The Nigeria Incentive-Based Risk Sharing system for Agricultural Lending (NIRSAL) was launched in 2011 and incorporated in 2013 by the Central Bank of Nigeria (CBN) as a dynamic, holistic USD500 Million public-private initiative to define, measure, price and share agribusiness related credit risk.
NIRSAL is designed with the objective of enabling the flow of affordable financing to all players along entire agricultural value chains. It reduces the risks of financing institutions while granting agricultural loans by building the capacities of both banks and value chain actors on good practices in agricultural financing, loans utilization and repayment.
NIRSAL operated as a project implementation office in Development Finance Department of the CBN until the appointment of its executive management team by the CBN on 23rd December 2015.
NIRSAL seeks to address the causes of low funding levels in the agriculture sector, including lack of understanding of the sector, perceived high risks, complex credit assessment processes/procedures, and high transaction costs.
Its approach goes beyond the use of Credit Risk Guarantee to:
- Fixing the agricultural value chain, so that banks can lend to the sector with confidence; and
- Encouraging banks to lend to the agricultural value chain by offering strong incentives and technical assistance.
To achieve this, NIRSAL has five pillars that are designed to 'de-risk' the agricultural financing value chain, build long term capabilities and institutionalize agricultural lending using its seed capital of USD 500 Million (USD0.5Billion).
The funds are allocated across NIRSAL's five pillars as follows:
- Risk-sharing Facility (USD300 Million). NIRSAL uses this facility to address banks' perception of high-risks in the sector by sharing losses on agricultural loans.
- Insurance Facility (USD30 Million). The facility's primary goal is to expand insurance products for agricultural lending from the current coverage to new products, such as weather index insurance, new variants of pest and disease insurance etc.
- Technical Assistance Facility (USD60 Million). NIRSAL uses this facility to equip banks to lend sustainably to agriculture, producers to borrow and use loans more effectively and increase output of better quality agricultural products.
- Holistic Bank Rating Mechanism (USD10 Million). This mechanism is used by NIRSAL to rate banks based on two factors, the effectiveness of their agricultural lending and the social impact and makes them available for the public.
- Bank Incentives Mechanism (USD100 Million). This mechanism offers winning banks in Pillar four, additional incentives to build their long-term capabilities to lend to agriculture. It will be in terms of cash awards.