Nigeria’s agricultural sector holds enormous potential, but for years, that potential has been locked behind poor access to finance, unpredictable risks, and a lack of investor confidence. Farmers across the country, from maize growers in Kaduna to cassava processors in Ogun, have faced the same challenge: securing funding and scaling their businesses in a system where banks see agriculture as too risky.

This is because smallholder farmers, who populate the agricultural sector, often lack collateral, face high credit costs, and have limited access to credit information, forcing many to rely on informal and unfair financial sources.

All these necessitated the establishment of Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), which was established to improve the agricultural value chain and promote lending. It recognises that funding alone will not be sufficient without addressing structural and perceptual barriers.

NIRSAL is structured as an incentive-based risk-sharing system. NIRSAL functions by taking on risk and offering incentives, making agricultural lending more attractive to private financial institutions, thereby reducing the public burden, promoting sustainable, market-driven development, and increasing access to finance for farmers.

NIRSAL’s Role and Structure

The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) was launched in 2011 and officially registered in 2013 by the Central Bank of Nigeria (CBN), in partnership with the Federal Ministry of Agriculture and Rural Development (FMARD) and the Nigerian Bankers’ Committee.

As a Non-Bank Financial Institution owned by the CBN, its core task is to: “Redefine, Dimension, Measure, Re-Price and Share agribusiness-related credit risks in Nigeria.”

NIRSAL aims to improve access to private capital and encourage bank participation by tackling the barriers associated with agricultural lending. Nirsal focuses on building partnerships between agriculture and finance, helping Nigeria achieve food security, job creation, and economic growth through a financially viable agricultural sector.

The Five Pillars of NIRSAL

NIRSAL’s comprehensive strategy for achieving its goals is supported by five strategic pillars and was initially funded with an estimated USD 500 million from the CBN. 

These pillars work together to create a supportive environment for agricultural investment:

1. Risk Sharing Facility (USD 300M):  It is specifically designed to address commercial banks’ view of high risks in agriculture by sharing a large portion of potential losses, covering up to 75% of losses on agricultural loans to reduce risk and encourage lending.
2. Innovative Insurance Facility (USD 30M): It focuses on developing and using new, innovative insurance solutions, including weather index insurance (which pays based on weather data), area yield index insurance (which pays based on average yield in an area), and new types of pest and disease insurance to protect farmers and support loan repayment.
3. Technical Assistance Facility (USD 60M): This pillar builds the capacity of financial institutions and agribusinesses, helping them understand the sector better and adopt best practices 
4. Rating Mechanism (USD 10M): It rates lenders and agribusinesses based on their effectiveness and social impact, and makes the information public.
5. Bank Incentives Mechanism (USD 100M): It rewards good performance by agribusinesses, financiers, and investors. It includes monetary awards and other incentives made to encourage more effective participation in agricultural lending.

NIRSAL’s Mechanisms for Catalyzing Agricultural Investment

NIRSAL uses several integrated mechanisms to address the challenges of agricultural finance in Nigeria, enhancing investment across the entire farming process.

1. Credit Risk Guarantee (CRG) Scheme

The Credit Risk Guarantee (CRG) is NIRSAL’s main service. It protects lenders and investors from potential losses in agribusiness. This scheme has enabled banks to lend over ₦211 billion to various agricultural businesses, including farmers, processors, and distributors. An indicator of the CRG’s effectiveness is the very low loan default rate of 1% over 10 years for CRG-backed loans.  

The CRG scheme offers varying coverage:

• Smallholder Farmers and Farmer Groups: 75% CRG Cover on loans up to ₦5 Million.
• Cooperatives: 75% CRG Cover on loans up to ₦50 Million.
• Large Scale Primary Producers/Mechanization: 75% CRG Cover on loans up to ₦50 Million.
• Processors/Large Scale Mechanization/Integrated Farms/Logistics
• Providers/Agro-dealers, Input and Equipment Suppliers: CRG Cover ranges from 30% to 50% on loans up to ₦2 Billion.  

