How Sterling Bank has kept non-performing loans to agribusiness below 2%  – Obikanye

Dr. Olushola Obikanye

Dr. Olushola Obikanye is Group Head, Agric & Solid Minerals Finance, Sterling Bank Plc, with  over two decades in roles spanning product development, corporate strategy, financial analysis, credit administration, project management, among others  in banking.

In this online interview, the agriculture expert speaks on the bank’s effort at contributing the nation’s economy via agribusiness and the value chains.

Expanding national economy via agribusiness industry

Agribusiness as a sector does quite a fair bit in employment but can do so much more.  As of Q3 2021, the sector contributed about 29.94% to the nation’s GDP. This is a sizeable contribution and also shows immense potential for outsized performance. Maximizing this potential to increase economic contribution can be achieved by encouraging more local production of agro-commodities to fulfill local demand, exporting the excess as a trade commodity once capacity is achieved.

But this optimized potential is dependent on creating a conducive environment for current and prospective agribusinesses to thrive. This can be achieved through incentives like tax holidays for agric focused businesses; start-ups, key players in the export value chain, financing small holder farmers at sub-commercial rates with intervention funds to drive production at scale and more.

Most crucially, all of these can be achieved with increased participation of the private sector in agribusiness.

Making agribusiness, others attractive for large-scale investment

A couple of factors could be considered which are pivotal in enhancing scalability and making the sector more attractive. These start with the pivotal need to create an enabling environment to allow the private sector effectively play its role. This has been observed in other markets that have built around their agribusiness industry, resulting in an increase in local production.

With an increase in private sector participation, the market opens up and increases in attractiveness to foreign investments, making even more resources available given the exchange rate.

However, all of these can be accelerated by making cheap funding available to stimulate participation and increase scale with smallholder farmers and agro-focused SMEs.

Lastly, leveraging data and technology will exponentially improve the efficiency and effectiveness of our practices, minimizing waste and allowing industry players optimize to achieve maximum output. 

Combining these solutions will simultaneously increase production and the creation of value, making the industry more attractive to much needed investment.

How Sterling Bank intends growing its participation in the current economic environment

Beyond being financiers of the sector, one of the key strength we have is that the core of our agribusiness team is comprised of specialists and practitioners. So, the industry’s challenges are understood and experienced on two fronts – as practicing agribusiness sector stakeholders and as financiers of the sector.

This positions us uniquely to view the problems and analyse the variables,  relationships and  resultant effects. This guides the solutions we develop in implementing our HEART strategy, of which agribusiness sits right in the middle.

From a problem analysis, we have observed that participation has been affected by a combination of factors like insecurity, high input costs, changing weather systems, limited use of technology, antiquated practices, limited market access, wastage and post-harvest losses and so on .

With an understanding of the impact of  these problems, we have developed some solutions in-house, collaborated with key stakeholders on others and are actively brainstorming to find lasting solutions to others.

By crafting solutions to some of these problems, we are growing our footprint as practitioners and financiers.

For example, financing ranks as one of the largest challenges faced by growing agribusinesses. To address this, we have increased our lending to the agribusiness sector from 10% to 12% and are willing to extend further if the need arises. This funding cuts across the needs of producers and aggregators where loans can be provided in the form of inputs – seeds, fertilizers etc. That is how much we believe in the potential of the sector.

 On post-harvest losses and improving access to market, we are solving two problems with some of our solutions. A worrying statistic is the loss of approximately 45% of harvests due to improper storage. This equates to the loss of almost half of value created and a contributor to food pricing volatility. To address this, we have partnered with key stakeholders to develop SABEX to improve access to storage, trading and credit facilities, which in turn allows for commodity trading out of harvest cycle, the preservation and capture of value outside of the regular cycles. Some of the commodities we have successfully implemented for are staples of Nigerian homes, rice, beans, sorghum and so on. Now, farmers, traders and other stakeholders can visit and sell their commodities

Agribusiness and younger generation
It’s interesting to note that 33.3% of the Nigerian population today falls within the age of 16-35 years, which forms the bulk of the Nigerian youth population. It’s projected that this figure will be on the increase by the year 2040. Having said this, the average age of the farming populace is well over 55 years, which means agriculture, as of today, is majorly practiced by a more mature generation. This paints a picture that agriculture in Nigeria and everything associated with it, local food production included, is on the path of extinction if adequate measure is not taken to encourage the youth into the sector. 

To address this problem, we have partnered with the Mastercard Foundation to develop SWAY AgFin – a single digit interest financing solution for agribusinesses run and owned by women and youth. With a flexible tenor, extending up to 5 years in some cases, we are seeking to involve a fresh generation of agribusinesses to increase production where possible and maintain sustained food production across generations. In addition to this, we are actively collaborating with organizations to provide technical training to youth and women as they start their journey into agriculture.

Expanding  investment into secondary and tertiary parts of the agricultural value chain.

