BY

SINA ELUSAKIN
(INDUSTRIAL AND GENERAL INSURANCE PLC NIGERIA)

AT
SWISS RE AGRICULTURAL INSURANCE WORKSHOP, SAFARI PARK HOTEL & CASINO. NAIROBI, KENYA

JUNE 7 - 9, 2012

 Introduction

TABLE OF CONTENT

- Importance of Agriculture to Nigerian Economy.

Agricultural Finance Policies in Nigeria. Institutions established towards providing credit support to Agriculture. Bank of Agriculture (B.O.A) Agricultural Insurance in Nigeria NAIC Premium Subsidy Challenges of Agricultural Insurance in Nigeria. Deregulation Necessity

Governments Response.
Agric Insurance Potentials. NIRSAL Conclusion and Recommendations
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INTRODUCTION
IMPORTANCE OF AGRICULTURE TO NIGERIAN ECONOMY
Agriculture is very important to the socio-economic development of Nigeria. - Responsible for 42% of GDP -Major source of employment -Engages 70% of rural poor -Employs 30% of urban poor

-Though Oil and Gas is responsible for 80% of national revenue,

only 23% of GDP emanates from the sector. -Supply of raw materials to industrial sector

- Generation of FX earnings
- Provision of markets for the products of the industrial sector

Agricultural Finance Policies In Nigeria

Government policies and support for agriculture necessary to: Smoothen out imperfections in Agricultural finance Ensure food security Achieve favorable balance of payment Promote foreign exchange earnings Reduce poverty Generate employment Stem rural-urban migration Stabilize food price

Agricultural Finance Policies in Nigeriacontd

Some of Government finance Policies in Nigeria include: (i) Agricultural Credit Guarantee Scheme Fund introduced in 1978 and still in place till date. 75% of loan guaranteed by CBN 40% rebate on interest Deals with small scale farmers. As at 2005, 70% of loan smaller than $3,500.00 and only 11% of loan more than $7,000.00

Shortcoming: Administrative bottleneck

Agricultural Finance Policies in Nigeria..contd

(ii)

Small

and

Medium

Enterprises

Equity

Investment to

Scheme (SMEEIS) : introduced by Bankers Committee stimulate economic growth, develop local technology and generate employment. (iii) Rediscounting and Refinancing Facility : 2002 - date.

Banks that lend to Agriculture on long term basis

have

access to an amount which is a certain percentage of the outstanding asset portfolio to long-term agriculture by the

CBN at reduced rate at the discount window.

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Agricultural Finance Policies in Nigeria..contd

iv.

Agricultural Credit Support Scheme (ACSS) : 2006 -date (for large Agric projects)

- Borrowing rate was at 14%

- Borrower pays back 8% - CBN absorbs 6%

Purpose: Facilitation of the development of the agricultural sector by advancing credit to farmers at low interest rates to exert downward

pressure on prices of agricultural produce.

Agricultural Finance Policies in Nigeria..contd

v.

Large Scale Agricultural Credit Scheme: 2009 (N200

billion)
- To finance large integrated commercial farm projects with an asset base of not less than N350m excluding land. -

- Terms of borrowing favourable.

vi. Supervised Agricultural Loans Boards: mostly set up by State Governments and Agricultural Development

Programmes working with National Programme for Food

Security to provide credit to farmers

Agricultural Finance Policies in Nigeria..continued

Aside from the above major schemes, are various Government programmes aimed at boosting agricultural production in Nigeria. These include: National Accelerated Food Production Programme (NAFPP), - 1972, Agricultural Development Programme (ADP)

1975, OFN 1976, Green Revolution 1980; Rural Banking

Programme 1991, Community Banking Programme 1991 1997, Root and Tuber Expansion Programme, National FADAMA

Development Programme 1993; Family Economic Advancement

Programme (FEAP) 1997 2001; National Poverty Eradication Programme.
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Institutions established towards providing credit support to Agriculture includes:

Nigeria Agricultural Co-operative and Rural Development Bank

(NACRDB) 1972 to date Established by FGN & CBN to dispense credit to cooperative agribusinesses and small holder farmers at

subsidized interest rate. The bank is now known as BOA.

