Role of NIRSAL Plc

Credit Risk Guarantee Issued by NIRSAL Plc

Overview:

NIRSAL Plc has issued a Credit Risk Guarantee valued at $12,840,175 to support a major agricultural project in Enugu State, Nigeria. The guarantee is designed to facilitate the financing of a fish farming and vegetable production initiative. This project aims to enhance food production, create employment opportunities, and stimulate economic growth in the region, while also contributing to the overall development of Nigeria's agricultural sector with a focus on sustainability.

The NIRSAL Credit Risk Guarantee (CRG) is a financial tool designed to de-risk agricultural and agribusiness financing in Nigeria. It protects lenders and investors from potential losses in credit transactions by indemnifying them for both the principal and accrued interest of loans, up to a pre-agreed CRG rate.

The NIRSAL CRG incentivizes financiers and investors to participate more confidently in the agricultural sector by offering loans and debt instruments to various actors within the agricultural value chain.

Thanks to the CRG, Deposit Money Banks and other financiers have securely disbursed over ₦211 billion in loans to crop and livestock producers, processors, distributors, and logistics service providers, with a loan crystallization rate of just 1% over 10 years.

Agribusiness operators and their bankers can benefit from the NIRSAL CRG through improved access to finance, continuous project monitoring, and the opportunity to receive up to 40% in interest rebates

Understanding NIRSAL's 6-Step Process for Agricultural Financing and Risk Mitigation

The NIRSAL 6-Step Process is designed to streamline and simplify the access to finance for agribusinesses and agricultural projects in Nigeria. The process is intended to guide both borrowers and lenders through each stage of obtaining a Credit Risk Guarantee (CRG), ensuring that agricultural businesses are better positioned to secure financing. Below is a breakdown of the 6 steps:

1. Application Submission

The process begins when agricultural businesses (such as farmers, agro-processors, or other stakeholders in the agricultural value chain) submit an application for financing. This application is directed to NIRSAL Plc or the financial institution providing the loan. The borrower is required to submit essential documents, such as:

Business plans
Financial projections
Relevant permits and certifications

2. Risk Assessment and Evaluation

Once the application is submitted, NIRSAL Plc conducts a thorough risk assessment. This evaluation includes:

A review of the borrower’s creditworthiness
An examination of the proposed project’s feasibility and financial viability
A detailed analysis of the agricultural value chain the borrower is involved in
Evaluation of potential economic and social impacts of the project This step ensures that the project is viable and aligns with NIRSAL’s goals of increasing agricultural productivity and sustainability.

3. Credit Risk Guarantee Issuance

After the evaluation, if the project is deemed viable and aligned with the requirements, NIRSAL Plc issues a Credit Risk Guarantee (CRG). The CRG serves as a safety net for the lender, providing protection against a portion of the loan amount (usually up to 75%) in the event of default. The guarantee helps reduce the risk for financial institutions, encouraging them to finance agricultural projects that might otherwise be deemed too risky.

4. Loan Disbursement

Upon the issuance of the CRG, the lender disburses the loan amount to the borrower. The loan can be used for various purposes within the agricultural project, such as purchasing equipment, acquiring land, improving infrastructure, or funding operational costs. NIRSAL also supports financial institutions by helping with the monitoring of disbursement and ensuring that the funds are properly utilized.

5. Project Monitoring

NIRSAL Plc actively monitors the progress of the financed project. This ensures that funds are being used effectively and that the project is on track to meet its objectives. Continuous monitoring helps identify potential issues early on and offers opportunities for timely intervention to keep the project on course. This process includes site visits, progress reports, and close communication between NIRSAL, the borrower, and the lender.

6. Loan Repayment & Interest Rebate

The final step involves loan repayment. Borrowers are expected to repay the loan according to the agreed-upon terms. In some cases, NIRSAL Plc offers interest rebates to borrowers who meet certain performance criteria, such as maintaining a good repayment track record. Interest rebates of up to 40% may be granted as an incentive to encourage timely loan repayment and the sustainable success of the project.

Summary conclusion

The NIRSAL 6-Step Process is designed to ensure that agricultural projects in Nigeria can access financing more easily while managing risks. By providing a Credit Risk Guarantee, continuous monitoring, and interest rebates, NIRSAL Plc plays a pivotal role in promoting agricultural growth, job creation, and food security in Nigeria.

Let me know if you need further clarification or details on any of the steps!