The high 75% cover for smallholder farmers and cooperatives is strategic, addressing their lack of collateral and high-risk perception, making these loans viable for banks.

Complementing the CRG is the Interest Drawback (IDB) Scheme. This scheme rewards diligent borrowers with rebates of up to 40% of the interest paid on NIRSAL CRG-backed loans, effectively reducing their cost of funds. Rebates are paid quarterly if borrowers meet loan conditions and repay on time.  

2. Technical Assistance and Capacity Building

NIRSAL provides extensive technical assistance and training programs across all parts of agricultural value chains, from input suppliers to marketers. These programs also strengthen the capacity of financiers to better understand agriculture and assess agribusiness loans.  The programs include: 

• Agro Geo-Cooperative (AGC) Model: This initiative organizes smallholder farmers into financeable groups with strong governance structures. This grouping improves their access to finance, quality inputs, mechanization, and structured markets, helping millions of smallholder farmers join formal financial systems.
• Strategic Business Support Services (SBSS): It focuses on various agricultural commodities like Fresh Fruits & Vegetables, Ginger, Cassava, and Rice. 
• NIRSAL Farmers’ Business School (NFBS): NIRSAL launched the  NFBS to reach rural farmers. It is a mobile learning platform that provides technical assistance. It is multi-language, can be used offline, and works on any mobile phone, ensuring wide reach.  

3. Innovative Agricultural Insurance Products

Architect Kabiru Ibrahim, President of the All Farmers Association of Nigeria (AFAN) and Nigeria Agribusiness Group (NABG) supports NIRSAL’s agricultural insurance efforts, stating that “farmers welcome this improvisation from NIRSAL”.

NIRSAL’s transformations in agricultural insurance in Nigeria move from traditional indemnity-based systems to more efficient Index-based Insurance models such as:   

• NIRSAL Area Yield Index Insurance (AYII): It protects farmers’ expected yield based on historical performance in their area, covering losses from pests, diseases, and bad weather . NIRSAL’s efforts have also encouraged private insurers to offer agricultural insurance. 

4. Business Modelling and Value Chain Optimization

NIRSAL develops customized business models for agricultural value chains, integrating market dynamics and technology to ensure stable cash flow and maximum returns for farmers. Examples include:

• The NIRSAL Fertilizer Financing Framework (FFF): This helps Super Agro Dealers get loans to supply fertilizers, ensuring farmers have timely access to crucial inputs.  
• The NIRSAL Integrated Commercial Livestock Development (ICLD) Model: This model guides the development of Nigeria’s livestock sector, aiming to boost beef, dairy, and leather production while improving pastoralists’ livelihoods and addressing farmer-herder conflicts.  

NIRSAL ensures project success through “Comprehensive Field Monitoring”, using a nationwide network of offices and remote sensing technologies like satellite imaging and drones. This proactive system helps detect and resolve issues early, protecting investments.  

NIRSAL’s focus on “Promoting Value Addition” and supporting processors and logistics providers directly addresses the estimated US$9 billion annual post-harvest losses. By enabling investment in these areas, NIRSAL helps transform raw produce into higher-value products, increasing farmer income and developing local agro-processing industries.  

NIRSAL’s Contribution to Agricultural Growth/Contribution to Agricultural GDP and Food Security

NIRSAL’s actions have led to significant measurable impacts across Nigeria’s agricultural sector.

