Experts decry default in repayment
BY KENNETH EZE
Experienced bankers, loan recovery agents, legal practitioners, insurance and risk management experts are voicing concerns over the alarm on reported default in repayment of the sums disbursed to farmers under the Anchor Borrowers Programme of the Central Bank of Nigeria.
They fear that the purpose of the ABP might be impinged upon by extraneous factors like culture, eroded value system, peculiar legal system and slack policy enforcement.
A former deputy governor of the CBN, Obadiah Mailafia, said that the policy document on the strength of which the apex bank rolled out the ABP could not be said to be worth the paper on which it was written, because of the value placed on it by those saddled with the responsibility of implementation.
A financing programme backed by proven safety valves including project management, agricultural extension services and insurance ought to be secure but, Mailafia, in a telephone interview with The Point, said that failure could be traceable to the running of the ABP.
On the failure of beneficiaries to repay, he said, “It has happened,” because “those things (the guidelines) were just written on paper.”
Recall that CBN Governor, Godwin Emefiele, disclosed that as at August, 3,107,890 farmers had received the sum of N791 billion to cultivate 3,801,397 hectres of land across the federation under the ABP.
He also made it known that the farmers were focused on 21 commodities, while 23 financial institutions were involved in the disbursement and management of the ABP.
With the outcry of defaults in repayment, those who know are expressing concerns that this otherwise laudable programme is about being dragged into the systemic failure that has become synonymous with managing the country’s economy.
The North West states of Kebbi, Kaduna, Kano and Katsina have been reported to rank high on the list of defaulter locations on the ABP.
A legal practitioner and loan recovery agent, Ikeoba Uzoechi, who spoke to The Point in a telephone interview, wondered why the apex bank and the Anchor Borrower firms could be attempting to “insult the intelligence of the public with claims of high level of default in repayment of the loans.”
He maintained that those entrusted with administering the programme should not seek to line their pockets with the funds meant to boost the economy through the agricultural sector, while attempting to pool the wool over the eyes of the people by creating stories on poor loans recovery.
“In the world of financing,” he said, “the simplest loans to administer are insured loans because if the borrower(s) fail(s) to meet the obligations, the insurer redeems the outstanding. Due process demands that insurance premium be paid, as part of conditions precedent to drawdown.”
He explained that the place of insurance in risk management as it pertains to lending is that the lender is guaranteed recovery, to the extent of the sum insured.
The CBN in the Anchor Borrowers’ Programme Guidelines, issued by its Development Finance Department in December 2016, stipulated that the Nigerian Agricultural Insurance Corporation “shall provide insurance cover to the projects under the Programme” and “ensure timely processing and settlement of claims,” among other safety valves meant to secure the loan and safeguard the system.
In addition to stipulating insurance cover for the loans, the ABPG stated that risks must be shared equally between the CBN and the Anchor Borrowers, who would either be a state government or “shall be private large-scale integrated processors.”
In-house analysts at The Point observed from the ABPG that risk sharing was provided for at 50 per cent between the apex bank and the Participating Financial Institutions.
The Guidelines stated that “In order to engender participation of PFIs in the programme, the CBN shall absorb 50 per cent of the amount in default after satisfactory evidence that every means of loan recovery has been exhausted by the PFI. The PFI shall bear the credit risk of the balance.”
To further strengthen safety valves for the ABP, the Anchors firms were also required to render agricultural extension and project management services by the ABPG.
Uzoechi pointed out that “These well thought out measures cannot be in place, yet people will be talking of failure to repay. They should please enlighten the public on the place of project management and insurance in all these.”
“What is oozing out now is mismanagement of what would have been a laudable programme, not reluctance of the farmers to honour repayment obligations”
On the possibility of some of the beneficiaries mistaking the loans for their own share of the national cake, he countered “Who would blame them? Why would they not, if the government thought to celebrate lending to citizens as if it was major research breakthrough? How do you want the farmers to explain to their families, friends and neighbours that the CBN governor flew in for photo ops with them on monies they would be required to pay back?”
He expressed reservations on the manner of the disbursement of the loans, which he maintained was supposed to be project managed.
“If the CBN in its wisdom stipulated that the loans should be project-managed, why are Nigerians just getting to hear of the defaults? What is oozing out now is mismanagement of what would have been a laudable programme, not reluctance of the farmers to honour repayment obligations,” he added.
Another aspect of the ABPG of the apex bank that ought to have helped in nipping defaulting in repayment in the bud is the provision of extension services.
The onus of providing agricultural extension services was placed on the Anchor firms or state governments with a view to getting them take responsibility for ensuring that the farmers got some education on and were professionally supervised on whatever aspect of farming they would be engaging in with the loans provided under the scheme.
It states that “The Anchor/State Governments shall be required to provide extension services to complement the training, ensure adherence to good agricultural practices and mitigate side selling.”
However, Chairman, Compassionate Farms and former Executive Secretary of the Nigerian Council of Registered Insurance Brokers, Fatai Adegbenro, warned that “we don’t have credit insurance in Nigeria.”
On what could defeat the safety valves put in place by the apex bank for the ABP, he pointed out that “the legal system in Nigeria does not allow credit insurance to work. Where there’s credit insurance, if a debtor defaults, you call on the insurance company to pay. They will then impound the goods or take the person to court to recover.”
He explained that what insurance provides is “if anything happens to the goods, to the business or the person dies. In the case of death, the insurance pays, that is the kind of insurance we add to our credit lines. But as long as the borrower is alive, the lender will hold the person responsible.”
Though, the NAIC, as stipulated in the ABPG should “Provide insurance cover to the projects under the Programme; ensure timely processing and settlement of claims; and serve as member of the project management team.
“The problem we have in Nigeria and Africa is that our value system has been eroded. People see everything from government as ‘let me go and take my own,’ without having good intention, whereas the government has come up with good policies, but a majority of the people will get the money and go and spend it,” Adegbenro added.
On the project management pillar, Adegbenro identified the people creating issues as “the downtrodden masses”.
People who benefitted from ABP at micro levels, which make it difficult for the legal system to enforce the provisions of the contract. It makes no economic sense to incur legal costs on loan disbursements of one hundred thousand and below.
He explained that the sums involved with the lower segment of borrowers, majority of whom are defaulting make it herculean to institute legal action against them.
“I am familiar with the ADB. They are not having problems with the medium and upper class of borrowers. The people they government planned to take out of poverty, are those creating issues, because of their intelligent quotient levels,” he averred.
They just collect the money and expend it on lifestyles. He also fingered meddlesomeness by the political class as a factor weighing down the ABP. “You will see some politicians listing the names of their family members, even non-existent people. They do it in connivance with government officials. That’s how we truncate ourselves,” he added.
Calls and messages to the spokesperson of the CBN, Osita Nwanisobi were not responded to as at press
time.
