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Nigeria’s agriculture sector, for decades, has faced a major problem that doubles as a paradox. It boasts of enormous opportunities, but the money needed to unlock them has remained difficult to secure.
Many wonder why banks are reluctant to lend to players in a sector with huge potential. Nonetheless, farmers and agribusinesses need money to expand. Nigeria needs more food, more jobs, more processing and stronger local value chains.
Yet, somewhere between the bank’s vault and the farm gate, risk gets in the way.
A farmer may have good land, a viable business plan and a ready market, but a lender still has to worry about drought, floods, input costs, poor roads, storage, price swings, inadequate insurance and the borrower’s ability to repay.
For the bank, these are not abstract concerns. They are potential losses.
And for a bank responsible for protecting depositors’ funds, every lending decision must answer one fundamental question: what happens if the borrower cannot repay?
This is the dilemma at the centre of Nigeria’s agricultural financing challenge.
It is also the gap that the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) has been working to bridge.
The idea is straightforward but potentially far-reaching. Instead of asking banks to ignore agricultural risks, find ways of sharing, managing and reducing those risks so that commercial lenders can finance more viable businesses.
The significance of the model goes beyond individual loans.
It is about changing the relationship between banks and agricultural businesses, from one in which risk is a reason to stay away to one in which risk can be understood, priced and managed. That is the NIRSAL effect.
Where will stronger capital go?
Earlier this year, the Central Bank of Nigeria concluded the recapitalisation programme for the banking sector, designed to strengthen banks and improve their capacity to support the economy.
The exercise has raised an important question. What should stronger banks do with stronger balance sheets?
President Bola Tinubu provided part of the answer at the 19th Annual Banking and Finance Conference of the Chartered Institute of Bankers of Nigeria.
He challenged financial institutions to look beyond balance-sheet growth, profitability and shareholder returns and consider how their financial strength could translate into investment, production, employment and improved living standards. That challenge goes to the heart of economic transmission. A stronger financial system does not automatically produce prosperity.
The real test is what happens after the capital leaves the bank.
Does it finance a factory, farm, processing plant, logistics business, technology company?
Does it create jobs and income?
Does it increase production?
Or does it simply remain within the financial system, generating returns without sufficiently expanding productive capacity?
Agriculture is one sector where this question is particularly important.
Nigeria needs investment across virtually every stage of the agricultural value chain, from inputs and production to aggregation, storage, processing, transportation and marketing.
However, experts note that banks cannot simply be instructed to lend.
Their responsibility to depositors, shareholders and regulators requires them to protect asset quality and maintain prudent risk management.
The challenge, therefore, is to increase agricultural lending without asking banks to abandon commercial discipline. That is where credit enhancement becomes important.
Risk behind the loan
A credit guarantee does not make a risky business risk-free. It does something more practical. It absorbs a defined portion of the potential loss if a qualifying borrower defaults. That changes the economics of the lending decision.
A transaction that may previously have appeared too risky can become acceptable when part of the downside is covered. The bank still assesses the customer. It still determines whether the business is viable. It still manages the relationship. It still expects repayment. But the presence of a partial guarantee can make it easier for the bank to take an exposure that falls within a manageable risk range.
NIRSAL’s Credit Risk Guarantee is built around this principle.
Participating financial institutions receive partial coverage against defined credit losses on eligible agricultural transactions, with NIRSAL providing coverage of up to 75 per cent of principal and accrued interest.
The bigger story, however, is not what happens when the first loan is granted. It is what happens afterwards.
Second loan tells a bigger story
Consider what happens when a borrower returns to the bank. The first transaction may have been based on a combination of due diligence, projections, collateral, guarantees and risk mitigation.
But the second transaction comes with something the first did not have, experience.
The lender now knows the borrower. The borrower knows what the lender expects. The bank has information about the business. The borrower has begun to build a credit history.
If the first facility was successfully managed, uncertainty may have reduced.
This is one of the most significant features of the NIRSAL experience.
For agricultural lender-borrower relationships that returned for subsequent NIRSAL-backed facilities between 2025 and the first half of 2026, the average transaction size rose from N2.93 billion in 2025 to N3.94 billion by H1 2026. That is a 35 per cent increase.
Over the same period, lenders that repeatedly used NIRSAL’s Credit Risk Guarantee increased the value of additional credit extended to agribusinesses that might otherwise have been declined from N9.36 billion to N11.86 billion.
The numbers suggest something important is happening.
The guarantee is not simply supporting one-off transactions. It can help create relationships.
And relationships matter in banking. From unfamiliar risk to known risk. One of the biggest obstacles to agricultural lending is information.
