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June 13, 2012

The Standard Chartered Bank report that tells us absolutely nothing new about agricultural financing in Africa

Chido Makunike

Lack of a viable finance model for African agriculture is a perennial, seemingly unsolvable problem. Lots of talking is done at the problem, but examples of actual initiatives to devise innovative, workable solutions are few and far in between.

Now comes the millionth report telling us what we all already know: Africa 'will miss 'the opportunity to capture a significant share of global trade if financing issues are not resolved quickly!'

That is one of the conclusions of a report by Standard Chartered Bank entitled 'Appropriate Working Capital Solutions for the Agricultural Sector in Africa.'

Just from its key finding, one suspects that the prestigious bank's report has absolutely zero that is new or particularly helpful in it. The issue of the paucity of agricultural finance in Africa has been studied in conferences, workshops, books, PhD. theses and in countless other ways. One would think a bank like Standard Chartered would be bringing new proposals to the table on what to do, or better yet, to actually try some new models of lending to African farmers and other practical, non-armchair agriculturalists-you know; the ones actually 'doing' agriculture rather than the ones who noisily just talk about it.  

Alas, that might be too much to expect from a traditional, old-model bank like Standard Chartered.

The problems are well known and don't need going into in any detail here. Most African farming is made up of small-scale family holdings. Most don't have title to the land they live and work on, nor do many have the kind of collateral banks would be interested in. Being mostly rain-fed, most African farming is particularly vulnerable to the uncertainities of climate and cannot be (commercially) conducted on a year-round basis. And so on and so forth. What are required are governments and financiers who, knowing these difficult problems, are still able and bold enough to proffer finance models that are appropriate to the situation.

That is where the many mindset problems begin. Old-model institutions with deep roots in the Western banking tradition like Standard Chartered will gingerly dip their toes where there are vaguely Western-style farming conditions, but that is small agricultural sections of a just a handful of countries: South Africa, Kenya, Zimbabwe before 'Mugabe's land grab,' etc. Commercial farming that banks feel relatively comfortable with is beginning to be aggressively developed in countries like Ethiopia, Ghana and a few others.  

The problem is that this still excludes the overwhelming majority of African agricultural producers. There are beginning to appear scattered reports of new, mostly local banks that are prepared to think 'outside the box' about the challenge of lending to small scale producers, but they constitute a tiny fraction of the need. A greater number and variety of new 'non-traditional lenders' is also a welcome, fairly recent development, but one that  does not come close to plugging the finance gap.

The author of Standard Chartered Bank's report is quoted as saying 'financial institutions will have to become more innovative and work together with national governments, development organisations and NGOs to help Africa achieve its potential in the agricultural value chain.'

As if this has not been known for ages! What a waste of time of a report.

African Agriculture

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