‘High interest rate affecting farm production’

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Image result for AFANRising interest rate is affecting farmers’ ability to boost production and help cut the country’s dependence on imports, the Chairman, All Farmers Association of Nigeria (AFAN), Lagos chapter, Otunba Femi Oke, has said.

Oke said interest rate on loans to farmers should be at a single digit. Currently, banks lend to farmers at about 28 per cent. To him, interest rates have significant impacts on the agricultural industry. High interest rates affect the cost of borrowing, investment decisions and value of farmland, he added.

According to him, farmers are finding it more difficult to service their debts as a result of high interest rates. Oke noted that delinquency rates on farm loans at commercial banks were still on the rise. This is because interest rate at 28 per cent reduces the income available to farmers that would enable them make their principal and interest payments.

Oke noted that rising interest rates could lead to increased risks for the farming sector, putting pressure on farmland values. His concern is that higher interest rates are coming when working capital on farms is dwindling. Right now, farmers that are most at risk in this kind of high interest rate environment tend to be big farmers who require big loans for operations.

Also analysts said there is an ever- increasing need to invest in agriculture due to a drastic rise in population and changing dietary preferences. Higher interest rates have placed some downward pressure on the value of farm real estate, which is an important source of collateral for many farm borrowers.

One of the outcomes of the Bankers’Committee meeting held in Lagos last month is that the Central Bank of Nigeria (CBN) and commercial banks should channel the Cash Reserve Requirement (CRR) kept in the apex bank’s vault for lending at single interest rate of nine per cent to agricultural and manufacturing sectors.

CBN Director of Banking Supervision Mr. Ahmed Abdullahi said the loans would only be available for job creation and expansion plans. He said: “The idea is to have job-creating activities in the economy and also to bring interest rates down within the economy. Although agriculture and manufacturing are the initial sectors that are being considered, a bank can apply if there is a job-creating sector where it is operating in which it may be considered. The whole idea is to bring down interest rates and create jobs.

“At the moment, banks funds are held under CRR and they are not being used. The idea came up that we can refund the CRR to a bank that has engaged in lending for a new project or for the expansion of an existing one in the agricultural or manufacturing sector as a way of utilising the CRR.

Anytime a bank lends to manufacturing or agricultural business at a rate that the CBN has prescribed, it will have its CRR refunded to it, up to the amount that it has lent.”

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