The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc) experience provides a useful case study on how credit guarantees can operate in practice.
NIRSAL provides participating financial institutions with partial coverage against defined credit losses on eligible agricultural transactions.
The relevance of the model, however, lies not simply in the protection provided on individual facilities, but in what repeated transactions can reveal about how lenders and borrowers respond to reduced risk.
For agricultural lender-borrower relationships that returned for subsequent NIRSAL-backed credit facilities between 2025 and H1 2026, the average transaction size increased 1.35 times, from N2.93 billion in 2025 to N3.94 billion by H1 2026.
Over the same period, lenders that repeatedly utilised the Credit Risk Guarantee increased the value of additional credit extended to agribusinesses that might otherwise have been declined by 1.27 times, from N9.36 billion to N11.86 billion.
‘These movements provide an indication of what can happen after the initial risk constraint is addressed. With each subsequent transaction, the lender gains more information about the borrower and underlying business, the borrower establishes a stronger repayment record, and the relationship becomes more familiar and commercially grounded.
‘The significance, therefore, extends beyond the individual guarantee. Risk-sharing can create the conditions for information, experience, and credit history to accumulate, potentially allowing financing relationships to deepen over time,’ according to Oladimeji Ladele Ladipo, head of strategy and support services at NIRSAL Plc.
He believes that the NIRSAL experience illustrates this two-sided learning process. ‘The lender gains greater familiarity with agricultural risk; the borrower builds a track record with the financial system; and both sides accumulate information that can support larger and potentially less third party-dependent financing relationships’.
‘The objective of such mechanisms is therefore not perpetual reliance on guarantees, but the progressive reduction and/or understanding of perceived risk and the deepening of private capital flows into productive sectors.
‘A credit guarantee is one practical form of credit enhancement, providing defined protection against credit losses and improving the risk-adjusted economics of lending.
‘It does not remove the lender’s risk or replace sound credit assessment; rather, it changes the economics of taking that risk. This can allow a financial institution to enter or expand an exposure while remaining within its established risk appetite and credit limits,’ he further noted.
Earlier this year, the Central Bank of Nigeria (CBN) concluded the recapitalisation programme of Nigeria’s banking sector, an effort aimed at enhancing the financial system’s capacity to support the economy, amongst other objectives. Now stronger and more resilient, Nigeria’s banking system is only as valuable as the economic activity it enables.
This was the crux of President Bola Ahmed Tinubu’s challenge to financial institutions at the 19th Annual Banking and Finance Conference of the Chartered Institute of Bankers of Nigeria.
He challenged them to look beyond balance-sheet growth, profitability and shareholder returns and consider how their strength can support the productive economy. Stronger balance sheets, he argued, must ultimately translate into investment, production, jobs, and improved living standards.
The challenge is one of economic impact transmission. How does financial-sector strength translate into financing for productive investment, and productive investment into jobs, incomes and improved living standards? Macroeconomic gains cannot lead to broad-based prosperity if they remain disconnected from the businesses that create output, employment, and income.
For banks, however, financing the productive economy must be balanced against their responsibility to protect depositors’ funds, preserve capital, and maintain portfolio quality. The question, therefore, is how to expand private financing of productive enterprise without weakening the commercial and risk disciplines that sustain a sound banking system.
This is where credit enhancements can play an important role. By sharing or absorbing a defined portion of credit risk, they can improve the risk-adjusted economics of lending and help direct private capital towards productive sectors where risk constrains financing. Agriculture provides a particularly important case because production, market, and value-chain risks can make lenders cautious about financing or scaling exposure.
Getting ahead of the risk sustainably…
The value of a credit guarantee is ultimately tested when the underlying risk crystallises, that is, when the borrower defaults on repayment. A credit guarantee provides the lender with a defined layer of protection over the percentage of the loan covered; in NIRSAL’s case, up to 75 percent of principal and accrued interest.
NIRSAL has honoured guarantee claims valued at N4.5 billion, all within an average settlement period of 30 days.
But the more important question is not simply how speedily a guarantee responds when a loss occurs, but whether the conditions that lead to crystallisation can be reduced in the first place.
Herein lies a crucial aspect of NIRSAL’s work: strengthening agricultural value chains in readiness for commercial finance. The historical performance of facilities backed by NIRSAL’s Credit Risk Guarantee suggests that agricultural finance is better approached holistically; combining risk-sharing on the finance side with interventions that address weaknesses across the value chain and improve the underlying conditions for successful borrowing.
