NIRSAL Turns to Equipment Leasing to Finance Agribusiness ...

NIRSAL Turns to Equipment Leasing to Finance Agribusiness

Farmers or agribusiness operators in need of equipment to mechanise operations but having difficulty accessing funds from banks may well look to leasing option to get the needed machines.

This method of financing promises to be easier as the Nigerian Incentive-Based Risk Sharing Agricultural Lending (NIRSAL) department of the Central Bank of Nigeria (CBN) is collaborating with the Equipment Leasing Association of Nigeria (ELAN) to ensure operators in the agric sector are able to get the machines they need.

Under this arrangement, entrepreneurs, leasing companies or farmers? cooperatives can get funds from banks to purchase agricultural equipment. Individual farmers or agribusiness would then acquire the equipment through the lease option (or hire purchase) from the leasing organisation.

However, Jude Uzonwanne, head, NIRSAL project implementation office, says the caveat is that for large equipment such as tractors and others that are needed only at certain periods of the year, individual farmers would not be allowed to purchase except they cultivate thousands of hectares of farmlands.

In that case, they would be expected to lease the equipment for the period they need it and pay for the operating hours. So, agric equipment vendors will have the option of earning profit, either through selling equipment or hiring them out for certain hours.

NIRSAL office would provide the necessary support to these equipment vendors to get the financing to purchase the equipment from the banks. This way, farmers and business operators along the agric value chain in need of equipment would not have to face the hassles of approaching banks for financing.?On the other hand, an individual farmer or agribusiness operator that chooses to approach the bank can also get a loan to purchase an equipment. Uzowanne says, ?He has to first go to an accredited leasing company and obtain a pro forma invoice; on the basis of that invoice, the loan is made. The bank then pays the leasing company, and the borrower repays the bank directly.

?However, we ask that the leasing company give the bank a buyback of up to 33 percent of the loan value. The buyback declines to 10 percent around the third year. The intent is to make sure that the leasing company or if purchased outright, the equipment seller, has an incentive to ensure that the borrower sticks to the maintenance schedule for the equipment. This is important to ensure that secondary market values remain clear.?

The agric equipment vendors are expected to understand the operations in the agribusiness sector in order to serve the sector effectively.

Uzonwanne says, ?Banks and other partners have adopted the framework and agreed to lend for up to 48 months under the framework. NIRSAL will issue 75 percent guarantees on the loans and offer interest rate rebate of at least 30 percent to borrowers; NIRSAL will charge a 0.25 percent fee on guarantees. Borrowers will make at least a 10 percent equity contribution as well as engage in pre-purchase operator training. Equipment vendors have agreed on a buyback structure to support financing.?

He also says a standard financing framework to enable emergence of a structured fee has been created for service tractor and related implements supply market targeted at entrepreneurs, growth companies (SME) and corporations, adding that NIRSAL is currently discussing with the Federal Ministry of Agriculture to set up a joint monitoring framework

NIRSAL is a new agribusiness initiative that works with value chain participants to create jobs, wealth, and opportunity in agribusiness, covering all crops and livestock activities in Nigeria and building on a legacy of previous CBN interventions in agriculture.

Currently, NIRSAL provides three products:

Credit Guarantees (CRG) on loans made to agribusiness investors, farmers, companies and other related participants; also provides interest rebates (IDP)? Investment advice to farmer groups and value chains and

?Strategic advice to state governments, cities and local governments on how to create an enabling business environment for agriculture.

Banks and other institutional investors are expected to be more willing to lend to the agric sector because of NIRSAL?s ability to protect them should something go wrong. NIRSAL provides active advice almost like a venture capitalist to farmers and other agribusiness operators. ?We want agribusiness money to become ?smart money? and improve profitability,? says Uzonwanne.

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Source: Business Daily

http://www.businessdayonline.com/NG/index.php/markets/agribusiness/49195-nirsal-turns-to-equipment-leasing-to-finance-agribusiness

Source: http://www.worldleasingnews.com/news/nirsal-turns-to-equipment-leasing-to-finance-agribusiness/

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