Standard Bank, Africa’s largest bank, has teamed up with 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 today in Accra, Ghana by Chief Executive of the Standard Bank Group, Mr. Jacko Maree; President of AGRA Dr. Namanga Ngongi; and Minister of Agriculture of Mozambique, His Excellency Soares Nhaca, who is also a board member of the Millennium Challenge Account Mozambique, which is the first country partner of programme. Ghana’s Millennium Development Authority (MiDA), whose board was recently formed under the new government, is joining the partnership.Speaking at the signing ceremony, 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. “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,” said Jacko Maree of Standard Bank. 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 percent 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 FarmingMost African food producers are smallholder farmers who cultivate on tiny plots 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. “This loan programme 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 dominated by women farmers,” said Annan. “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 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 announced today 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.“This is a memorable day for African agriculture,” said Namanga Ngongi, President of AGRA.Participating 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 maximise 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.
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