CBN Issues Guidelines for the Agricultural Credit Guarantee Scheme

Monday, November 22, 2021 08:25 AM / by CBN/ HeaderImage Credit: EcoGraphics

Establishment of theFund

1. The Agricultural Credit Guarantee Scheme Fund wasestablished by the Federal Military Government under the Agricultural CreditGuarantee Scheme Fund Decree 1977 (Decree No. 20) and as amended on 13th June1988, and 26th June 2019.

2. The Act originally provided for a Fund of N100million subscribed to by the Federal Military Government (60 per cent) and theCentral Bank of Nigeria (40 per cent). The share capital of the Fund has beenincreased to N50.0 billion while the paid-up capital is N3.0billion.

Management of the Scheme

3. The Fund is under the management of theAgricultural Credit Guarantee Scheme Fund Board and the Central Bank of Nigeriais the Managing Agent for the administration of the Scheme. The work relatingto the Scheme is handled by the Development Finance Department of the Bankheaded by the Director. For administrative convenience, most of the activitiesrelating to the operations of the Scheme will be carried out at the CentralBank of Nigeria Branch Office in the state in which any transaction under theScheme takes place.

4. EligibleParticipating Financial Institutions under the scheme

I. Deposit Money Banks

II. Microfinance banks under the regulatory andsupervisory role of the Central Bank of Nigeria (CBN).

Purpose of the Fund

5. The purpose of the Fund is to provide guarantee inrespect of loans granted by lending banks for agricultural purposes under thescheme with the aim of increasing the level of bank credit to the agriculturalsector. "Loan" under the amended act includes advances, overdrafts and anycredit facility and should be taken as such wherever it is used in theseguidelines and other circulars.

The Agricultural purposes in respect of which loanscan be guaranteed by the Fund are those connected with: -

a This document is for CBN internal consumption a.establishment or management of plantation for production of rubber, oil palm,cocoa, coffee, tea and similar crops;

b. The cultivation or production of cereal crops,tubers, fruits of all kinds, cotton, beans, groundnuts, sheanuts, benniseed,vegetables, pineapples, bananas and plantains;

c. Animal husbandry: - poultry, piggery, cattlerearing and the like, fish farming and fish capture;

d. Processing in general where it is integrated withat least 50% of farm output e.g. cassava to garri, oil palm fruit to oil andkernel, groundnut to groundnut oil, etc.;

e. Purchase of Farm machinery and hire services;

f. Fabrication of farm machinery implements andequipment for production, processing, storage and transportation. g. and otheractivities/elements within an agricultural value chain;

Forms of security forloans

6. The security which may be offered to a bank for thepurpose of any loan under the scheme may be one or more of the following: -

(a) a charge on land in which the borrower holds alegal interest or a right to farm, or a charge on assets on the land includingfixed assets, crops or livestock;

(b) a charge on the movable property of the borrower;

(d) stocks and shares;

(e) a personal guarantee;

(f) any other security acceptable to the bank, whichmust be adequate and realizable.

(g) All assets registered on the National CollateralRegistry (NCR)

(h) Warehouse Receipts

(i) Letter of indemnity from employer for those inpaid employment signed by authorized signatories

(j) For loans of N100,000.00 (One hundred thousandnaira) and below, banks are not expected to demand tangible securities andfeasibility reports; however, there should be cross guarantee among members ina group or cooperative, and any other guarantee that may be acceptable to thebank.

Insurance

7. All loans under the scheme must be insured as acondition precedent to guarantee.

Application process forloans to qualify for ACGSF guarantee

8. All applications to lending banks for loans underthe Scheme shall be made on the form prescribed for the purpose

9. Individual account must be opened for eachbeneficiary under the scheme by the lending bank. For co-operative or grouploan, accounts must be opened for purpose of lending under the scheme

10. Please note that individual loans must bedifferentiated from group loan account.

11. The ACGSF application form should be completed bythe beneficiary; Application forms shall be signed and stamped by the lendingbank concerned and forwarded to the nearest office of the Central Bank in theState in which the bank is situated or as may be otherwise directed.

12. Agricultural enterprises guaranteed under the Fundmust be mapped/tagged and the cost borne by the customer.

13. All loan applications should be subject to CreditBureau and Credit Risk Management System (CRMS) checks by the lending bank.

14. The Development Finance Office in the State willconduct visits to the project sites and attach reports (including pictures andvideo clips) and submit same to the DFD Head Office.

15. All applications for ACGSF guarantee should besubmitted to CBN by the lending bank not later than 30 days after receipt ofapplication from beneficiary.

16. All lending banks are expected to carry out allnecessary credit reviews and due diligence in good faith as well as competence,with which they would treat all applications for loans received in the normalcourse of their banking business.

