Rethinking funding

Peasant farmers tend to fail due to bank credit limits. But investment could help them generate a sustainable income. This has given rise to an intense discussion about potential digital solutions.

Ich bin ein Alternativtext
Berlin: Global Forum for Food and Agriculture GFFA 2019. Photo: Thomas Trutscheln/BMEL/photothek

Anna Sophia Rainer

Anna Sophia Rainer has been Africa Advisor for the German Agribusiness Alliance, an initiative of leading associations and companies in the agricultural and food industries, since 2018. In this function she is seconded to the Afrika-Verein der deutschen Wirtschaft where she is responsible for all topics relating to agriculture and the food industry. Previously, she worked for the Afrika-Verein as a project officer for northern and western Africa. Ms. Rainer studied African Science in Leipzig, Naples and Dar Es Saalam and spent some time in Uganda and China during her studies.
 

German-African Business Association

GIZ

The Global Forum for Food and Agriculture is an international conference for political food and agricultural issues that takes place every year in Berlin with one main focus being discussed over three days and about 2,000 international visitors from the worlds of politics, business, science and civil society. The banner of this year's conference was "Agriculture digital – Intelligent solutions for the agriculture of tomorrow". Against this backdrop, the Africa association of German commerce realised, together with the German Agribusiness Alliance, an expert panel on "Digitalising and financing: new possibilities for African farmers".

 

Agriculture employs 65% of the workforce in Africa and contributes towards a third of the gross domestic product of the continent. So far however, the achievements of the sector have been lagging behind what is possible. Grain yields in Africa for example are far behind the global average. There is no access to agricultural supplies such as high-quality seeds, machinery and irrigation systems.

 

Modernisation is too expensive for many subsistence farmers, and the younger generation in particular is moving to the cities to find work. Investment in the agricultural sector is deemed to be one of the most efficient and effective methods of combating poverty and safeguarding food. A modern agricultural sector also represents a profitable business opportunity. It is estimated that the demand for food is set to rise by 70% by 2050 (((in which region?))). To meet this demand, investments totalling at least USD200 bn per year are required. Access to credit and appropriate financial resources remain the biggest hurdles for small-scale farmers however. Depending on the statistics used, less than 1% - 4% of bank credit in Africa finds its way into agriculture, and less than 15% of lenders in Africa offer services for agricultural companies and smallholders.

 

Intelligent, digital solutions can help to provide access to financial services for smallholders in rural areas.

 

But the need for financing is huge. Just in the part of Africa south of the Sahara, investments totalling approximately USD 11 bn are required every year to attain the required expansion of agricultural production in the region.

 

Intelligent, digital solutions can help to provide access to financial services for smallholders in rural areas. Large global corporates and local start-ups are driving forward the digitisation of African agriculture by introducing payment services, credit platforms and digital insurance by means of mobile phones and drones.

 

Ich bin ein Alternativtext
Global Forum for Food and Agriculture GFFA 2019 in Berlin. Photo: Thomas Trutschel/BMEL/photothek

The following issues were discussed together with a panel of experts, made up of Martin Fregene, Director for Agriculture and Agroindustry at the African Development Bank, Peris Bosire, CEO of Farm Drive, Sanjeev Kumar Asthana, Chair of the Agriculture Skill Council of India, and Moses Acquah, Technology Company Builder from GreenTec Capital:

  • How can digital financing solutions contribute towards making the agricultural sector more attractive to young people?
  • How can intelligent financing improve the risk awareness that is associated with the sector through attractive returns?
  • How can Big Data contribute towards tailored financing products for agricultural companies?
  • How can digitisation represent a precise and cost-effective method for assessing the agricultural credit risk?
  • How can digital transactions increase the capacities of farmers and returns on investments?

 

The discussion showed that it is virtually impossible for smallholders to satisfy the creditworthiness conditions. On the one hand, banks have difficulties in assessing properly the credit risk of smallholders. On the other, the checking overhead for the small amounts of credit requested is normally too high for the banks.

 

Digital solutions are helpful here, as shown by the example of Farm Drive in Kenya. Peris Bosire and Rita Kimani started the company after studying IT. Because they both come from farmer families, they often experienced their parents' lack of money when they were in need of seeds or fertiliser. Their solution: Farmers can apply for credit using their mobiles. Farm Drive uses the details entered to check the creditworthiness, and a farmer receives credit to the value of 5 to 500 Dollars from mpesa (a digital mobile bank) that can be used to purchase seeds or fertiliser for example. By 2024, the two Kenyan women want to reach out this way to three million smallholders in Kenya.

 

Digital micro-credit is also available from Farmcrowdy in Nigeria. Using Farmcrowdy, smartphone owners across the world can invest in Nigerian smallholders. FarmCrowdy offers various sponsoring packages, for example an investor can, for about €225, help a Nigerian farmer to acquire 5,000 acres of cropland for maize. The amount also includes insurance, inputs such as seeds and fertiliser, and enough money left for workers and a profit. Of the profit made, the farmer and sponsor receive 40% each and 20% goes to Farmcrowdy. Even if the charges seem a lot, the conditions are better than offers from regular banks. Farmcrowdy is also backed by Hessian investment firm GreenTec Capital. The company assists African businesspeople in building up a strong and sustainable exposure by providing an approach tailored to developing countries. As an investor, GreenTec Capital creates the financial prerequisites for successful market entry, and offers inexperienced companies technical support in active company organisation. As an "impact investor", GreenTec Capital takes into account when selecting start-ups to support their impact and as well as their potential to become market leader in their specialist sectors.

 

Better utilisation of agriculture potential could offer work to some of the 350 million young people who are to come onto the job market by 2035 in sub-Saharan Africa alone.

 

The economic potential of the agricultural sector is also a key issue for the African Development Bank (AfDB). As part of their Feed Africa strategy, the bank is looking to invest 24 billion Dollars in agriculture and agribusiness over the next 10 years. The flagship "Technologies for African Agricultural Transformation" program, valued at 700 million Dollars, will assume a key role here. This should mean agricultural technologies become scalable, from which millions of farmers in Africa will profit; the ICT sector will also assume a key role here. First and foremost, the agricultural sector must be made attractive to disillusioned youths, whose numbers continue to grow and who are often unemployed, by offering modern jobs with good training. Better utilisation of agriculture potential could offer work to some of the 350 million young people who are to come onto the job market by 2035 in sub-Saharan Africa alone.

 

Sanjeev Asthana, Chair of the Agriculture Skill Council of India, was also able to agree with the previous speaker. As one of the world's leading producers of livestock, cereals, cotton and sugar cane, India has specialist expertise that can be transferred to similar climatic conditions in Africa. This pertains to mechanisation, insurance and seeds for example. June 2018 saw India present a national strategy paper on artificial intelligence. One main focus here is agriculture. The aim is to increase agricultural production using artificial intelligence. Of India's 120 million farmers, over 30 million are already using a smartphone and are active on digital markets. India is training many Africans by holding technical and practical instruction in India, with the focuses lying on agriculture and ICT.

 

In conclusion, all presenters agreed that digital applications can simplify access to financing for African smallholders.

 

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