Agricultural entrepreneurs decry short term funding from lenders

Experts say the best they can get are one-year loans, which is considered unsustainable for growth.

In Summary
  • In Kenya, the demand for Micro, Small, and Medium Enterprises (MSME) financing in the sector remains unmet.
  • IFC estimates an SME finance gap of Sh2.94 trillion, representing 30 per cent of the country’s GDP.

Agricultural entrepreneurs are now complaining about lack of long-term financing from lenders across Africa, as the huge funding gap in the sector persists.

This is according to economic experts who convened at the 2023 Africa Investment Forum held from 8 to 10 November in Marrakesh, Morocco where they called on banks, institutional partners and the private sector to invest heavily in agribusiness.

Speaking during a panel discussion, Adeel Malik, professor of development economics at the University of Oxford, said African countries have enormous potential to feed its own population and the world.

This, with agribusiness being foreseen to be the engine of growth, sustainable development and job creation in years to come.

“However, a number of surveyed agribusinessmen across Africa say they are grappling with issue of unsustainable financing, amidst the already existing financing gap in the sector,” Malik said.

“The best they can get are one-year loans."

In Kenya, the demand for Micro, Small, and Medium Enterprises (MSME) financing in the sector remains unmet and has been aggravated by the disruptions of the Covid-19 pandemic, according to the African Development Bank.

The International Finance Corporation (IFC) estimates an SME finance gap of $19.38 billion (Sh2.94 trillion), representing 30 per cent of the country’s GDP.

Malik said that among the factors impeding the narrowing of such a gap is the bank's skepticism of the sector's volatility. 

He said the banks are concerned of the much volatility in this sector, hence not willing to lend for more than a year at a time.

“Banks are poorly organised, if not organised against farmers who have to buy seeds, fertilizer and so on,” he said.

His sentiments were supported by Mireille Esther Gninahophin, founder of Okedjenou, who said lack of funding is a barrier to innovation in the sector.

“Investment is currently very focused on technology, and that's fine, but more than two thirds of the world's arable land is in Africa. Farmers have logistical difficulties in getting their products to consumption areas and there are losses of production due to lack of processing,” Mireille said.

“Young shoots need support. Innovation comes at a cost, be it in research or equipment. When you produce 50 to 200 kilograms, everything is fine, but when you move up to 10 or 20 tonnes, that needs more funding. Agricultural cooperatives and start-ups need immediate financing."

Both panellists further called for innovative approaches to finance this sector, taking into account its constraints, such as variations in rainfall and the effects of climate change.

The panellists noted progress in a good number of countries in reforms to facilitate access to land, especially for women, and attract domestic and international private investment.

Kenya for instance in July received an equity investment of €18 million (Sh2.92 billion) in the Africa Guarantee Fund (AGF) and another €1.2 million (Sh195 million) to support youth and women entrepreneurs engaged in agricultural value chains.

The funding, approved on June 6, 2023, was provided by the European Union (EU) under its partnership with the African Development Bank Group.

The funding was described as another milestone in the implementation of the partnership with the EU, which also signals the importance given to the role of women and youth in the agricultural sector in the country.

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