Banks' assistance toloan applicants

17. If a bank rejects any request for a loan under theScheme, the bank should give reasons for the rejection to the person making therequest. It should also specify the steps the person should take to enable himto comply with the bank's requirements.

Safeguard in respect ofcertain loans

18. Where a loan or any portion of it in respect ofwhich a guarantee is to be sought under the Scheme is to be used to purchaselivestock, machinery or farming equipment, the loan or that portion of it asthe case may be must not be paid to the borrower. Instead, the bank must pay itto the supplier who will furnish the bank with a copy of the delivery note orother documents in evidence of the delivery of the livestock, machinery orfarming equipment to the borrower. The bank to register its interest and thatof the borrower under the NCR.

Form and terms of loanagreement

19. In compliance with S.8 of the Agricultural CreditGuarantee Scheme Fund, every agreement for a loan in respect of which aguarantee is to be given must be in writing and must show the amount of loan,the rate of interest and the duration of the loan. The duration of each loan,including moratorium period if any, should be strictly relevant to thegestation period of the project being financed. For Microfinance banks andmicro-loans, all loans should not exceed maximum of 12 months.

20. Banks should remind prospective borrowers underthe Scheme that it is an offence for which one may be imprisoned for five yearsto apply the loan for purposes other than those for which they are given

Limits of liability ofthe Fund in respect of guarantees

21. The maximum liability of the Fund in respect ofany guarantee given under the Scheme will be fixed from time to time by theACGSF Board.

22. Single obligor limit for non-tangible collateralis N100,000 while the obligor limit for individual, group/co-operative or acorporate society is N50,000,000.00 (Fifty million naira only) for securedloans.

23. Based on the Act, the liability of the Fund willbe 75 per cent of the amount in default net of any amount realized by the bankfrom the security it got from the borrower, subject, in the case of a loan toan individual, a co-operative society or a corporate body, to a maximum ofN50,000,000 (Fifty million naira only).

24. Revised Regulatory and Supervisory Guidelines ofMFBs must be strictly adhered to as it stipulates that the maximum principalamount for a microloan shall not exceed N500,000.00 or 1% of the shareholders' fund unimpaired by losses and or as may be reviewed from time to time by theCBN. This must apply in guaranteeing their facilities.

25. Where two or more banks jointly finance a project,the above limit of the Fund's guarantee liability will apply to the total loangranted to the borrower (s) by all the banks.

26. In such cases, the Fund will deal with only one ofthe banks that may be nominated for the purpose by all the banks concerned asif it has granted the whole loan alone.

27. Apart from the Head Office of the Central Bank ofNigeria, Development Finance Offices have been established in all branches ofthe Central Bank to administer the Agricultural Credit Guarantee Scheme. TheDevelopment Finance Offices are manned by Officers who function under theoverall control of the Branch Controllers of the Central Bank in each branch.

28. In order to ensure that matters connected with theScheme are dealt with expeditiously, the Officers will treat such matters inthe state in which they are located unless banks are otherwise directed. 7 Thisdocument is for CBN internal consumption

Arrangements forGuarantee

Circumstances under which guaranteemay be given

29. Any loan granted by a bank or jointly with anotherbank or other banks for agricultural purposes in accordance with the provisionsof the Agricultural Credit Guarantee Scheme Fund Decree 1977 will be eligiblefor guarantee by the Fund. Guarantee of such loans will, for the time being, begranted automatically as provided for in paragraph 31 below.

30. In case of doubt as to whether an application fora loan is in accordance with the Act or not, the bank should seek clearancefrom the Fund.

31. Where a bank granted a loan to a beneficiary whichwas guaranteed by the Fund and it resulted in claims being paid by the Fund,such a bank should not grant that borrower any fresh loan under the Schemewithout approval of the Director, Development Finance Department of the CBN.

Issue of Guarantee Certificate

32. One of the conditions for a guarantee under theScheme is that the Fund will have the right to inspect the books and accountsof the bank in respect of the guaranteed loan. In addition, the bank willsecure for the Fund by obtaining suitable undertaking from the borrower, theright to inspect the facility in respect of which the loan has been granted andto call for or examine all details of the guaranteed account, if considerednecessary by the Fund.

33. When the Fund receives an application forguarantee from a bank, it will issue a certificate in the prescribed form (FormACGSF/2) to the bank. The Fund shall not be required to sign any other documentin this respect.