The results are instructive: non-performing loans across NIRSAL’s guaranteed portfolio stand at 0.32 percent, compared with 9.85 percent for the banking industry’s agricultural loan portfolio.
Agricultural finance does not fail only because a borrower cannot repay. Repayment itself is often a consequence of risks further upstream in the value chain, from input availability and production conditions to aggregation, storage, logistics, market access and price volatility. Weather and other production risks can create additional exposures that cannot be addressed through a credit guarantee alone.
NIRSAL therefore operates across these different points of the risk chain. Credit risk is addressed through the Credit Risk Guarantee; value-chain constraints can be addressed through interventions that strengthen the commercial and operational conditions underlying the financing; and insurance advocacy and facilitation can help transfer specified production risks that would otherwise sit directly with farmers, agribusinesses, or lenders.
This distinction is important. The guarantee provides protection when a defined credit loss occurs. The broader risk-management approach seeks to reduce the likelihood and severity of that crystallisation by improving the conditions in which the financed business operates.
This positions NIRSAL differently from a conventional credit guarantee provider. Its role is not simply to stand behind a loan when things go wrong, but to work with financial institutions and value-chain participants to make difficult agricultural exposures more understandable, manageable, and financeable.
In this sense, NIRSAL acts as a system enabler. It helps financial institutions navigate areas where information, market structure or risk characteristics may otherwise constrain participation, while allowing the institutions themselves to retain the customer relationship, credit discipline, and commercial decision-making.
The objective is therefore not to take agricultural risk away from the financial system. It is to help the financial system understand, share, mitigate and ultimately price that risk more effectively. That is an important distinction in the transition from risk-sharing to sustainable agricultural finance.
Where transmission becomes measurable…
The significance of NIRSAL’s experience ultimately lies beyond the individual guarantee. In H1 2026, every N1 of NIRSAL guarantee capital was associated with N2.29 of commercial bank lending to agriculture. Across 46 agribusinesses, this financing supported an estimated 3,279 jobs, more than 82,000 tonnes of food output and an estimated 16,395 lives impacted. How? Credit enhancement helps make financing possible; financing enables productive investment; and productive investment generates output, employment and income.
Indeed, a stronger financial system creates economic value when its capacity reaches the businesses that produce, employ, and generate income. In agriculture, that transmission extends beyond individual enterprises to entire value chains; supporting production, processing, trade, food supply, and livelihoods.
NIRSAL’s work illustrates the role a development-oriented financial institution can play in strengthening this transmission. Its purpose is not to replace commercial finance, but to enable more of it. In this sense, the NIRSAL model represents a deliberate shift away from direct intervention towards a more sustainable approach to financing Nigeria’s largest economic sector; helping financial institutions navigate the risks and market constraints that might otherwise limit their participation in viable agricultural enterprises.
Nigeria’s agricultural credit gap remains significant.
Closing it will require moving beyond the success of individual transactions towards deeper market participation… where banks, agribusinesses, insurers, and other value-chain actors operate within a more coordinated ecosystem capable of mobilising agricultural finance at scale.
The next move for Nigerian banks…
Nigeria has strengthened the capital base of its banking industry. The next question is: what will that capital build?
The opportunity now is to create stronger pathways through which commercial interests and national development priorities can converge. For banks, financing agriculture need not be an act of corporate social responsibility or patriotism; it can and should be good business.
NIRSAL provides a mechanism for making that proposition more viable, enabling financial institutions to expand productive lending to agriculture while managing risk and preserving commercial objectives. At the same time, viable agribusinesses gain access to growth capital, while successful transactions build the credit histories, market knowledge, and lender confidence required to attract progressively larger volumes of commercial finance.
For financial institutions seeking to deploy more capital into Nigeria’s productive economy, agriculture therefore need not represent an uncomfortable leap into the unknown. The opportunities exist, the risks can be better understood and shared, and NIRSAL provides a proven mechanism for doing so.
This is the NIRSAL effect; not simply taking risk away from the bank, but helping transform risk into information, information into confidence, and confidence into sustainable commercial finance for agriculture.
For agribusinesses seeking to grow, every successful financing cycle strengthens credit profile and improves prospects for accessing larger facilities.
Businesses requiring additional capital should therefore engage their financial institutions on structuring eligible facilities with the support of NIRSAL’s Credit Risk Guarantee.