Transformation in the agriculture sector is lagging behind, by all accounts, despite numerous projects and efforts from both private and government institutions to establish new farmers. As financing poses the biggest challenge for many farmers, this is an area that requires the most intervention.
Pieter van Welzen, senior consultant on financial markets in Africa at law firm CMS RM Partners, who is providing legal counsel for Rabobank’s foray into Southern Africa through its dedicated smallholder farmer fund, says that commercial banks view smallholder farmers as too risky to lend to.
“This leaves [these] farmers with limited options to secure funding for expansion, and hampers how fast South Africa’s farmers, most of whom are not large commercial operations, can scale up to access markets.”
Rabobank is one of several private institutions looking at blended financing models to help solve this problem. These models combine different kinds of funding to provide loans at favourable rates, rather than just by giving handouts.
Van Welzen explains that there are various forms that blended finance can take, but overall entails a combination of different types of financing, with various risk appetites, into one ‘financing’ solution.
“It is not dissimilar to a project finance transaction, with senior, mezzanine and subordinated debt, with different levels of risks and returns.
“What is, however, disparate is that the parties are different and include organisations that are actually willing to assume a high risk, without requiring a high return as well. These organisations are often impact investors, such as family offices, where the focus is more on impact on society rather than monetary returns, and funds that are used to compensate for polluting activities. It also includes donors such as governments and development organisations.
“Traditionally, all these organisations have their own projects: the impact investors would provide microcredit for a certain amount to maybe a hundred farmers, and the donor organisation would provide a grant for the acquisition of machinery. The funding provided therefore has an impact, but it is limited to these amounts and these farmers.”
You can read up to 3 premium stories before you subscribe to Magzter GOLD
Log in, if you are already a subscriber
Get unlimited access to thousands of curated premium stories, newspapers and 5,000+ magazines
READ THE ENTIRE ISSUE
October 30, 2020