TOPIC: THE ROLE OF MICROFINANCE BANKING IN AGRICULTURAL FINANCING

AND EMPOWERMENT IN NIGERIA BY TOYIN OLUFOLAHAN, MANAGING

DIRECTOR, OLOFIN MICROFINANCE BANK PLC.

INTRODUCTION

Agriculture has returned to being a primary global concern. Prices of Agricultural goods, such as rice
and other basic food stuffs are hitting record highs in local markets within Nigeria. Food security no
longer guaranteed. High food prices are problem for consumers, especially among the poor
population and the rural farmers. Yet the majority of the farmers spread across the rural areas are still
excluded from the banking system in Nigeria.
Microfinance Bank has the potential to play this role given its advantage in terms of proximity to the
clients located in rural areas and its frequent association with cooperatives societies.
Microfinance is the provision of a broad range of financial services such as savings, loans, payment
services, insurance e.t.c. to poor and low-income persons. Microfinance is also defined to include
Microfinance services provided by both formal and semi-formal institutions. Microfinance Banks are
banks licensed and supervised by the Central Bank of Nigeria (CBN) to deliver financial services.
Microfinance Institutions have become the main source of funding enterprises and Agriculture in
Less Developed Countries (LDCs) like Nigeria. Microfinance Banks are distinguished from other
financial institutions in the following ways: they offer small advanced loans and or savings; the
absence of asset based collateral; activities are generally located in isolated areas with low population
density and poor infrastructure; they are dependent on weather and production cycles; income is
seasonal and monetary income is limited. Agricultural; prices are notoriously volatile and few
farmers can offer guarantees that are legally or financially acceptable etc. these features demand
financing mechanisms adapted to the diverse needs and services of rural farmers,; hence the need for
Microfinance Banks to intervene and play the roles of providing agricultural financing and
empowerment to farmers in Nigeria.
KEY ROLES OF MICROFINANCE BANKING IN AGRICULTURAL FINANCING IN
NIGERIA
Agricultural finance services in a comprehensive term referring to the provision of credit, savings
mobilization and Insurance Coverage, New Health Scheme, Home Improvement Loan to the farmers
in the rural sectors. In view of low income and high risks in agricultural sectors, effective provision
of these services serves important goals of accelerated growth, poverty alleviation and improved
agricultural production. A clear understanding of agricultural financing in broader terms include the
following.
 Rural Credit: although agriculture credits is a major component of rural credit but it also
includes granting credit to non-farm activities, primary agricultural production and agro-allied
businesses.
 Savings Mobilization: mobilization of savings from farmers is very important for accelerated
agricultural and rural development as it enhances the provision of credit. Farmers from rural
areas who are subject to the fluctuating agricultural incomes, need savings facilities to migrate
their risks in terms of emergency or could be used as cash collateral for loans.
 Insurance Services: The availability of insurance services is an integral part of agricultural
financing especially in the rural areas.
 Payments Scheme: Is the most important aspect of financial transactions among the farmers
in rural areas. It deals with the remittance, transfer and payment of funds to and from the rural
sector.
 Group Formation,: This is the arrangement by individuals without collateral who get
together and form groups with the aim of obtaining loans from a lender such as Microfinance
Bank.
 Entrepreneur Development, Trade Market Linkage Service and Business Advisory
Service.
 OTHER SPECIALISED FINANCIAL INSTITUTIONS IN NIGERIA
 Bank of Agriculture: (BOA). The major areas of the bank participation in agriculture and
rural developments are: Provision of affordable credit facilities to less privileged segments of
the Nigerian society i.e. Poor farmers in the rural areas who cannot readily access the
services of conventional banks; acceptance of deposit from clients; provision of opportunities
for self-employment in rural areas; promotion of capacity building through the provision of
relevant training and advisory service to farmers and rural entrepreneurs.
 Nigerian Agricultural Insurance Corporation (NAIC): The objective is to provide
insurance covers to farmers against natural disasters and other risks associated with
agricultural activities. The existence of NAIC has encouraged banks to be more liberal in
providing agricultural credit to farmers.
SPECIALISED AGRICULTURAL RURAL FINANCE PROGRAMS AND SCHEMES IN
NIGERIA
The Agricultural Credit Guarantee Scheme Fund (ACGSF):
 To provide guarantee in respect of loans granted by any bank for agricultural purposes
with the aim of increasing the level of banks’ credit to the agricultural sector.
 To address the low recovery rate on agricultural lending which discouraged the bank
lending under the scheme has been improved by the introduction of innovations such as:
i. Self-Help Group Linkage (SHGL) Program: with banks: It seeks to link groups of
farmers (Informal and Formal) to banks for savings mobilization and credit delivery as
well as serving as collateral for the groups loans.
ii. Trust Fund Model (TFM): It is used as additional collateral for rural farmers to access
further loans such as influential Politician and High Network Individual.
iii. Interest Drawback Program (IDP): It assists farmers under the ACGSF to reduce the
burden of interest on loans. It is a special facility to encourage timely payment of loans
such 40% interest drawback.
iv. Small, Medium Enterprises Development Fund (SMEDF): The objective of this
scheme is to provide supports for Small and Medium Enterprises and to stimulate
 economic growth by providing funds for various sectors in Nigeria with a more focus and
support for farmers and agricultural sector. It also help to generate employment through
facilitation of the flow of funds for the establishment of new SME projects. Such funds are
provided by the Central Bank of Nigeria (CBN) using the selected Microfinance banks as
windows to disburse loans directly to the beneficiaries.
Rural Finance Institution- Building Program(RUFIN)
This scheme is jointly designed by international Fund for Agricultural Development(IFAD), the
Federal Government of Nigeria (FGN) and the Central Bank of Nigeria (CBN) in order to facilitate
farmers access to credit through sustainable microfinance institution in Nigeria. RUFIN is a rural
financial sub-sector development programme in Nigeria. It focuses on the following:
(i) Provision of a guarantee fund through direct contributions to the microfinance development
fund under the authority of the CBN.
(ii) Improving financial management capabilities of Bank of Agriculture (BOA) through the
adoption of suitable software and staff training.
(iii) Promoting rural savings which can be used as deposit guarantee for credit granted to the poor
farmers in the rural areas.
(iv) Facilitate expansion of financial services to agriculture and SMEs in rural areas. e.t.c.
THE ROLES OF MICROFINANCE BANK IN AGRICULTURAL EMPOWERMENT.
The roles of microfinance Bank in empowering the agricultural sectors especially the farmers in the
rural areas could best be explained under two key roles:
(i) Non- Financial roles
(ii) Social roles.
Empowerment is closely related to development as it connotes an increase in economic strength of
the farmers within the agricultural sectors. Rural development and empowerment are critical
ingredients for alleviating poverty and ensuring a society's economic growth and transformation.
Agricultural empowerment focuses on those roles that help to improve the quality and standard of life
of the poor farmers and the rural dwellers in general.
 The Non- financial roles of empowering the agricultural sectors by the microfinance banks
may include the following:-
 Promotion of culture of savings among the poor rural farmers
  Flexible access to financial services by providing POS terminals and training on the
use of mobile phone for financial transactions and business enhancement.
 Provision of training and workshop with a focus on financial literacy initiatives.
 To connect local agricultural producers to external markets and investors.
e.t.c.

