Why banks reject rural land as collateral

The Chairman, Chartered Institute of Bankers of Nigeria, Mr. Abolade Agbola, says a controversial clause in the Land Use Act is the main reason why banks reject rural parcels of land as collateral for loans.

He said the unfavourable situation had prevented rural farmers from accessing agricultural loans which could have enhanced farming and food security in the country.

He said, “The Land Use Act made it difficult for rural farmers to access agricultural loans using lands as collateral. The Land Use Act says if your land is acquired for public purpose, the only compensation you will be given is that of development on it. But If I clear the land, it’s a development. Continue..

“If you clear10,000 hectares of land today as far as the Land Use Act is concerned, it’s only when there are economic trees on it that you can be compensated. So, that land has no compensation. And that is one of the reasons why rural lands are not presentable as collateral.”

Consequently, the CIBN chairman called on the Federal Government and the National Assembly to take a second look at the Act with a view to reviewing it.

“So, the real transformation we need is to actually make any land within the Nigerian landscape accessible as collateral and have a value, not just development on it; and that is the only way the rural farmers can use their land as collateral to obtain loan,” he said.

He added, “But as long as that Land Use Act is there, it’s only when there is development on it. This means there would be constraint in a number of available collateral that the farmers can give. So, I think our challenge is on how to use rural land as collateral for agricultural loan. Something has to be done on the Land Use Act.”

The Bankers’ Committee had last month agreed to fund rice production in the country as part of the contribution to food production.

But Agbola believe lending to agriculture should be wholesome, cutting across the various value chains.

Also, the government needs to establish a list of crops in which the country has comparative advantage and put in place incentives to boost the production of such crops.

The banker explained, “If we have established the fact that we have the comparative advantage in certain crops, it is also necessary for us to produce them. I believe that the lending of banks should cover every crop that we have comparative advantage to produce. And that is the only way we can have true food security.

“For instance, we’ve liberalised importation of maize. Maize is also what we can produce, and the process of producing maize is not as cumbersome as that of rice. I think the critical thing for us in all this is how to ensure that our farmers are low-cost producers and that we have assured market for them.”

He further said, “It is very important for us to focus on a number of crops that we can produce locally and meet our needs, either for domestic consumption or for export. It’s a good thing that the banks want to fund rice production, and I think the critical thing for the banks is to also have agriculture credit department. I think that is the area the CBN governor must focus on.

“Banks need agriculture credit department that will be manned by trained agriculturist, who can give supervised credit to farmers. And also, we should find a way that land in rural areas can be used as collateral and it can have secondary market and a value.”