Yes, we have begun plans to extend our activities to other sector players beyond the primary producers.

At Sterling, we see the model of the industry as extending beyond primary, secondary and tertiary value chain players. In more detail, today’s agriculture value chain can be segmented into pre-upstream, upstream, midstream and downstream.

Over time, most financial institutions have focused on the upstream segment – primary production,  crop and livestock farmers. In the last five years, we have developed expertise in the other segment beyond the upstream segment and have been able to finance players within and beyond that segment.

We have also leveraged interventions from the Central Bank of Nigeria such as the Paddy Acceleration Aggregation Scheme, Maize Acceleration Aggregation Scheme, Real Sector Scheme Funds and many more. These deliberate investments to expand well beyond the primary producers include aggregators, processors, commodity traders and exporters who are crucial in unlocking of the true value of these produce.

 Level  of investment support to the secondary and tertiary parts of the agricultural space to drive growth

Beyond tweaking existing products and developing new ones, we are taking one of our viable products into the next level of market penetration in meeting needs.

For example, SABEX has now evolved from  being a platform that enables trading of commodities to an on-lending platform where farmers or aggregators can get credit based on the quantity and quality of commodities they have. We have partnered with AFEX in making this a reality by leveraging their warehouse network across the country.

Our goal is to make SABEX a secondary trading platform where derivates[AA1]  can be bought and sold on the platform.

Challenge of  financing the sector

A few items have become influencing factors as to why funding has become a key problem. If we take the effect of inflation on the increase in the pricing of input materials. This affects how loans are priced and eventually disbursed.

The state of the available infrastructure also adds a layer of cost to industry players as they now carry the expense of building and/or maintaining existing infrastructure in a rapidly changing economic environment.

Add to these the dependence on imports for a lot of our inputs and equipment. With a volatile exchange rate, the cost of securing these crucial inputs, which are priced in foreign currencies, negatively impacts the costing dynamics of agribusiness ventures.

Adding these three elements together paints a picture of why the supply of financing to the sector is yet to be matched. Simply put, there is a fair amount of uncertainty in the moving parts.

Solving this problem requires a bit of bravery and a lot of dedication on the side of the financier. At Sterling, Agriculture is a key part of the HEART strategy. These sectors, Health, Education, Agribusiness, Renewable Energy and Transportation, are the focal areas of our investments in the mid to long term. With the commitment to agriculture sorted, we are then able to effectively close the gap by developing specialized products to address these issues and correct for them where achievable.

Also, standardizing and digitizing the process of application will make the decision to lend easier for us as an organization.

Lastly, working closely with the beneficiaries of the loans to maximize these investments through the provision of consulting and advisory services, as well as regular monitoring activities are ways we are tackling the financing gap and getting resources to agribusinesses that need them.

Does  the bank intend to increase her commitment by lending more to the sector? If yes, how?

Yes, we understand that most banks are challenged with a higher-than-normal percentage of non-performing loans from the agribusiness sector.

The reasons are not farfetched as they are due to the existential threats to the sector and the associated risks they carry. These have colluded to create losses for financiers like ourselves.

However, I am pleased to say that we are doing a few things differently at Sterling which have helped keep the share of our non-performing loans to the agribusiness sector well below 2% for the last 3 years. 

Our people, evaluation processes and monitoring activities are our secret ingredients. Our team is comprised of seasoned finance professionals who have backgrounds and experience in agriculture as well as agro-related endeavours – this gives us an understanding of customers’ needs as we are able to empathise from the perspective of practitioners and providers of credit. This background contributes to how we evaluate requests for financing and guide the customers as we are able to see not just from the perspective of the Bank, but also from the customer.

We then ensure that we work closely with the customer to help them  get the best out of their farm through training activities, regular assessment visits and more to keep projects running in favour of both the entrepreneur and the Bank.

Consolidating recent successes in the sector

We intend to consolidate our position by continuing to lend where we see the opportunity, developing products that meet the needs of the sector and market at large, and drive the right kinds of collaboration with practitioners and stakeholders in solving the industry’s problems.

As earlier noted, we are ranked as one of the foremost banks in agricultural financing in Nigeria and we pride ourselves in our track record of lending efficiently to the sector. This is evidenced by the agribusiness loan portfolio currently sitting at 12% of the entire bank’s books – I’m not too certain there are many other banks in the country currently at that level of exposure to the sector. More importantly, this is a number we are more than willing to increase with the right opportunities.

This year, we intend to be intensely present our SWAY AgFin and  SABEX propositions for the market’s adoption. We are confident these solutions will plug major financing gaps in the industry, drive participation in a younger demographic and elevate agro-commodities to more than mere produce and position them as  viable assets class worthy of large-scale investments.

Lastly, we intend to continue to build on our research capabilities to highlight opportunities within the sector across value chains while bringing stakeholders together to chart a course for Nigeria’s agribusiness sector, with seminars like the Agriculture Summit Africa.

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