• Total Finance Facilitated: NIRSAL has helped secure over ₦235.7 billion in commercial funding for agriculture. This shows growing confidence from banks in the agricultural value chain.  
• Loan Performance: The effectiveness of NIRSAL’s risk reduction is clear in the very low loan default rate of 1% over 10 years for CRG-backed loans. Additionally, over ₦1.7 billion in interest rebates have been paid to diligent borrowers through the Interest Drawback (IDB) scheme, reducing their borrowing costs.  
• Farmer Empowerment and Reach: NIRSAL’s commitment to training and empowering farmers is extensive. Recent programs have empowered over 2,000 farmers across four states, with plans to impact an additional 40,000 farmers through follow-up training. NIRSAL has grouped over 3,000 Agro Geo-cooperatives, including 500,000 farmers on nearly 800,000 hectares of land. This aggregation helps small farmers access formal finance. By 2018, NIRSAL had trained 112,000 farmers in key value chains like Rice, Cocoa, Cotton, and Tomato.  
• Job Creation:NIRSAL’s partnerships contribute to job creation. Its collaboration with the National Agency for Science and Engineering Infrastructure (NASENI) for agricultural mechanization is expected to create 110,000 jobs (10,000 direct and 100,000 indirect). NIRSAL Microfinance Bank (NMFB) also supports job creation through business launches and expansion for Small and Medium Enterprises (SMEs). 

NIRSAL’s initiatives aim to strengthen the economy through increased agricultural GDP. By boosting productivity and reducing reliance on imported food, NIRSAL significantly contributes to improved food security across Nigeria 

Case Studies Transformations by NIRSAL in Nigeria

These examples show how NIRSAL’s models are scalable and adaptable across different agricultural value chains and regions.

1. Capacity Development & Farmer Empowerment (Aquaculture & Cassava)

NIRSAL recently completed a capacity development program for over 2,000 lead farmers and extension agents in Aquaculture and Cassava across Imo, Sokoto, Kwara, and Oyo States. This program introduced NIRSAL’s Agro Geo-Cooperative (AGC) model, which organizes farmers into financeable groups, improving their access to finance, inputs, and markets. The initiative is expected to impact an additional 40,000 farmers through follow-up training, with a goal of reaching 100,000 fish, cassava, and rice farmers nationwide.

2. Increased Wheat Production in Jigawa State

NIRSAL facilitated a Capacity Development Program for Jigawa Wheat Farmers and Extension Agents as part of the National Agricultural Growth Scheme and Agro Pocket (NAGS-AP)/Jigawa Wheat Cluster Project. The training included group dynamics for geo-cooperative formation, efficient produce collection, and early warning systems. The first phase involved 355 extension agents and 706 farmer cluster leaders, who will share their knowledge with their groups, aiming to boost Nigeria’s wheat harvest and food security.  

3. Financing Poultry Production and Cocoa Export (Cross River State)

NIRSAL helped secure substantial funding for Gbagolo Integrated Farms (poultry) and TOAJ Nigeria Limited (cocoa export) in Cross River State. NIRSAL provided a 50% Credit Risk Guarantee (CRG) and a 20% Interest Drawback (IDB) on these loans, reducing risks for Union Bank Plc and Sterling Bank Plc. NIRSAL also offered technical assistance and project monitoring. These projects contributed to the over ₦128 billion facilitated by NIRSAL since its start.  

Aliyu Abdulhameed, Former Managing Director/CEO of NIRSAL Plc, during his time, highlighted NIRSAL’s commitment to reducing agricultural risk. He stated that NIRSAL would not be pressured into releasing funds to unqualified entities, emphasizing strict adherence to its CBN mandate. He also noted that when farmers fail to repay loans, it negatively affects their future access to funds and hinders other potential borrowers 

NIRSAL Plc has become a transformative force in Nigeria’s agricultural sector, fundamentally changing how agricultural investments are made. Its strategic goal to redefine, measure, re-price, and share agribusiness-related credit risks has successfully overcome the historical hesitation of financial institutions to engage with the sector. By taking on significant portions of risk through its Credit Risk Guarantee (CRG) scheme, 

The organization’s comprehensive approach goes beyond just reducing financial risk. Its strong pillars, including innovative insurance products, extensive technical assistance, and strategic business modeling, have been crucial in fixing systemic inefficiencies across agricultural value chains. Initiatives like the Agro Geo-Cooperative model and the NIRSAL Farmers’ Business School show a deep understanding of real-world challenges, promoting financial inclusion for hundreds of thousands of smallholder farmers and improving their productivity through better knowledge and practices.