N200 billion agric loan: Any consideration for insurance cover?

By Dele Ayeleso, Lagos - Updated: Tuesday 03-11-2009

From left, Company Secretary, Mrs. Osedo;
Chairman, Chief Samuel Adegbite, and the
Managing Director, Mr. Babatunde
Oshadiya, at the 16th annual general
meeting of Oasis Insurance Plc, held at
Jogor Centre, Ibadan, Oyo State, recently.Barring any last minute change in the threat issued by the governors of the 36 states of the federation as regards the disbursement of the N200 billion agriculture loan to farmers by the banks in charge, farmers across the country will soon have access to funds to enhance their productivity, thereby saving the country from impending food crisis.

According to a recent report, the Chairman of the Governors’ Forum, Dr. Bukola Saraki of Kwara State, after a meeting in Abuja, revealed that the governors had resolved to issue a 21-day ultimatum to First Bank and United Bank for Africa to disburse the N200 billion to be lent at single digit interest rate to operators in the agricultural sector in the country.

Governor Saraki further revealed that the N200 billion, as promised by the Central Bank of Nigeria early this year, had been made available for a while now, but the farmers were yet to access the loan adding that the governors had also implored the banks to waive the 20 per cent equity contribution to the fund by potential beneficiaries.

The Federal Government had earlier disclosed that the initiative was part of its efforts trying to address the problems associated with food security by boosting the agricultural sector in the country.

But before the disbursement of the fund or rather, before the 21-day ultimatum given to the banks lapses, there is need for the government to ensure that the funds are insured against all the risks inherent in agricultural business. Although, according to experts, there are other factors that could militate against the realisation of government objective of releasing the fund.

The Managing Director, LASACO Assurance Plc, Mr. Olusola Ladipo-Ajayi, once described the conservativeness of banks in lending out money as a reaction to the poor credit culture of Nigerian society, saying that Nigeria’s system lacked the discipline needed.

Mr. Ladipo-Ajayi explained that the attempt by the government to promote agriculture failed because when farmers take loans, rather than investing in farm implement, research and development of seeds, prefer taking additional wives which, he said, were additional liabilities.

He further stressed that most times when the government was involved in granting loan facilities to help boost the products of farmers, they, according to him, see it as sharing of the national cake. He added that there was no commitment to pay back the borrowed money on the part of the benefactors.

Mr. Ladipo-Ajayi further explained that one of the problems that the country was facing along this line was that there was no proper and up-to-date data base whereby the creditors can collate their record.

He said, “If you have a mortgage or hire purchase with an organisation in developed economies, they are collated so that the credit history of the individual can be assessed.”

Aside from the aforementioned factor, risk management in agriculture business is essential, and the Federal Government cannot afford to take it with levity. Experts have explained that crop insurance schemes are often fiscally expensive for the respective governments.

Even most insurance operators in Nigeria do not dare venturing into it. Therefore, The National Insurance Commission (NAICOM) should play its pivotal role. It should not only insist that the rules are followed to the letter to ensure that insurance companies that are not qualified to take on such risks are not allowed to mess up the process but should also, as a matter of emphasis, insist that the government provides for adequate insurance cover.

Incidentally, the Federal Government, in 1993 set up Nigerian Agricultural Insurance Corporation (NAIC) in the quest to, at least have an agricultural based underwriting firm since virtually all the companies that operated before then were only interested in government business and general risk with little emphasis on life insurance and agricultural insurance.

It is only this company that, as at today, has the wherewithal to underwrite agricultural risks in Nigeria. Meanwhile, section 13 of the NAIC Decree of 1993 stated that “a farmer whose crop or livestock is cover by the decree may take out an insurance cover under the scheme; but where the farmer is also a beneficiary of an agricultural loan or credit from the government, a bank or other financial institution shall take out an insurance cover under the scheme.”

Unfortunately, the two banks saddled with the disbursement responsibility, that is, UBA and First bank, are not experts in underwriting agricultural business. UBA has interest in UBA Metropolitan Life, a pure life insurer, while First Bank is still in the process of opening an insurance firm, which is exclusively life insurance company.

The regulatory authority and other bodies should be carried along in respect of the loan and as a matter of urgency, before the 21-day ultimatum expires, put in place necessary mechanism that will ensure that the right company is given the opportunity. This will further demonstrate that the government is not just paying lip service to its readiness to lift insurance.