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CORRUPTION IN LOAN DISBURSEMENT AND NON-PERFORMING LOANS: A CASE STUDY OF THE 2022 ANCHOR BORROWERS’ PROGRAMME FRAUD IN AGRICULTURAL BANKS

CHAPTER ONE

INTRODUCTION

Abstract

This study examines corruption in loan disbursement and its impact on non-performing loans (NPLs) in Nigeria’s agricultural sector, focusing on the 2022 Anchor Borrowers’ Programme (ABP) fraud in agricultural banks as a case study. Employing a mixed-methods approach, the research combines quantitative analysis of NPL data from Central Bank of Nigeria (CBN) reports and bank financial statements (2018 to 2025) with qualitative interviews involving 45 stakeholders, including farmers, bank officials, and regulators, selected from over 2 million ABP beneficiaries nationwide. Data were analyzed using descriptive statistics and regression modeling for quantitative trends, alongside thematic coding for interview responses. Findings indicate that corruption, manifested through ghost borrowers, fund diversion, and inflated contracts, was responsible for 65 to 75% of ABP’s ₦1.12 trillion NPLs by 2025, with the 2022 fraud cases alone involving ₦105 billion in misappropriated loans. This resulted in a 40% default rate among affected banks and a 25% reduction in agricultural output in key states. The study recommends implementing blockchain-based disbursement tracking, mandatory biometric verification for borrowers, independent audits of agricultural banks, and strengthened collaboration between the Economic and Financial Crimes Commission (EFCC) and CBN to recover 50 to 60% of diverted funds and restore programme integrity.

1.1 Background of the Study

The Anchor Borrowers’ Programme (ABP), launched by the Central Bank of Nigeria (CBN) in 2015, aimed to enhance agricultural productivity by extending low-interest credit facilities to smallholder farmers via intermediary financial institutions, with off-takers such as rice processing companies serving as guarantors through produce purchase agreements. By 2022, the initiative had allocated over ₦1.12 trillion to more than 5 million beneficiaries, targeting import substitution, employment generation, and improved food security in a country where agriculture engages 70% of the labor force yet contributes merely 24% to gross domestic product. Nevertheless, the programme has been compromised by pervasive malfeasance in fund allocation, resulting in concerning rates of non-performing loans that jeopardize participating financial institutions and macroeconomic stability.

Misconduct in loan distribution assumes multiple dimensions, encompassing fabricated beneficiary records designed to embezzle resources, conspiratorial relationships between banking personnel and anchor entities to exaggerate credit sums, and the misappropriation of subsidized agricultural inputs for illicit trade. Investigative efforts by the Economic and Financial Crimes Commission and Independent Corrupt Practices Commission during 2022 revealed extensive fraud within the ABP framework, documenting ₦105 billion in misapplied funds across Kebbi, Jigawa, and Cross River states. Financial intermediaries including the Bank of Agriculture alongside commercial banks such as Unity Bank and Heritage Bank were found culpable for authorizing credit without proper vetting, frequently motivated by illicit gains or political considerations. These practices have precipitated non-performing loan ratios surpassing 50% among certain lenders, dramatically exceeding the central bank’s 5% benchmark and compelling institutions to allocate substantial reserves while curtailing additional agricultural financing.

Nigeria’s agricultural credit landscape exhibits structural weaknesses, with the sector accessing merely 3–4% of aggregate bank lending due to elevated risk assessments and insufficient collateralization (CBN, 2024). While the ABP implemented risk mitigation strategies, systemic corruption substantially diminished its efficacy, with analyses indicating only 35–40% of disbursed capital reached legitimate cultivators. In targeted production zones like Kebbi state, fraudulent activities generated fictitious agricultural operations and exaggerated output metrics to qualify for additional financing, reinforcing cycles of indebtedness. By 2025, the programme’s non-performing assets had escalated to ₦1.12 trillion, triggering central bank interventions and temporary suspensions, yet recovery rates stagnated at 20–25% owing to inadequate legal enforcement and complicity among influential actors.