River Basing Development Authorities (RBDA): 1997 date National Grains Production Company 1979 . To expand grain

production through provision of improved seedling to farmers

National Directorate of Food Roads and Rural Infrastructure (DFFRI) Nigerian Agricultural Insurance Corporation (NAIC) 1987 date
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Bank of Agriculture (BOA)

Federal Government owned development bank
providing: 1. low cost credit to small holder and commercial farmers, and small and medium rural enterprises. 2. micro financing to small and medium scale non agricultural enterprises.
and ensuring: 1. effective delivery of agricultural and rural finance services on a

sustainable basis to support the national economic development

agenda, including food security, poverty reduction, employment generation, reduction in rural to urban migration, less dependency on imported food items, and increase in foreign exchange earnings.
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AGRICULTURAL INSURANCE IN NIGERIA

Despite efforts at increasing production, the agricultural sector was exposed to losses through: inclement weather conditions effect of natural hazards such as: floods, drought, pests, diseases, lightning and windstorm. loss by fire and thefts accidents, invasion of farm by wild animals Non of the over 100 insurance companies operating in the 80s was involved in Agricultural insurance. Government established the Nigerian Agricultural insurance

Company in 1987.

THE NIGERIAN AGRICULTURAL INSURANCE CORPORATION (NAIC).

ESTABLISHMENT:- 1987 as Nigerian Agricultural Insurance Company. - Became a Corporation in 1993

- Nigerian Agricultural insurance Corporation Act 1993. OBJECTIVES:

- Financial support to farmers for insured losses.

- Facilitation of credit to farmers insurance cover is an added

collateral. - Rest of mind and confidence to farmers

- Minimize or eliminate provision of Government assistance to

farmers during agricultural disasters.
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- NAIC Contd -

At inception NAIC covered: - 2 crops namely maize and rice and; - 2 livestock items namely cattle and poultry - agricultural assets such as farm buildings, machinery and equipment Presently the company covers 21 crop items, 9 items of livestock and twelve types of commercial businesses. Policies include: multi-peril crop insurance Plantation fire insurance Livestock insurance

Poultry insurance and

Fishery insurance Under the NAIC Scheme, the State subsidises premium by 50%
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NAIC operates a compulsory insurance Scheme for:

- All agricultural loans form banks - All agricultural and agro-allied projects assisted/supported or fully funded from public

funds.
- All direct and on-lending loans taken by Federal, State and Local Governments for reimbursement to farmers - All forms of loans for agricultural purposes by all banks and non-banks lending agencies - All direct on-lending and investment loans disbursed by the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) NAIC has transcended the Agricultural Insurance specialist company: Now underwrites all classes of non-life insurance including Oil and Gas, Aviation and General Accident in all sectors of the Nigerian Economy.
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NAIC
PREMIUM GENERATION:
Year Premium Income (N)

- Contd -

Premium Income ($)

Y on Y Growth

2005 2006 2007

419m 496m 732m

3.3m 4.0m 6.3m 18.3% 48%

2008
2009

148m
813m

1.1m
5.5m

- 80%
449%

The premium stated include other classes such as aviation, oil and gas as well as

other general insurance businesses that are not agriculture related.

Obvious that the penetration expected in Agricultural Insurance is not yet achieved
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PREMIUM SUBSIDY Every premium charged on food crop and livestock is subsidized by the Federal and State Governments in the proportion of 37.5% and 12.5% respectively. Normal commercial rates are applied to other commercial items. To have a level playing ground and ensure uniform penetration of Agricultural insurance, the premium subsidy should be

extended to private insurers as is the practice in India.

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CHALLENGES OF AGRICULTURAL INSURANCE IN NIGERIA

- Monopoly which has not allowed for innovation and competition - Premium not being affordable to farmers - Low awareness among farmers due to poor or no education - Poor penetration of the rural community - Poor rural infrastructure - In most cases only those who obtain loans take insurance - High exit from agricultural insurance contracts due to poor service - Apathy of banks to lend to farmers (collateral problem, misapplication of loan facility, high risk nature etc.) - Poor record keeping
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Challenges.contd

- High level of intrinsic risk in Agric makes revenue to fluctuate

( income instability)
- Lack of funds for premium payment - Smallness of farms beyond insurable threshold

- Low level of monitoring visits to policy holders (preference in given to

large scale farmers to the neglect of small scale) - Lack of detailed understanding of policies - Insurance offices are too far away from the farmers. - Infrastructure problems do not encourage extension services

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DEREGULATION NECESSITY
Increased opportunities for agricultural insurance recapitalization of insurance companies in 2007 need for involvement of

private companies
Opportunities for Agricultural insurance beyond what NAIC could cope with. Pressure on the NAICOM to expand agricultural insurance beyond NAIC by

creating competitive and innovative agricultural insurance market.

