AFEX Shaken But Hopeful After Big Blow In Debt Dispute With Top Nigerian Bank

The ongoing dispute between one of Nigeria’s top lenders Guaranty Trust Bank (GTBank) and notable agritech startup AFEX, culminating in a Court recently giving the nod for the seizure of AFEX’s assets, is drawing attention to the complexities of Nigeria’s agricultural financing landscape.

Nearly a week after Justice Chukwujekwu Aneke of the Federal High Court in Lagos authorised Guaranty Trust Bank to temporarily take over the funds and assets of AFEX following an unresolved NGN 17.8 B (~USD 11.7 M at current rates) debt, uncertainty looms over what this could mean for the upstart.

At the core of this matter lies the fallout from the Central Bank of Nigeria’s (CBN) controversial Anchor Borrowers Programme (ABP), designed to empower smallholder farmers and fortify the nation’s food security.

Launched in 2015, the ABP aimed to bridge the gap between farmers and anchor institutions, like AFEX, providing farmers with inputs and financing to bolster production.

The APB guidelines stipulate that upon harvest, benefiting farmers are to repay their loans with produce (which must cover the loan principal and interest) to an Anchor, which pays the cash equivalent to the farmer’s account. However, the failure of the programme to live up to expectations has led to various consequences.

‘Operation Feed Nigeria’

AFEX, a commodities market player named in this year’s TIME100 Most Influential Companies and also top of the Financial Times’ list of Africa’s Fastest-Growing Companies in 2023, has grown significantly since becoming Nigeria’s first licensed private commodities exchange.

Boasting over 450,000 farmers financed and more than 500,000 metric tonnes of commodities traded in Nigeria and other African countries, AFEX was one of a few private sector players, called “Anchors”, approved to receive funds (via Participating Financial Institutions like Guaranty Trust Bank), source inputs, and disburse same to smallholder farmers (SHFs) in the sorghum, soybean, maize, and sesame value chains, a statement by an AFEX spokesperson shared with WT says.

However, what was envisioned as a beacon of hope for Nigeria’s agricultural sector encountered turbulent waters. The program, while initially promising, has been plagued by challenges, as farmers struggled to repay loans due to a myriad of factors including insecurity, flooding, climate change, and corruption.

Some NGN 1.12 T (~USD 742 M) was disbursed to 563 Anchors but repayment has been problematic. About NGN 670.4 B (~USD 444 M) have recovered with uncertainty around the outstanding NGN 450.90 B (~USD 298 M), local financial publication Nairametrics reported in April.

The programme, infamously linked to ousted former CBN Governor Godwin Emefiele, has since been discontinued as the apex bank attempts to recover funds.

AFEX, one of the Anchors, reportedly received NGN 169.27 B (~USD 112 M) from the ABP which it disbursed to 483,476 farmers cultivating 865,258 hectares of land, while grappling with NGN 66.17 B (~USD 43 M) in outstanding payment having repaid NGN 103.10 B (~USD 68 M).

Drowning In Debt

As Usman Muhammad, one of the program’s beneficiaries documented in a Premium Times Special Report, found himself entangled in legal proceedings for failure to repay a loan, the cracks in the system became apparent. Muhammad’s case epitomises the broader issues facing many farmers who found themselves unable to meet repayment obligations.

These challenges have reverberated throughout the industry, casting a shadow over the successes touted by the CBN. While the program saw significant increases in local rice production and the establishment of numerous rice mills, the underlying issues of massive loan default and mismanagement, as well as the current food crisis in Nigeria, effectively characterise the programme as a fiasco, stakeholders maintain.

Against this backdrop, AFEX finds itself embroiled in a legal battle with GTBank, as the latter seeks to recover funds lent to AFEX under the ABP. GTBank’s move to secure an interim Global Standing Instruction (GSI) injunctive relief, authorising the seizure of warehouses and monetary assets in other bank accounts held by AFEX, underscores the gravity of the situation.

In response, AFEX has maintained its commitment to clearing the loan, stating that the majority of the debt has been repaid while highlighting the challenges faced by farmers and the broader agricultural ecosystem.

“To date we have ensured repayment of a significant portion of the said sums amounting to over 90% of the value. However, a portion of the loan remains outstanding with the farmers and while we have paid out a portion out of our own purse, we remain in discussions with CBN over the outstanding amounts of the said facility,” reads a statement seen by WT.

“We repaid 100% of the loan values allocated in the 2020/2021 season and the 2021/2022 season and now have 10% outstanding for the 2022/2023 season,” the company claims.

Akinyinka Akintunde, CEO of AFEX Commodities Exchange Limited, emphasised the impact of external factors such as extreme weather conditions, a currency crisis, and market volatility on farmers’ ability to repay loans, echoing sentiments shared by many within the industry.

“Significant macro and policy headwinds, including the cash crunch on the back of the Naira redesign policy, severely impacted the productive capacity and market participation of the smallholder farmers in the 2022/2023 season,” he explains.

As the dispute unfolds, the courts have been tasked with navigating the complexities of the case even as AFEX says it’s committed to enabling farmers to fulfil their obligations while continuing to provide the necessary solutions to boost food production in the country.

While the ABP held promise as a catalyst for growth, its stumble has left many questioning its execution. As stakeholders grapple with the fallout, the path forward remains uncertain, emphasising the need for systemic reforms to address the root causes of the crisis to stem future reoccurrence.

UPDATE (4th June, 2024, 10:56 WAT): The Court subsequently adjourned to June 10, 2024, for a hearing of the substantive suit. AFEX’s legal team will have the right to reply in the instant case before the judge can make a final pronouncement on the dispute.