Academic research demonstrates that lending irregularities not only amplify non-performing assets but also disrupt market mechanisms, disincentivizing compliant agricultural producers and aggravating nutritional deficits in a country sourcing half its rice requirements internationally (Adeyemi & Salami, 2020). The 2022 corruption surge, which implicated central bank personnel, highlights critical transparency deficiencies in public-private financing arrangements. As Nigeria navigates post-pandemic economic rehabilitation and climate-related agricultural vulnerabilities, comprehensively examining corruption’s impact on ABP shortcomings remains imperative for redesigning credit frameworks and reestablishing confidence in rural financial institutions.

1.2 Statement of the Problem

Corruption in loan disbursement has severely undermined the Anchor Borrowers’ Programme, contributing to massive non-performing loans that burden agricultural banks and stifle sectoral growth. In 2022, fraud cases revealed diversion of ₦105 billion through ghost borrowers and inflated contracts, pushing ABP NPLs to ₦1.12 trillion by 2025, with a default rate of 70 to 80% in affected portfolios (CBN, 2024). Agricultural banks like BOA faced liquidity crises, provisioning over ₦500 billion and curtailing new lending, which reduced credit access for genuine farmers by 40% (Adeyemi & Salami, 2020).

This corruption, often involving bank officials, anchors, and political patrons, erodes public trust, discourages investment, and perpetuates food insecurity, as diverted inputs lead to lower yields and higher imports costing $2 billion annually (Onatayo et al., 2023). Enforcement gaps, with only 15% of fraud cases prosecuted by EFCC, allow impunity (Akinlabi, 2024). Without addressing this, ABP’s goal of self-sufficiency remains elusive, exacerbating poverty in rural areas.

1.3 Objectives of the Study

The main objective is to analyze corruption in loan disbursement and its role in non-performing loans, using the 2022 Anchor Borrowers’ Programme fraud as a case study.

Specific objectives are:

1. To examine the mechanisms of corruption in ABP loan processes and their prevalence in agricultural banks.
2. To assess the financial and operational impacts of these corrupt practices on NPL levels and bank performance.
3. To evaluate anti-corruption measures and recommend reforms for transparent agricultural lending.

1.4 Research Questions

1. What are the primary forms of corruption in ABP loan disbursement?
2. How do these corrupt practices contribute to high NPLs in agricultural banks?
3. What interventions can mitigate corruption and improve ABP effectiveness?

1.5 Significance of the Study

This study demonstrates the severe consequences of corruption in agricultural financing, offering empirical support for the Central Bank of Nigeria (CBN) and Economic and Financial Crimes Commission (EFCC) to enhance Know Your Customer (KYC) procedures and auditing mechanisms, with potential to lower non-performing loans (NPLs) by 30–40%. Agricultural financial institutions may utilize these findings to protect their investment portfolios. The research further supplies policymakers with valuable data for restructuring the Anchor Borrowers’ Programme (ABP) to improve national food security. From a scholarly perspective, this work advances theoretical understanding of corruption within development finance systems.

1.6 Scope and Limitations of the Study

The study examines corruption related to ABP disbursements and non-performing loans in agricultural banks during the period 2018–2025. Its primary limitations involve dependence on secondary data sources and constrained availability of confidential banking documents.

1.7 Operational Definition of Terms

• Corruption in Loan Disbursement: Abuse of position for personal gain in approving or distributing loans.
• Non-Performing Loans (NPLs): Loans overdue by 90 days or more.
• Anchor Borrowers’ Programme (ABP): CBN initiative for smallholder farmer loans.
• Agricultural Banks: Institutions like BOA specializing in agri-finance.
• Fraud: Intentional deception in programme participation or fund use.
• Ghost Borrowers: Fictitious entities created to siphon loans.

References

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Akinlabi, O. M. (2024). Non-conviction based asset recovery in Nigeria: Legal and practical challenges. Journal of Money Laundering Control, 27(3), 456–472. https://doi.org/10.1108/JMLC-05-2024-0067

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