These
components are further explained below:
The
Risk Sharing Facility (RSF) is a risk-tool box that
would serve as a framework for negotiation between the programme and the
participating banks. It would be used to deploy different risk sharing
instruments to reduce the risk of lending to the agricultural sector. This
would comprise first loss and share loss arrangements, the volume of lending,
the part of value-chain that the bank would be willing to lend to, the term of
lending and the type of bank as well as experience and capacity for
agricultural
lending.
The
Insurance Component (IC) would
identify existing insurable risks and solution coverage, assist in developing
such solutions and link such products to the loan provided by the banks to the
beneficiaries.
The
Technical Assistance Facility (TAF) would
be used to assist banks that have demonstrated interest and commitment to
lending to small-holding agriculture. It would help to build capacity of the
banks to lend and develop delivery platform in support of agricultural lending.
It would also assist in building capacity of smallholder farmers and help them
in managing markets and financial activities.
The
Bank Incentive Mechanism (BIM) would motivate banks to lend
to the agricultural sector. The BIM would define appropriate incentive
mechanism to encourage banks to lend to the sector without creating moral
hazard. This would be done through lower guarantee fees for use of services
under the scheme.
The
Agriculture Bank Rating System (ABRS) would rate banks
according to their level of engagement in agricultural development. The rating
would be based on banks performance in ending to the agricultural sector and
the impact of the lending on food security, rural development and income. Banks
with higher rating would be given more incentive through BIM to encourage more
lending to the sector. Provisional estimates for funding the various components
are currently put as follows: RSF (US$300 million – with a goal of leveraging
up to US$3 billion), TAF (US$90 million), BIM (US$100 million) and ABRS (US$10
million). The CBN as a founding and strategic investor would play a crucial
role in creating long term systemic change in agriculture financing. The
blueprint for the current reforms is built around four pillars namely;
enhancing the quality of banks, establishing financial stability, enabling
healthy financial sector evolution and ensuring that the financial sector
contributes to the real economy.
Each
of these pillars is discussed in detail as follows:
·
Enhancing the Quality of Banks
Under
this pillar, the CBN has initiated a five-part programme that would enhance the
operations and the quality of banks in Nigeria. It consists of industry
remedial programmes to tackle the fundamental causes of the banking sector
crises, implement risk-based supervision, reform the regulatory framework, as
well as enhance provision for consumer protection and internal transformation
of the CBN. This initiative would go a long way in enhancing credit to the real
sector of the economy. In order to address the failure of corporate governance
in the industry, the CBN will also establish a specialist function centered on
governance issues to ensure that governance best practices are imbibed in the
industry.
·
Establishing Financial Stability
This
pillar focuses at strengthening the Financial Stability Committee within the CBN
as well as establishing a hybrid monetary policy and macro-prudential rules. It
also includes the development of directional economic policy and
countercyclical fiscal policies by the government and the further development
of the capital market as alternative to bank funding. When financial stability
is established, the banking sector would be the major driver of economic
activities and a significant channel for capital flows into the real economy.
·
Enabling Healthy Financial Sector
Evolution
Under
this pillar, attention would be given to creating an appropriate banking industry
structure, the cost structure of banks, the role of the informal economy and
providing banking infrastructure such as credit bureau and registrars. The CBN
would review the basic one-size-fits-all model of banking in addition to reviewing
the universal banking model, which would be replaced by the specialized banking
model, where three licence types would be issued. The first is the commercial
banking licence issued to organizations for the purpose of regional, national
or international banking. The second is the specialized banking licence for
microfinance banks and mortgage banks. The third licence is for investment
banking, which extends to development banking. These developments in the near-term
would make it possible to have international, national,
regional, mono-line and specialized banks, with different capital requirements
proportionate to the depth of their activities.
·
Ensuring the Financial Sector
Contributes to the Real Economy
The
rapid growth experienced in the financial sector in Nigeria has not impacted positively
on the real economy as much as anticipated. Development finance institutions
set up for specific purposes, such as agricultural finance, housing finance,
trade finance, urban development, did not achieve their stated mandates. Also,
credit flow from the deposit money banks to the real economy has been grossly
inadequate. Thus, the need for creating financial accommodation for economic
growth through initiatives such as development finance, foreign direct
investment, venture capital and public-private partnerships has become very
imperative.