Banks are generally more comfortable lending where they have a long history of transaction data and a clear understanding of the customer’s cash flows. Agriculture can be different.
The performance of a farm or agribusiness may depend on variables outside the immediate control of the borrower.
Weather can affect production, commodity prices can change, transportation costs can rise, input prices can jump, a buyer can delay payment, a storage facility can become unavailable.
Any one of these can affect cash flow.
Risk-sharing can provide the bridge that allows the lender to enter the relationship. But once the relationship exists, another process begins. The lender learns, the borrower learns, data accumulates, performance becomes measurable and credit history begins to develop.
With each successful transaction, the financing relationship can become less dependent on assumptions and more dependent on evidence.
This is why the ultimate objective of a guarantee should not be permanent dependence on guarantees.
The objective should be to use risk-sharing to build the confidence and information necessary for deeper commercial lending. In simple terms, the guarantee can help open the door. Performance can help keep it open. What happens when things go wrong?
Of course, not every agricultural business will succeed.
That is why guarantees exist in the first place.
When a borrower defaults, the protection mechanism must work.
NIRSAL says it has honoured guarantee claims valued at N4.5 billion, with an average settlement period of 30 days.
For lenders, that speed matters.
A guarantee that takes too long to respond can undermine confidence in the mechanism. But there is an even bigger issue. Why did the borrower default? Was it poor management? Was there a production failure? Was the market disrupted? Was the commodity price too low? Was the business unable to move its goods?
This is where agricultural finance differs from simply writing a cheque. A loan does not operate in isolation. The business behind the loan operates within a chain.
If something breaks within that chain, repayment can be affected. The farm is only one part of the equation
Take a farmer who receives financing to cultivate a large area of land.
The loan may cover seeds, fertiliser, labour and equipment.
But what happens if the fertiliser arrives late? What happens if flooding destroys part of the farm? What happens if the farmer harvests successfully but cannot find adequate storage? What happens if transportation costs make it uneconomic to move the produce to market?
What happens if market prices collapse just as the product reaches maturity? In each case, the loan itself is not necessarily the problem. The problem is the environment around the loan.
That is why agricultural risk has to be viewed across the entire value chain.
Production risk can become credit risk. Market risk can become credit risk. Logistics problems can become credit risk. Price volatility can eventually become credit risk.
By the time a bank records a non-performing loan, the original problem may have occurred months earlier somewhere else in the value chain.
This is why NIRSAL’s approach goes beyond the guarantee itself. Its model combines credit risk-sharing with efforts aimed at strengthening the underlying agricultural value chain, while insurance advocacy and facilitation can help transfer defined production risks.
The objective is to reduce the likelihood that risks will eventually crystallise as loan losses.
The numbers behind the model
The performance of the guaranteed portfolio provides another dimension to the story.
NIRSAL says non-performing loans across its guaranteed agricultural portfolio stand at 0.32 per cent, compared with 9.85 per cent for the banking industry’s agricultural loan portfolio.
The figures, as presented by NIRSAL, point to the potential value of combining financing with structured risk management. But the real measure of impact goes beyond repayment. It is what the financing produces.
In H1 2026, NIRSAL says every 1 of its guarantee capital was associated with N2.29 in commercial bank lending to agriculture. Across 46 agribusinesses, the financing supported an estimated 3,279 jobs and more than 82,000 tonnes of food output, while an estimated 16,395 lives were impacted.
These numbers help illustrate how financial intermediation can move beyond the banking sector. A guarantee supports lending. Lending supports investment. Investment supports production. Production supports employment.
Employment generates income. And income supports households. The impact therefore travels far beyond the original bank facility. This is bigger than farming
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Agricultural finance is often discussed as though it begins and ends with farmers. It does not.
A modern agricultural economy includes seed companies, fertiliser suppliers, equipment manufacturers, farmers, aggregators, processors, warehouses, transporters, wholesalers, retailers, exporters and technology providers.
Finance at one point in the chain can unlock activity at several other points. A processing company that obtains funding to expand its plant may buy more from farmers. The farmers may then increase production.
Transporters move the additional output. Warehouses store it. Workers process it. Retailers distribute it. Consumers buy it.
The same initial financing can therefore have a multiplier effect across the economy.
This is why the agricultural credit gap matters. It is not simply a farmer’s inability to obtain a loan.
It is a constraint on the growth of an entire ecosystem. The real NIRSAL proposition
NIRSAL’s proposition to the financial sector is therefore not that banks should take more risks. It is that banks can potentially take better-understood risks. That distinction matters.
The role of a risk-sharing institution is not to replace commercial judgment.
