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October 02, 2009

AGRA in $1.4 billion loan gurantee plan for African farmers

by Wendell Roelf

A group headed by former U.N. chief Kofi Annan plans a loan guarantee facility to leverage 1 billion euros from commercial banks for small African farmers, it said in early October.

The Alliance for a Green Revolution in Africa (AGRA), whose board is chaired by Annan, intends to launch the facility to cover a gap in funding for small-scale food producers in Africa, said its vice president, Akinwumi Adesina.

"We are in the early stages of it, (but) there is huge appetite for it because agriculture in Africa has been undercapitalised for the last 30 years," Adesina said.

African governments have pledged to allocate about 10 percent of their national budgets to agriculture, which would provide up to $20 billion a year for the continent's farming sector.

Adesina said a shortfall of $10-$18 billion would have to come from donors and the private sector, who have shown increasing appetite to invest in Africa's agriculture sector to help improve global food security following a global food crisis between 2007/08.

Adesina said African banks were awash with money, but less than one percent of total domestic private capital went to agriculture, a significant contributor to GDP and which employs some 70 percent of the labour force.

"So this effort of working to leverage a billion euros to Africa through commercial banks is part of private sector effort," Adesina said on the sidelines of the Association of European Parliamentarians for Africa conference.

"What we are trying to do now is create this syndicated facility that will allow banks all across Africa to compete for risk-sharing instruments so they can lend more for agriculture, which is the engine for growth."

He would not say which banks AGRA would partner with for the new facility.

Adesina said Agra's approach was to lobby for and arrange affordable loans for farmers at manageable interest rates, with commercial and micro-finance banks playing a key role.

He said the organisation had already used $15 million in loan guarantees to leverage $160 million in affordable loans from commercial banks, including South Africa's Standard Bank and Kenya's Equity Bank.

Reuters

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