“An enabling environment is one of three building blocks that is essential for accelerated productivity and increased partnership in value chains”
This was stated by Massimo Pera, Agribusiness Investment Economist, from FAO, who had set the stage for discussions during the session on “Support Mechanisms to Agri-value chain finance”
The overall theme and the purpose for bringing together over 700 people from 80 different countries to Nairobi, Kenya for a week-long conference full of inspiring and astounding discussions all revolve around this one topic – Finance for Agriculture.
As we continue to hear from many presenters and comments being shared throughout the conference, we get the feeling that we must start a transformation of understanding that agriculture must be considered a business and not the traditional agriculture that we are so comfortable with, and with any business comes two main opposing factors – 1) risk and 2) finance. With agribusiness, risk and finance turn in opposite directions. Risk is high and financing opportunities are low.
We read from a previous post on Risks and how they need to be mitigated. When it comes to agri-businesses, financial institutions are always hesitant to take that risk. Financing plays a great supporting role in the value chain at all different stages and we look at two organisations that are willing to take that risk.
Why don’t banks like agriculture?
This question was raised by Maarten Susan, Programme Manager of Finance4Agriculture (F4A), a financial advisory firm based in Nairobi, Kenya. Mr Susan went on to give an explanation for this question stating that when it comes to agriculture, return is always below the traditional sector mark.
When we talk of agriculture, we talk rural communities where there is always the added constraints of operating a business and the banks do not want to take the added risk.
“We cannot meet financial institutions half-way but we have to give it all to them on a silver plate”, added Mr Susan.
Mr Susan presented solutions on how 12 inter-linked projects of F4A, while taking an integrated approach, could mitigate these risks involved in banks being anti-agriculture and to be able to “Bridge the Gap in Agricultural Finance”.
Some of these projects include:
- Capacity Building of Finance Institutions
- Guarantees and Insurance
- Credit Scoring and Workflow
- Agribusiness Assessment
- Supply Chain Finance Platform
Bridging the Gap in Agricultural Finance is also a great objective of SNV, an international not-for-profit development organisation, which has identified that there is a gap in financing for the medium agri-enterprises.
Sabdiyo Bashuna Dido, Regional Coordinator, East and Southern Africa/Global Gender in Agriculture Coordinator, SNV, stated that:
“small businesses have access to aid, large businesses can access the commercial banks and this leaves the medium enterprises. SNV is playing the role of being able to assist in meeting this gap through the Zimbabwe Agricultural Development Trust (ZADT)”.
Throughout the agri-value chain, financing and access to finance are required to support each player of the value chain, and just as the main players of the value chain is necessary, those that provide the supporting role and mechanisms have an even greater role to play to ensure the successful development of the agri-value chain to foster successful agri-businesses!
Photo credit: Fulani Media/ILRI
Blogpost by Carole Cholai, Social Reporter for the Fin4Ag Conference.