It is to help make commercial judgment possible in areas where risk has historically discouraged lending. The bank retains the customer. The bank performs its credit assessment.
The bank manages the facility.
The bank remains a commercial participant. NIRSAL provides a layer of support that can make the transaction more manageable.
This places the institution somewhere between development finance and commercial banking.
Its role is essentially to help connect the two. National development priorities require agricultural financing.
Commercial banks require risk-adjusted returns.
The challenge is finding mechanisms through which both objectives can coexist.
The next challenge is scale
The numbers from individual transactions are encouraging, but Nigeria’s agricultural financing challenge is much larger. A handful of successful facilities cannot close the country’s agricultural credit gap.
What is required is scale. That means more banks participating.
More viable agribusinesses becoming bankable. More insurers covering identifiable agricultural risks. More investment in storage and logistics.
More reliable market information.
Better value-chain organisation.
And stronger links between producers and processors.
It also means changing the perception of agriculture within the financial sector.
Agriculture cannot continue to be viewed simply as a high-risk sector that requires special treatment. The sector contains businesses.
Some of those businesses are highly scalable. Some have strong cash flows.
Some have established markets.
Some require significant capital to move from small-scale operations to industrial production.
The financial sector’s task is to distinguish between businesses that are viable but constrained by identifiable risks and those that are fundamentally unviable.
Risk-sharing can help with the first category.
It cannot turn an unviable business into a viable one.
That is another reason why sound credit assessment remains essential.
What the banks do next
The recapitalisation of Nigeria’s banking industry has created greater financial capacity. The next chapter will be about deployment. Where will the additional capital go?
How much will reach agriculture, manufacturing, infrastructure and other productive sectors?
And how much economic activity will that capital generate? For banks, agriculture does not have to be charity. It can be business.
But it has to be structured as business.
That means understanding the borrower, the value chain, the market, the cash flow and the risks.
For agribusinesses, the message is equally clear.
Access to finance should not be viewed as a one-time event.
Every successful financing cycle can build a stronger relationship with the financial system.
A business that borrows, invests productively and repays successfully creates a track record that can support future financing. That track record can become an asset.
Ultimately, the significance of NIRSAL’s model is not the guarantee itself.
It is the chain of confidence that the guarantee can help create.
A bank that was previously uncertain about an agricultural borrower may become willing to lend when part of the risk is shared. If the transaction performs, the bank gains information.
The borrower gains a credit history. The next transaction can be larger. The relationship becomes more commercial.
The need for external risk support can potentially decline.
That is the transition Nigeria needs.
Not permanent intervention. Not permanent guarantees.
But mechanisms that help move difficult sectors towards deeper private-sector financing.
The NIRSAL experience suggests that risk-sharing can play that role.
The institution says its guaranteed portfolio has recorded low non-performing loans, while repeat transactions have grown in size and additional commercial credit has increased.
The broader lesson is that agricultural finance should not be treated as a binary choice between reckless lending and no lending. There is a middle ground. Risks can be identified. Some can be mitigated. Some can be transferred. Some can be shared.
And some simply have to be priced.
The task is to create a system that allows financial institutions to make those distinctions with greater confidence.
The most revealing way to look at the NIRSAL model may be through a simple question:
What can N1 of risk capital unlock?
If that N1 merely protects a bank from a loss, its impact is limited.
But if that N1 helps unlock N2.29 in commercial agricultural lending, as NIRSAL’s H1 2026 data indicates, the economic proposition changes.
The question then becomes bigger than the guarantee.
What did the additional lending produce? How many farms expanded? How many processing facilities increased output? How many workers were employed? How much food entered the market?
How many businesses built stronger credit histories?
And how much additional private capital became possible because the first risk was shared?
Those are the questions that will determine whether Nigeria’s stronger banking system succeeds in transmitting capital into the real economy.
The country has recapitalised its banks. Now comes the harder task of converting capital into economic activity.
Agriculture is one of the clearest places to begin.
For NIRSAL, the ambition is not to take agricultural risk away from banks.
It is to make that risk more understandable, manageable and financeable.
For banks, the opportunity is to look beyond the traditional perception of agriculture as a difficult lending sector and identify viable businesses across a vast value chain.
For agribusinesses, the opportunity is to use financing to build productive capacity, demonstrate performance and establish the credit histories that can unlock larger commercial facilities.
And for Nigeria, the ultimate prize is measured not in guarantees or loans, but in what happens afterwards. More production. More processing. More jobs. More income. More food.
More businesses are capable of standing on their own.
That is the point at which financial-sector strength begins to translate into economic strength.
And that is the real NIRSAL effect, turning risk into information, information into confidence, and confidence into sustainable commercial finance for agriculture.
