Nigerian farmers can apply for bank loans for their agricultural activities through the Agricultural Credit Guarantee Scheme Fund (ACGSF), a federal government-backed programme designed to encourage banks to lend to the agricultural sector.
The scheme was established under Decree No. 20 of 1977 and became operational in April 1978. It is funded by the Federal Government and the Central Bank of Nigeria, with the government contributing 60 percent and the CBN providing 40 percent of the capital base.
The programme was created to improve access to credit for farmers by reducing the risks banks face when lending to agriculture.
According to the scheme guidelines, its objective is “to provide guarantee in respect of loans granted by lending banks for agricultural purposes, with the aim of increasing the level of bank credit to the agricultural sector.”
Under the programme, farmers do not apply directly to the Central Bank. Instead, they apply for loans through participating banks, including deposit money banks and microfinance banks regulated by the CBN. Once a farmer applies for a loan, the bank processes the application and forwards the guarantee request to the Central Bank.
One of the major incentives of the programme is the government-backed guarantee attached to the loans. If a farmer defaults on repayment, the scheme guarantees up to 75 percent of the unpaid amount, reducing the financial risk for lending institutions.
The guidelines state that the programme helps “mitigate risks associated with banks’ lending to agriculture by guaranteeing 75 percent of the net amount in default.”
Loans obtained under the scheme can be used for a wide range of agricultural activities across the value chain. These include crop cultivation, plantation management, livestock production and other related agricultural enterprises.
The scheme also supports activities such as processing, storage, transportation and the acquisition of farm machinery and equipment connected to agricultural production.
In addition to the loan guarantee, farmers who repay their loans on schedule can benefit from an interest rebate through the Interest Drawback Programme introduced in 2003.
The programme is designed to reduce the cost of borrowing for farmers who meet their repayment obligations.
According to the scheme, the objective of the Interest Drawback Programme is “to provide interest rebate to farmers who borrow at market determined rates by granting them a drawback of a certain percentage of the interest paid as at when due.”
Farmers who repay both the principal and interest within the agreed loan period are eligible to receive a refund of up to 40 percent of the interest paid on the loan.
The rebate is processed through the lending bank, which files the claim on behalf of the farmer after confirming that the loan has been fully repaid in line with the terms of the scheme.
The Agricultural Credit Guarantee Scheme Fund therefore serves as a financial support framework aimed at expanding credit access for farmers while encouraging banks to invest more in Nigeria’s agricultural sector.