Request for total deregulation of Agricultural insurance market through the amendment of the NAIC Insurance Act especially section 13. Efforts by CBN/NIRSAL in this regard. The world banks interest in weather based insurance products.

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GOVERNMENTS RESPONSE
In the first quarter 2012, IGI was approved by NAICOM to underwrite

agricultural Insurance;
Private insurance companies restricted from writing State or Federal Government funded agricultural insurance projects and where

Government Funded farmers generally.

NAICOM could not go beyond this level because the NAIC Act has neither been amended nor repealed.

The Minister of Agriculture in February, 2012 put in place a committee

to review the NAIC Act.
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AGRIC INSURANCE POTENTIALS

Nigerian society mainly agrarian about 60% involved in agriculture

and are mostly uninsured

Mostly small scale Large scale farming on the increase Population over 160 million Integration of agro-sector with Petroleum industry through the

NNPCs bio-fuel development programme (production of ethanol and biodiesel from agricultural crops)
Production estimated to grow from N15trillion in 2010 to 38trillion in

2030

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NIRSAL
Introduction of NIRSAL (Nigerian Incentive -Based Risk-Sharing

System for Agricultural Lending)

For Transformation of Agriculture in Nigeria
Incentivising agricultural lending through:

Risk sharing with banks NIRSAL will bear 50% of losses incurred on Agricultural Bank Loans (N45billion earmarked)

Expansion of insurance products for agricultural lending from

current coverage of 500,000 to 3,800,000 agricultural producers

(N4.5billion budgeted)

Consideration of introduction of weather index insurance

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Conclusion and recommendations

To scale up Agricultural Insurance and boost agricultural production in Nigeria:

a) Government needs to:

amend the NAIC Act to allow for competition, innovation and market enterprise in the agricultural insurance industry expand the scope of provision of premium subsidy to include the policies issued by private companies. This will allow for level playing ground as practiced in India in order to make insurance premium afforded to all small scale farmers.

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Conclusion and recommendations.Contd

continue to maintain agricultural insurance as part of the national

agricultural insurance policy

could still allow NAIC to provide reinsurance services to other insurers catastrophic losses

encourage the development of weather index insurance by

developing the required infrastructure such as the meteorological stations, encouraging research and development and support the

input of international organizations such as World bank FAO etc

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Conclusion and recommendations.Contd

identify and address the various qualities of risks threatening the farmers such as insufficient financial capacity to pay premium, small fragmented and disorganized agricultural land, low level of social, cultural and educational standards in agricultural sector

the realistically encourage banks to grant loans to the farmers

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Conclusion and recommendations.Contd

b) The Insurance industry should:

Develop marketing network able to penetrate the rural areas through the agency system, the farmers association, microfinance bank etc. Develop products that are not complex for the understanding of the farmers since most of the farmers are not educated Develop a co-insurance system that allows for further risk transfer among insurers Invest in product research and development, training and information gathering for both crop and livestock insurance Engage in extension services to help in the education of the farmers on insurance and how they can improve their production Develop appropriate insurance schemes for all aspects of agriculture Co-operate with banks and other lending institutions to develop contracts that actually address the problems of the farmers The banks also need to consider the ability of the farmers to repay the loans
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Banks as marketing channels

Role of Banks critical for agric insurance distribution

(a) Commercial Banks

outreach of banks in the rural areas is growing rapidly and cannot be

matched by any alternative channel for delivery of subsidy-driven agricultural insurance.

agricultural insurance goes well with the offering of the banks and can be

seamlessly bundled for providing an integrated sinks of financial services offered by the banks and insurance companies to the Nigerian agricultural

community
24 commercial banks in Nigeria with thousands of branches.

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(b) Micro Finance Banks: another channel for agricultural insurance marketing over 900 now in Nigeria but they have mostly focused on trading, not agriculture bank of agriculture now to establish agric micro-finance banks to

focus mainly on agriculture one each in 776 LGAs

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YOU
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