fund help reduce lending risks, they do not completely protect banks from financial losses.
He explained that banks still bear part of the losses under the guarantee framework, while recovery processes could sometimes become prolonged due to administrative bottlenecks.
The ACAMB president further stated that agricultural lending also comes with high operational and monitoring costs, especially when dealing with dispersed smallholder farmers across rural communities.
On collateral requirements, he maintained that financial institutions had a responsibility to protect depositors’ funds through prudent lending decisions and effective risk management measures.
According to him, conventional collateral remains important in situations where farmers lack reliable financial records or alternative credit assessment systems.
“Collateral helps ensure borrowers remain committed to repayment obligations while enabling banks to manage risks responsibly,” he added.
Bolarinwa, however, disclosed that some financial institutions were gradually adopting alternative financing models targeted at farmers without traditional collateral.
He said value chain financing, warehouse receipt financing, aggregation-based lending and cash flow-driven financing models were increasingly being explored to improve access to agricultural credit.
Despite the gradual shift, he noted that the alternative financing models were still evolving and had not fully replaced conventional collateral systems within the banking industry.
The banking executive also identified market instability as another major factor affecting lenders’ willingness to finance agricultural operations.
According to him, fluctuations in commodity prices, foreign exchange pressures and inflation continue to weaken farmers’ repayment capacity and make cash flow projections difficult for financial institutions.
Bolarinwa attributed the low share of agriculture in total bank lending to deeper structural challenges within the sector, including fragmented value chains, poor data availability, low insurance penetration and inadequate infrastructure.
He stated that banks were increasingly pursuing partnerships with development finance institutions while deploying digital lending initiatives, cluster financing and risk-sharing arrangements to improve access to finance for farmers.
He also highlighted growing investments in capacity building, financial planning and technology deployment for monitoring agricultural loans and collections.
Bolarinwa called for stronger government support and policy reforms to encourage more lending to the agricultural sector.
According to him, expanded agricultural insurance coverage, improved infrastructure, mechanisation support, energy access and stronger credit guarantee systems would help reduce risks and improve lenders’ confidence in the sector.
Meanwhile, Governor of the Central Bank of Nigeria, Olayemi Cardoso, recently stressed the need for agriculture to assume its “rightful place” within Nigeria’s financial system and national development priorities.
Speaking during the inauguration of the newly reconstituted board of the Agricultural Credit Guarantee Scheme Fund in Abuja, Cardoso expressed concern that agriculture still accounts for less than five per cent of total bank lending despite contributing over one-fifth of Nigeria’s Gross Domestic Product and employing a large segment of the population.
He explained that the Agricultural Credit Guarantee Scheme Fund was established to encourage banks to extend credit facilities to farmers, including those often considered financially excluded or unbankable.
Cardoso noted that the 2019 amendment to the scheme increased its share capital from ₦3 billion to ₦50 billion in a bid to strengthen agricultural financing and improve farmers’ access to credit.
The CBN governor further observed that smallholder farmers, who account for about 80 per cent of Nigeria’s farming population and produce nearly 90 per cent of the nation’s food supply, still struggle with inadequate collateral and limited credit history.
Reacting to the development, President of the All Farmers Association of Nigeria, Mohammed Magaji, expressed concern over poor access to agricultural financing, accusing commercial banks of remaining reluctant to lend to farmers despite existing government-backed guarantee schemes.
