Blended finance bridges the gap as commercial banks fail to finance agriculture
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07 September 2023
Author :   Isaiah Esipisu
: >> Image Credits by:Isaiah Esipisu

DAR ES SALAAM, Tanzania (PAMACC News) - Despite the historical inadequacy of commercial banks in supporting agriculture across Africa, stakeholders are optimistic. This was a major talking point at the 2023 Sustainable Food Systems Forum (AGRF 2023) in Dar es Salaam.

Speaking at the event, Binta Touré Ndoye, a seasoned banker and AGRA’s Board Member, expressed concerns about the financial sector's hesitation to support agriculture. "Banks have not been able to effectively support agriculture on the continent, particularly due to many risks involved," she stated.

Yet, all is not bleak. Carolyne Gathinji, Associate Partner at McKinsey & Company Ltd, highlighted the success of blended finance and other pioneering models. Among them is the warehouse receipting system and the budding partnerships between telecommunication companies and banks benefiting smallholder farmers.

“The share of blended finance going into agriculture has more than doubled over the past five years,” remarked Gathinji. However, she added a caveat: “the big concern is the scale at which it is happening,” noting that many of these initiatives are localized, serving small communities across different African countries.

Blended finance is gaining traction as it fuses public and private sector funds to back ventures with societal or environmental agendas. Such projects often struggle to find private financiers exclusively. AGRA’s application of the blended finance model has notably aided small agri-businesses in weathering challenges, including climate change and calamities like COVID19.

In another progressive move, AGRA is acquainting numerous African farmers with the warehouse receipting system. This mechanism enhances the transparency and efficiency of agricultural commodity storage and trade.

On the ground, examples of effective agricultural financing abound. In Kenya, the Cash Transfer model, driven by UN Women, the Food and Agriculture Organization (FAO), Village Enterprise, and the County Government of West Pokot, stands out. Their initiative, named the Women Economic Empowerment through Climate Smart Agriculture (WEE-CSA), targets impoverished women, educating them on climate-resilient farming. Furthermore, these women are granted seed capital for agri-business ventures, and many have achieved financial stability and food security within just a year.

They are also educated about savings, where and after accumulating tangible amount; members are allowed to borrow twice their savings to scale up their agribusiness ventures. This has given women a new source of livelihoods because some have delved into poultry keeping while others are now keeping goats and sheep.

Gathinji believes that the key lies in scaling up such agricultural finance models across Africa, given their proven success. The momentum at AGRF 2023 suggests that a paradigm shift in African agricultural finance may well be on the horizon, but in small quantities.

Generally, agriculture can be a high-risk sector due to factors such as weather, pest infestations, and market volatility, and that is why many commercial banks may be hesitant to provide loans to farmers or agricultural businesses because of the uncertainty involved.

Addressing this challenge often requires a combination of financial innovations, policy reforms, and capacity-building efforts to make agricultural finance more accessible and sustainable for farmers and agribusinesses.

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