Banks shun farmers despite N50bn credit guarantee scheme

By: Amarachi Okonkwo 

Nigeria’s agricultural sector is once again under scrutiny as farmers decry persistent barriers to accessing credit, despite policy mechanisms designed to de-risk lending.

The President of the All Farmers Association of Nigeria, Mohammed Magaji, has accused commercial banks of systematically avoiding agricultural lending, even with the backing of the Agricultural Credit Guarantee Scheme Fund.

Magaji noted that the ACGSF does not provide direct funding to farmers but instead guarantees loans issued by banks covering up to 75 percent of the credit risk. However, he argued that this guarantee has failed to incentivise banks to support the sector.

“ACGSF is not the one giving the money; they are only guaranteeing. That’s why they call it the Agricultural Credit Guarantee Scheme Fund. So the commercial banks are not willing,” he said.

Banks reluctant despite guarantees

Magaji estimated that about 90 percent of commercial banks in Nigeria are unwilling to lend to agriculture, citing perceived risks and low returns. This reluctance persists even as agriculture remains a cornerstone of the economy.

“The banks are saying they don’t want to invest, they don’t want to go into agriculture,” he added, describing a financing gap that continues to constrain productivity and expansion in the sector.

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Collateral hurdles shut out smallholders

A major concern highlighted by farmers is the stringent collateral requirements imposed by lenders. According to Magaji, these conditions effectively exclude smallholder farmers, who dominate Nigeria’s agricultural landscape.

“They ask you for a very big collateral, which will take another four or five months to fulfil,” he said, noting that most farmers lack the assets or formal documentation required to secure loans.

This challenge is particularly acute given that smallholder farmers account for roughly 80 percent of Nigeria’s farming population and produce about 90 percent of the country’s food supply.

Weak market returns compound risk

Beyond access issues, Magaji questioned the economic viability of borrowing under current market conditions. He argued that low farmgate prices make it difficult for farmers to generate sufficient returns to service loans.

“If you collect N5m and invest in agriculture, how much are you going to sell your products to get your money back and pay the loan?” he asked.

He added that weak pricing for agricultural produce discourages farmers from taking on debt, further dampening investment in the sector.

CBN acknowledges funding gap

The Governor of the Central Bank of Nigeria, Olayemi Cardoso, recently acknowledged the structural underfunding of agriculture, noting that the sector receives less than five percent of total bank lending despite its economic significance.

Speaking at the inauguration of the ACGSF board in Abuja, Cardoso said agriculture must be given its “rightful place in our financial system and national priorities.”

He emphasised that the scheme was designed to encourage banks to lend to farmers, particularly those considered high-risk or unbankable. The 2019 amendment to the ACGSF increased its capital base from N3bn to N50bn in a bid to expand access to credit.

Persistent structural disconnect

Despite these policy efforts, a disconnect remains between financial institutions and agricultural producers. Analysts note that risk perception, inadequate insurance frameworks, price volatility, and weak rural infrastructure continue to deter bank participation.

Efforts to obtain a response from Rasheed Bolarinwa, President of the Association of Corporate Affairs Managers of Banks, were unsuccessful as of the time of filing this report.

The situation underscores a broader challenge for Nigeria’s economy: aligning financial systems with productive sectors. Without improved access to affordable credit, stakeholders warn that agricultural output, food security, and rural livelihoods could face further strain.

As policymakers push reforms, the effectiveness of mechanisms like the ACGSF will likely depend not just on guarantees, but on broader structural changes that make agricultural lending both viable and attractive for financial institutions.