Insurance Bodies Posing Threat to Growth of Agribusiness in Nigeria

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Even before her independence, Nigeria has always been known as a nation blessed with numerous natural resources within its confines, especially the admirable presence of flourishing agriculture which is known to have persistently active in paying its dues to the growth of the economy.

Thus, while keeping the spectacle on the positives, the need for peeking into other areas that could have helped propel the development of the agro industry to a more advanced standard than its present state would also be handy as lending interest rates by commercial banks in the country, coupled with those deviant practisioners/operators presently denting the reputation of the  insurance sector.

It is worthy of note that there have been unending lamentations from stakeholders in the field of agriculture, as the operators keep expressing their dissatisfaction about non-payment of claims and high premiums which have been identified as some of the critical challenges having a negative impact on the projected development of the agricultural sector in the country.

One of the old generation bank’s Southwest Regional Manager (Agriculture Financing Desk), who preferred anonymity divulged that majority of banks in the country do not lend to the agricultural sector from their cash flows, but rather from special interventions emplaced by the Central Bank of Nigeria (CBN) in most cases. Meanwhile, agricultural business financing for most banks were classified as an extremely risky lending zone  before the interventions.

“What we do mostly is intervention funds [management]. We hardly process commercial loans for agribusinesses, ”the manager said.

The CBN’s special interventions include several schemes for funding entrepreneurial ventures such as; Differentiated Cash Reserve Regime (DCRR),  Commercial Agriculture Credit (CAC) schemes, Micro Small Enterprise Development Fund (MSMEDF) and lately the Anchor Borrowers scheme.

“If commercial loans are processed,” he added, “it (interest rate) is from 18-25 percent. Also, pricing depends on the project amount, the gestation period, quality of security, among other factors. Retail ends are sometimes higher, based on prime lending rates for those products.”

During the process of giving an address to participants  at the agro-food Nigeria exhibition that recently took place in Lagos, Access Bank’s Head of Agric Desk, Opeyemi Olutayo confirmed that financial institutions have persistently been unable to play their expected role in the sector.

Olutayo revealed categorically that the country’s agricultural sector was faced with a funding gap of a colossal N800 billion and also citing the resilient efforts made by the government to bridge the gap through the placement of interventions.

Insurance Bodies Posing Threat to Growth of Agribusiness in Nigeria
Insurance Bodies Posing Threat to Growth of Agribusiness in Nigeria

While speaking in favour of insurance firms/institutions during an interview with the press, Leadway Assurance Company, Head of Agriculture and Micro Insurance/National Coordinator, Ayoola Fatona claimed that the interest rate has a nexus to and reflects on the volume of agricultural credits available for agribusiness investors.

He explained that if the interest rates for agricultural credits were high, the access to funding would become more restricted, thereby contributing to the underdevelopment of the sector.

He further stressed that many farmers will have access to credits and the volume of agricultural credits would increase when the interest rates are low, thereby contributing to the growth of the sector.

“Therefore, the fluctuations in interest rates are in an inverse proportionately related to the credit volume. The lower the interest rate, the higher access the customers have to a large volume of credits,”said Fatona.

In view of the fact that insurance products in the country cover a multiplicity of perils which may affect the farmers’ investments at a single rate, Fatona further maintained that for agricultural insurance in Nigeria, it has been confirmed that the premium rates charged by underwriters are the cheapest in comparison to any part of the universe.

“For instance, the indemnity-based and area yield crops insurance policy covers the multiple perils of flood, lightening, windstorm, fire, flood, pests and diseases, and other natural occurrences that are beyond the control of the farmer. These perils are bundled together under one policy and a single premium rate that normally do not exceed 5 percent of the sum assured is charged,” Fatona explained.

He said in Europe and Latin America, these perils are covered and priced separately as single risks. This results in higher premium charges in the insured (farmers). Separate premium rates apply to each perils to be covered, thereby making it more expensive.

READ MORE: Nigeria’s Food Imports Dropping Drastically — FG

On the other hand, an audit specialist, Mr Ajileye Samuel spoke contrary to the above stating that claim payments in other climes are prompt, accounting for the goodwill insurance firms enjoy in those places.

Ajileye further stressed that the  rate of premiums is immaterial, as long as prompt payment of claim is obtainable considering the fact that it  is centered on restoring losses and ability to sustain the insured businesses.

Thereafter, he also admitted that on-the-field experiences have reflected the high expectations of insured farmers who expect so much from the insurance companies whenever they suffer a significant loss. Adding that the farmers have the wrong  mindset that the insurance companies must pay for all losses, even in situations where the perils that are responsible for the losses are not covered under the policy.