Blended Finance Offers Viable Opportunities

A lack of financing and access to capital is one of the biggest barriers to entry for new farmers. With these operations regarded as high-risk undertakings, commercial banks are wary to offer loans, leaving new farmers excluded from the sector. Lindi Botha looks at the possibilities that exist within blended financing to overcome these challenges.

- Lindi Botha

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.

COLLABORATION

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.