Enhancement/reduction of guaranteedcredit facility

34. If a bank grants an increase in a loan in respectof which a guarantee has already been given by the Fund, it must advise theFund as soon as the increase is granted. If this increase is more than 25 percent of the initial loan, the bank must obtain prior approval of the Fund. Thisshould be done on Form ACGSF/3, which must be numbered, and sent to theappropriate office in duplicate. An 8 This document is for CBN internalconsumption endorsement to this effect will be issued by the Fund on FormACGSF/5. Where the total loan eventually drawn by a borrower is lower than theamount guaranteed by the Fund, the bank shall advise the Fund of the new amountwhich shall now be regarded as the guaranteed loan.

Extension of a guarantee

35. Where the term of a guaranteed credit facility isto be extended, the bank will after fully satisfying itself of thejustification for such extension, advise the Fund of its intention accordinglyon Form ACGSF/4 in duplicate. Such advice should be submitted at least onemonth before the expiry of the existing guarantee. An endorsement to the effectwill be issued on Form ACGSF/5.

Variation in other terms andconditions of a guaranteed loan

36. Where a bank approves a change in any of the otherterms and conditions governing a loan in respect of which a guarantee has beenissued, it must advise the Fund as soon as such approval is given.

Repayment or discontinuation of acredit facility

37. Whenever a guaranteed advance is repaid or thecredit facility is otherwise discontinued, the bank should advise the Fundimmediately, by providing particulars of the Guarantee Certificate.

Invoking the guarantee

38. Temporary default on the instalmental repayment ofa guaranteed loan need not be reported to the Fund if the bank has nointention, either to discontinue the facility or to call up the loan.

39. If, however, the bank does not succeed in itsefforts to regularize the account and calls up the loan, it should serve theFund with a "Notice of Default" by completing Form ACGSF/6 in duplicate copiesand attach the correspondence between the bank and the customer since thedefault was noticed.

40. Where a default relates to a lump sum repayment orthe last instalmental repayment of a loan, the bank should serve the Fund with "Notice of Default" as in paragraph 39 above.

41. After giving "Notice of Default" in the prescribedmanner, the bank should make further efforts as it thinks fit to recover theamount in default from the borrower or his sureties, if any, and may, for thatpurpose, dispose of any security obtained in respect of the loan if possible.

42. If any balance remains outstanding after the abovestep has been taken, or where the recovery of any amount outstanding isimpracticable, the bank may apply to the Fund for payment on "Guarantee Claim" Form ACGSF/7 in accordance with terms of the guarantee.

43. If within six months from the date of receipt of "Notice of Default" no "Guarantee Claim" form is received by the Fund, it willbe presumed that the bank has recovered its loan and the Fund shall be deemedto have been discharged from its liability under the guarantee.

44. A claim under the guarantee should be submitted induplicate by the lending bankÃ¢â‚¬â„¢s Head Office to the Fund at the Head Office ofthe Central Bank Nigeria on the prescribed form (Form ACGSF/7). In order tofacilitate prompt settlement of claim, the bank should ensure that theapplication is complete in all respects and that the pre-requisites as set outin the Scheme are duly complied with.

45. If the claim is in order, the amount payable underthe guarantee will be remitted to the Head Office of the claiming bank throughEpayment.

46. Upon a payment being made as provided for above,the Fund shall be deemed to have been discharged from all its liabilities underthe guarantee.

47. The amount received from the Fund in settlement ofa claim under the Scheme belongs to the bank and should not be credited to theaccount of the borrower who will remain liable to the bank for his totalindebtedness. After invocation of the guarantee, the bank should continue toexercise the same diligence in recovering the amount in all the ways open to itas it might have exercised if no guarantee had been issued by the Fund.

48. The balance of a loan outstanding in respect ofwhich a claim has been paid by the Fund must not be written off by the bankwithout the specific consent in writing from the Fund. 10 This document is forCBN internal consumption

49. The Fund if considered necessary will publishnames of defaulters in the newspapers and report same to the Credit InformationBureau of Nigeria.

Procedure regardingsharing of post claims recoveries

50 All recoveries made by a bank on an account inrespect of which it has invoked the guarantee shall be shared between the Fundand the bank in the ratio in which they shared the loss. A statement showingrecoveries made so far on the account after invoking the guarantee should besubmitted to the Fund while remitting the Fund's share of such recoveries. Suchshare should be remitted to the Fund not later than the end of the month inwhich it is received. Where this is not possible because it is received aroundthe end of the month, it must be forwarded to the Fund in the following month.

Submission of returns

51 Banks will submit to the Fund progress reports asin Form ACGSF/8 showing particulars of the guarantee advances as at the end ofDecember each year. The report should reach the office of the Central Bank inthe State before 28th January of the incoming year.

52 The Fund may call for such other returns from timeto time as it may require.

Amendments

53. The Guidelines are subject to review from time totime as may be deemed necessary by the Board.