AGRICULTURAL CREDIT GUARANTEE SCHEME FUND


GUIDELINES FOR THE AGRICULTURAL CREDIT GUARANTEE SCHEME


Establishment of the Fund

1. An Agricultural Credit Guarantee Scheme Fund has been established by the Federal Military Government under the Agricultural Credit Guarantee Scheme Fund Decree 1977 (Decree No. 20) and as amended on 13th June, 1988.

2. The decree originally provided for a Fund of N100 million subscribed to by the Federal Military Government (60 per cent) and the Central Bank of Nigeria (40 per cent). The share and called-up capital of the Fund has been increased to N3.0 billion

Purpose of the Fund

3. The purpose of the Fund is to provide guarantee in respect of loans granted by any bank for agricultural purposes as defined below (see para. 5) with the aim of increasing the level of bank credit to the agricultural sector. “Loan” under the decree includes advances, overdrafts and any credit facility and should be taken as such wherever it is used in these guidelines and other circulars.

Management of the Scheme

4. The Fund is under the management of the Agricultural Credit Guarantee Scheme Fund Board and the Central Bank of Nigeria is the Managing Agent for the administration of the Scheme. The work relating to the Scheme at the Head Office of the Central Bank is handled in the Development Department of the Bank headed by the Director. In order to avoid delay, much of the work relating to the operations of the Scheme will be done at the Central Bank Office in the state in which any transaction under the Scheme takes place.

Agricultural purposes for which loans can be guaranteed

5. The Agricultural purposes in respect of which loans can be guaranteed by the fund are those connected with:- establishment or management of plantation for the production of rubber, oil palm, cocoa, coffee, tea and similar crops;

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(a) The cultivation or production of cereal crops, tubers, fruits of all kinds, cotton, beans, groundnuts, sheanuts, benniseed, vegetables, pine-apples, bananas and plantains;

(b) Animal husbandry, that is to say, poultry, piggery, cattle rearing and the like, fish farming and fish capture;

(c) Processing in general where it is integrated with a least 50% of farm output e.g. cassava to gari, oil palm fruit to oil and kernel, groundnut to groundnut oil, etc.

(d) Farm machinery and hire services.

Forms of security for loans

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

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

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

(c) a life assurance policy, a promissory note or other negotiable security;

(d) stocks and shares;

(e) a personal guarantee;

(f) any other security acceptable to the bank. For loans of
N20,000.00 (five thousand naira) and below, banks are not expected to demand tangible securities and feasibility reports.

Procedure for making an application for loan

7. All applications to banks for loans under the Scheme shall be made on the form prescribed for the purpose.

8. Applications should be completed in triplicate, one copy of which will be stamped by the bank concerned and forwarded immediately to the nearest office of the Central Bank in the State in which the bank is situated or as may be otherwise directed.
Correspondence from the bank to the applicant on the application
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should be copied to the office of the Central Bank to which a copy of the application was sent.

9. Applications received by banks should be processed promptly and it is hoped that the period elapsing between the submission of an application under the Scheme and its disposal will not exceed 60 days. It is appreciated that banks may call for information, which has not been sufficiently provided by the applicant. Officials of the Fund may call on banks, which have apparently not acted within a reasonable time on any application submitted to them.

10. All applications under the Scheme should be treated by banks with the same degree of diligence, good faith and competence with which they would normally be expected to treat all applications for loans received in the normal course of their banking business.

Banks’ assistance to loan applicants

11. If a bank rejects any request for a loan under the Scheme, the bank should give reasons for the rejection to the person making the request. It should also specify the steps the person should take to enable him to comply with the bank’s requirements. Copies of the bank’s letters to the applicant should be sent to the office of the Central Bank to which the copy of the original application was sent.

Safeguard in respect of certain loans

12. Where a loan or any portion of it in respect of which a guarantee is to be sought under the Scheme is to be used to purchase livestock, machinery or farming equipment, the loan or that portion of it as the case may be must not be paid to the borrower. Instead, the bank must pay it to the supplier who will furnish the bank with a copy of the delivery note or other documents in evidence of the delivery of the livestock, machinery or farming equipment to the borrower.

Form and terms of loan agreement

13. In compliance with S.8 of the Agricultural Credit Guarantee Scheme Fund Decree, every agreement for a loan in respect of which a guarantee 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 the gestation period of the project being financed.

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

Limits of liability of the Fund in respect of guarantees

15. The maximum liability of the Fund in respect of any guarantee given under the Scheme will be fixed from time to time by the Commissioner for Finance.

16. For the time being, the liability of the Fund will be 75 per cent of the amount in default net of any amount realized by the bank from the security it got from the borrower, subject, in the case of a loan to an individual, to a maximum of N5,000,000 and, in the case of a loan to a co-operative society or a corporate body, to a maximum of N10,000,000.

17. Where two or more banks jointly finance a project, the above limit of the Fund’s liability will apply to the total loan granted by all the banks.