Agro-Mechanization

BACKGROUND Agro Mechanization is the process of using agricultural machinery to mechanize the work of agriculture, thereby greatly increasing farm and farm worker productivity. In modern times, powered machinery has replaced many farm jobs formerly carried out by manual labour or by working animals such as oxen, horses and mules.

By funding the procurement of various Agricultural Equipment for Land Preparation, Irrigation Services, Post-Harvest Processing & Storage Service etc., BOI will activate a chain reaction that will have several positive ripple effects in the Agricultural Sector of the Nigerian Economy.

To reduce the risk of funding Agro Mechanisation, the Development Partners have also been able to bring NIRSAL (Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending) into the Partnership. Hence the facilities under this Product Program will enjoy 50% – 75% NIRSAL Guarantee.

AGRO MECHANISATION VALUE CHAIN
  1. The Agricultural sector employs about 70% of the labour force in the Country, yet the sector has been unable to meet the food demands of the country and Billions of Naira is spent annually to import food items that can be produced locally e.g. Rice, Maize, Fish, Palm Oil etc. 
  2. Agro Mechanisation is one of the pivots of the Federal Governments Agricultural Transformation Agenda (ATA).  With the establishment of the Fund BOI will support and identify with the Governments effort to transform Agriculture in Nigeria through the ATA.

 

 

RATIONALE / OBJECTIVE

  1.  Nigeria’s Mechanisation rate is currently at 0.27 hp/hectare. This is far below the FAO recommended rate of 1.5 hp/hectare. Highly industrialised countries like Japan have mechanisation rates of 7.0 hp/hectare. Nigeria has ratio of 3 Tractors per 1,000 Hectares which makes it one of the countries with the lowest mechanisation rates.
  2. Our low mechanisation rate makes it obvious that there is high demand for agricultural mechanical tools and equipment.
  3. Boost development of MSMEs in the Agriculture Sector of the Nigerian economy by providing funding to Agro Mechanisation Service Providers at competitive interest rates.
  4. Set the pace for mechanizing the operations of Small and Medium Scale Farmers in Nigeria.
  5. Increase the productivity of cultivated land by providing funding to MSME’s that provide agro mechanisation services to small and medium scale farm owners.
  6. Increase farm output, improve capacity utilization of agro processors, generate employment and diversify the revenue base of the country.
TARGET BENEFICIARIES The target beneficiaries of this Product Program are;

·         Those entities that will render agro mechanisation services to the rural farmers.

·         Established Farmers who want to acquire agro equipment for use in their farms.

FACILITY TYPE(S) a)   Medium Term Loan

b)   Short Term Loan (where applicable)

PROGRAM LIMIT The Scheme shall be wholly financed by Bank of Industry (BOI) with an initial seed fund of N10 Billion which will be allotted as follows:

·         Micro:                N3 Billion

·         Small:                 N3 Billion

·         Medium:           N4 Billion

Each borrower category will be monitored independently by RMD.

SINGLE OBLIGOR LIMIT a)   MICRO: Up to N10 million.

b)   SMALL: Above N10m but not exceeding N50m

c)   MEDIUM: Above N50m but not exceeding N500m

Where Short Term Loan shall also be required, both the Medium & Short Term Loan shall not exceed the single obligor limit. Not more than 40% of the total funding request shall be available as Short Term Loan.

PURPOSE Medium Term Loan:

To finance the procurement/Lease of various Agro Equipment;

Short Term Loan:

To finance purchase of spare parts / tools, Irrigation costs, Post-harvest processing and storage costs.

 

PRICING

Interest Rate:

·        9% per annum

Fees:

·        1% processing fee (full payment upon approval).

·        1% Credit Risk Guarantee Fee (payable to NIRSAL on the loan balance)

TENOR Medium Term Loan:

·        Maximum of 5 years (inclusive of a maximum of 12 months moratorium)

Short Term Loan:

·            Maximum of 2 years (inclusive of a maximum of 6 months moratorium)

MORATORIUM ·        Maximum of 12 months from date of loan disbursement (for Medium Term Loan)

·        Maximum of 6 months from date of loan disbursement (for Short Term Loan)

REPAYMENT STRUCTURE Medium Term Loan:

·        Repayable over a maximum tenor of 5 years (monthly, quarterly or semi-annual repayment as appropriate)

 

Short Term Loan:

·        Repayable over 2 years (monthly, quarterly or semi-annual repayment as appropriate).

SECURITY / COLLATERAL

 

MICRO & SMALL:

  1. Credit Risk Guarantee of up to 75% of total loan amount by NIRSAL
  2. Collateral Deposit of not less than 10% of total loan amount, to be domiciled as a BOI deposit account with the Commercial Banks.
  3. Insurance of the equipment to be financed with BOI noted as first loss payee.
  4. Domiciliation of sales proceeds with the selected/nominated commercial bank. To ensure that the inflows are not unduly diverted elsewhere and that regular sweep of principal and interest repayments are made to BOI.
  5. Personal Guarantee of the Chief Promoter with his/her notarized Statement of Personal Net worth acceptable to BOI.

MEDIUM:

  1. Credit Risk Guarantee of up to 50% of total loan amount by NIRSAL
  2. Equitable/Legal Mortgage over pledged property OR All Asset Debenture over fixed and floating Assets of the Obligor  OR Bank Guarantee from any of the Commercial Banks (to cover at least 50% of the total loan amount)
  3. Insurance of the equipment to be financed with BOI noted as first loss payee.
  4. Collateral Deposit of not less than 10% of total loan amount, to be domiciled as a BOI deposit account with the Commercial Banks.
  5. Domiciliation of sales proceeds with the selected/nominated commercial bank. To ensure that the inflows are not unduly diverted elsewhere and that regular sweep of principal and interest repayments are made to BOI.
  6. Personal Guarantee of the Chief Promoter with his/her notarized Statement of Personal Net worth acceptable to BOI.
DISBURSEMENT In phases, in accordance with agreed milestones.
REPAYMENT SOURCE From cash flow generated from the provision of services to the farmers.
REPAYMENT MODE By direct debit of customer’s account domiciled with the nominated commercial bank. Such direct debit collections must be remitted to BOI within 24 hours. In the event of default, the Credit monitoring department of BOI must escalate promptly to trigger remedial action by BOI.
DEBT SERVICE RESERVE ACCOUNT (DSRA) To further de-risk the Program, a DSRA shall be introduced which will be maintained by BOI as follows:

·         For Monthly Repayments: Three (3) Months DSRA to be maintained by BOI.

·         For Quarterly Repayments: Two (2) Quarters DSRA to be maintained by BOI.

·         For Semi Annual Repayments: One (1) Semi Annual DSRA to be maintained by BOI.

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