We help transform small scale farmers

We help transform small scale farmers

Standard Bank steps in to help provide innovative fund for Africa’s smallholder farmers

Standard Bank has teamed up with the Alliance for a Green Revolution in Africa (AGRA) to create an innovative fund for Africa’s smallholder farmers. The fund will operate in Ghana, Mozambique, Tanzania and Uganda, opening loan opportunities to smallholder farmers and small- and medium-sized agricultural businesses previously considered too risky for lending.

AGRA and other partners are providing a US$10 million loan guarantee fund, and in turn, Standard Bank is making US$100 million available for lending over three years.

A memorandum of understanding governing the partnership was signed in Accra, Ghana by Chief Executive of the Standard Bank Group, Mr. Jacko Maree; President of AGRA, A. Namanga Ngongi, and Minister of Agriculture of Mozambique, His Excellency Soares Nhaca, who is a board member of the Millennium Challenge Account Mozambique and the first country partner for the program.

Speaking at the signing ceremony, AGRA Chairman, Kofi Annan said: “Our action today recognises that the global food crisis is exerting major problems in Africa. Inflation, food shortages, and trade imbalances all pose huge social, economic, and political risks. But while credit is frozen worldwide, Africa cannot wait for a thaw. Programmes such as this, which increase the productivity of smallholder farmers and help catalyse an African Green Revolution, will ultimately enable Africa to achieve food security and stability, and thus improve the entire global outlook.”

Lack of access to finance is a major obstacle that prevents farmers from investing in basic inputs, such as good seeds, fertilisers and small-scale irrigation needed to raise farm productivity and generate profit. As a result, their yields remain one-quarter the global average, leading to pervasive hunger and poverty across Africa. Similarly, little or no commercial financing has been available to entrepreneurs seeking to build businesses that could boost Africa’s food production and enable farmers to earn a profit.

Standard Bank, Group Chief Executive Jacko Maree said: “The large share of agriculture in Africa’s GDP suggests that strong growth in agriculture is necessary for overall economic growth. There is a need and an opportunity for investment that will develop the middle ground in Africa’s agriculture. Africa has enormous natural potential and the continent has to unlock this potential in order to reap the benefits of our natural resources.

“As a leading emerging markets bank, our goal is to perform a transformative role in the continent’s agricultural sector in partnership with other organisations. Transforming small scale farmers into medium-sized enterprises is essential to address the food security and to stimulate economic growth,” Maree concluded.

Across sub-Saharan Africa, the agricultural sector generates significant percentages of national incomes; it receives only 1 percent of total commercial lending. And the majority of this money has gone to large-scale agriculture, leaving smallholder farmers with only the change in their pockets to invest in their farms.

“In Mozambique, 45% of the population is undernourished and few of our smallholder farmers can access high-yielding seeds and fertilisers,” Nhaca said. “The need is especially urgent now to ensure that farmers have access to inputs for planting season.”

Partnership aims to benefit smallholder farming
African food producers are mostly smallholder farmers who cultivate a few acres or less of land. Working with low-yielding seeds in depleted soil, their crop productivity has remained stagnant for 30 years. To sustainably increase yield and begin generating a surplus, they need access to good seeds, appropriate fertilisers, improved land and water management systems, and better market access. But to initiate these changes, they also need access to finance.

African financial institutions have typically avoided lending to smallholder farmers and to the agriculture sector for a number of reasons, including high perceived risks by banks, farmers’ lack of usable collateral; the high costs associated with servicing remote clients; and interrelated production risks such as unreliable rainfall, lack of irrigation, pests and diseases, and price volatility.

“The loan programme announced today combines the power of partnerships with an innovative financing mechanism designed by AGRA and its partners to mitigate the risks facing commercial banks in lending to the agricultural sector in Africa, which is largely dominated by women farmers. It will help to generate new income opportunities to improve the lives and livelihoods of several thousands of farmers and their households,” Annan said.

“As the world’s leaders respond to the global financial crisis with bail-out measures, we should recognise the power of local financial innovations to create change on the ground. The programme we launch today with our partners will not provide a bail out. It will trigger agricultural growth and prosperity on the continent.”

The new loan programme builds on earlier work of The Rockefeller Foundation in Uganda that helped to leverage loans to small-scale farmers and that five years later had a loan default rate of less than 2 percent. AGRA’s innovative financing programmes have so far helped to leverage US$ 50 million in financing from commercial banks for small farmers and agricultural value chains in Kenya and Tanzania.

The US$100 million AGRA-Standard Bank partnership will create the largest single financing facility targeting smallholder agriculture by a bank in Africa - a milestone of confidence in the capacity and entrepreneurship of African farmers and the agribusinesses that serve them to help transform Africa?s breadbaskets. “This is a memorable day for African agriculture,” said Namanga Ngongi, President of AGRA.

The new programme builds on the bank’s funding models developed to finance small-scale farmers. These models also include risk mitigating tools such as price hedging instruments and crop insurance. Maree noted that the lack of usable collateral make traditional lending products inappropriate.

Soon, many of Standard Bank’s branches in the targeted roll out countries will begin processing loan applications from farmers and farmers’ groups, seed companies, rural retailers of farm inputs, crop storage facilities, agro-processing businesses and other enterprises that together are needed to increase the productivity of smallholder farmers and build a robust food production system.

The agreement includes provisions designed to maximize the opportunities for farmers and small scale businesses to succeed, including technical and business development support, quality control of produce and support in applying for credit.

The programme will be rolled out in Ghana, Mozambique, Tanzania and Uganda. All three organisations anticipate that successful implementation of the programme will enable it to be extended to other countries.

Today’s signing ceremony was attended by the board of AGRA, representatives from MCA Mozambique, Ghanaian government officials, representatives of the United Nations and aid agencies and other partner organizations working with AGRA to increase staple food production in Sub Saharan Africa.

More information
About the Alliance for a Green Revolution in Africa
AGRA is a dynamic partnership working across the African continent to help millions of small-scale farmers and their families lift themselves out of poverty and hunger. AGRA programmes develop practical solutions to significantly boost farm productivity and incomes for the poor while safeguarding the environment. AGRA advocates for policies that support its work across all key aspects of the African agricultural value chain ? from seeds, soil health and water to markets and agricultural education.

AGRA’s Board of Directors is chaired by Kofi A Annan, former Secretary-General of the United Nations. Dr Namanga Ngongi, former Deputy Executive Director of the United Nations World Food Programme, is AGRA’s president. With support from The Rockefeller Foundation, the Bill & Melinda Gates Foundation, the UK’s Department for International Development and other donors, AGRA works across sub-Saharan Africa and maintains offices in Nairobi, Kenya, and Accra, Ghana.

For further information, visit www.agra-alliance.org.

About Millennium Challenge Account Mozambique
MCA Mozambique is financed by the US government?s Millennium Challenge Corporation, an agency designed to work with developing countries based on the principle that aid is most effective when it reinforces good governance, economic freedom, and investments in people that promote economic growth and the elimination of extreme poverty.

The MCA has received US$ 506 million to reducing poverty and increasing economic growth in Mozambique, investing in farmer income support, water and sanitation, transportation, and land tenure services.

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