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Alliance for a Green Revolution in Africa

AGRA’s Innovative Financing Initiative

To make smallholder farming a business, farmers need access to affordable finance. Until now, banks have avoided lending to smallholders, considering them too risky. AGRA is helping to change this.

AGRA’s Innovative Financing Initiative recognizes that in many African countries, strong economic growth rates over the past decade left commercial banks awash with money. Even today, as the global financial crisis has tightened domestic markets, there is excess liquidity. However, less than 1% of the available domestic private sector financing typically goes into agriculture--a disturbing fact, since agriculture accounts for 70% of the labor force.

To turn this around, the Innovative Financing Initiative works to: lessen the risks of lending to agriculture; develop appropriate financial products for farmers; improve the performance of agricultural markets, and improve farmers’ financial literacy.

AGRA has used these principles to spark a revolution in lending to smallholder agriculture. Using $17 million in loan guarantees to reduce risks of lending by banks, AGRA and its partners have leveraged $160 million in affordable loans from commercial banks in Kenya, Uganda, Tanzania, Ghana and Mozambique.

AGRA’s Innovative Financing Initiative operates across the agricultural value chain.

Low-interest loans made available through the initiative go to associations of smallholder farmers, to agro-dealers, and to small- and medium-sized agricultural businesses that support small-scale agriculture. They support efforts along the entire value chain: from primary farm production, to seed companies, to post-harvest handling, storage, processing, transportation, and trade in agricultural inputs and produce.

Early Accomplishments

In its first one and a half years, the Initiative helped to unlock $160 million in affordable financing for smallholder-based agriculture. Credit guarantees, put up by AGRA and our partners, leverage up to ten times their amount in low-interest loans.

As summarized below, Standard Bank, Africa’s largest, dedicated US$100 million to the program. Kenya’s largest bank, Equity, put in US$50 million. The National Microfinance Bank in Tanzania put in US$10 million. In each case, AGRA worked with national partners to establish loan guarantee funds which lessen the risk of lending.

  • In March 2009, Standard Bank agreed to offer US$100 million in loans to smallholder farmers and agricultural business—US$25 million each in Tanzania, Mozambique, Ghana and Uganda. In Tanzania, AGRA and Kilimo Trust put up a US$1 million loan guarantee fund. In Uganda, AGRA and Kilimo Trust are providing US$2.5 million for a loan guarantee fund. In Ghana, a US$2.5 million fund will be posted by AGRA and Ghana’s Millennium Development Authority. In Mozambique, a fund of US$2.5 million is being posted by AGRA and the Millennium Challenge Account Mozambique. That partnership also includes the Ministry of Agriculture’s Centro de Promoção da Agricultura (CEPAGRI).
  • In Tanzania, AGRA and the Financial Sector Deepening Trust established a US$2.1 million loan guarantee fund, securing a US$10 million line of credit from the National Microfinance Bank (NMB). NMB agreed to lend to agro-dealers at interest rates of 18%, compared to the typical rate of 46% charged by microfinance institutions. As of late 2009, NMB had approved more than US$1.5 million in loans to agro-dealers.
  • In Kenya in 2008, AGRA and the International Fund for Agricultural Development provided US$2.5 million each as a loan guarantee that leveraged US$50 million from Equity Banks. As of May 2009, the program had loaned more than 679 million Kenyan shillings (about US$9.8 million) to 20,408 beneficiaries. Of these, 19,931 were small-scale farmers; 337 are large-scale; and 140 were agribusinesses. Equity Bank hired 100 new staff to expand and improve the program’s reach and effectiveness.

Going forward, AGRA’s Innovative Financing Initiative intends to mobilize US$4 billion in affordable loans for Africa’s smallholder farmers and the businesses that serve them.