The key social roles of the Microfinance bank in empowering the rural dwellers (Farmers)
predominantly located in rural areas represent their financial support towards improved quality of life
and development of rural community in the following areas:
 Infrastructural development: Microfinance banks provide amenities that improve the
communities in which they operate- community social responsibilities. Lack of basic
infrastructure is a major impediment to life and enterprise in rural community. The
inadequacy of good road, network, public transportation, electricity and storage facilities
reduce the quality of outputs.
 Empowerment and Capacity buildings: The Microfinance banks provide employment for
community members in the rural areas and also engaging them in capacity building.
 Women Empowerment: Microfinance banks help to increase gender awareness and women
empowerment towards collective action by sponsoring workshops for training and providing
basic farm tools at a subsidize rate for the women farmers.
 Education/Training: Microfinance banks provide basic training to rural dwellers on the
benefit of using financial services, group deposit mobilization and financial literacy initiatives
through sponsored organized workshops and paid professional consultants. Most rural
dwellers have not obtained sufficient basic education or technical and vocational training that
could increase their farm output and improved their quality of life.
 Improved Health care: The intervention with Microfinance banks for AIDS awareness,
Gender equity, Cholera and Malaria prevention among the rural dwellers has been an effective
tool in rural transformation and improved health care among the rural communities. The
intervention also demonstrated significant economic benefit: increased assets, income savings,
access to housing and improved healthy living.
  Poverty Alleviation: The timely intervention of Microfinance bank through provision of
credit facilities for farmers and jobs for their family members has helped to increase their
income with the following benefit:
i. Provides income for farmers through profit gained from improved agricultural outputs.
ii. Increase farmers standard of living
iii. Provides income to care for the family especially in the payment of children school fees.
Etc.

CONCLUSION:
Microfinance bank contributes to the development of the agricultural economy and the reduction of
poverty in agrarian communities in Nigeria.
The Microfinance service is one of the effective solutions to reduce that gap between the poor farmers
in the rural areas and the rich in the urban areas in Nigeria by providing loans to farmers, creating
employment opportunities in the local community, providing business management advice to local
residents on how to invest in small-medium enterprises. Etc.
However, it is recommended that the Microfinance institution should increase their economic of scale
and market share in Nigeria Microeconomic environment; interest rate on agricultural loans should be
reduced; loan repayment duration should be increased for agricultural loans, delay in loan
disbursement should be avoided while innovative financial products should be developed by
Microfinance Banks.
Paper presented by:

Mr Toyin Olufolahan
Managing Director
Olofin Microfinance Bank Plc