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Fund Support for Agriculture Focused Funds in Africa

Paul Kamau, Director, Finaltus
Nov. 16, 2020, 5:48 p.m.
116

Word count: 582

There is an opportunity to increase the presence of Funds that focus along the agribusiness value chain, writes Paul Kamau, Director, Finaltus

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There is an opportunity to increase the presence of Funds that focus along the agribusiness value chain, writes Paul Kamau, Director, Finaltus

Agriculture has been recording exponential growth, due to amongst others, the need to feed bulging population, increased adoption of economic diversification in various countries as well as rising adoption of technology on the Sector.

Despite the diverse financial requirements in the agricultural sector, both informal and formal financial institutions (FIs) in Africa often fail to supply ample and suitable financial services, especially for agricultural production and agribusiness development.

In Africa, more than 50% of the population is involved in agricultural activities while less than 1% of banking credit goes to this sector. The agriculture sector has traditionally been avoided by FIs even when ample liquidity exists in their balance sheets.

Even with the presence of abundant business opportunities in agriculture, FIs lean towards lending to other sectors, non-agriculture household needs and/or invest in government securities.

According to a recent estimate, credit from FIs satisfies only a fraction of the agriculture-related financial needs of non-commercial smallholders and commercial smallholders in loose value chains.

Although FIs play a relatively larger role in providing short-term loans in tight value chains, the amount of their credit is about 25% of that from off takers and input suppliers. Long- term credit requirements for capital investments seem to be largely unmet by FIs. Thus, giving the need for set up of funds that will address the long-term capital requirement needs of the agricultural sector in Africa. This area still requires attention in the provision of long-term debt, equity or mezzanine solutions.

The Funds should be able to develop sustainable financial products for actors in the agricultural value chain. This will be key in unleashing Africa’s agricultural potential and funding the growth of the sector. Consequently, agricultural clients, notably smallholders who lack access to adequate financial services and therefore face severe growth constraints will benefit from this fund.

Finaltus's understanding and experience

Over the years, Finaltus has established itself in the investment and Transaction Advisory Field. The firm have been involved in various assignments across the continent, with some being on the agribusiness value chain.

Finaltus understands that venturing in the sector with no prior experience or much knowledge of the region can be quite a daunting process. Global investors experience several challenges that make the process even harder given the lack of accurate and quality data necessary for better investment decisions. Additionally, the global pandemic has had a negative impact on the investment space especially after the lockdown and travel bans were enforced. This is mainly so for Funds that did not have offices or partners in the African continent therefore subsequently slowing down their operations.

Finaltus is keen to extend its support to the Funds that are keen to operate in the region, through offering services in deal origination, due diligence, portfolio management, as well as exit support. Finaltus is cognizant, that such engagements, may require some level of exclusivity, and on case-by-case basis, Finaltus is open for discussions.

Some of the previous and current mandates that Finaltus has handled related to the agribusiness field are:

1. Transaction advisor in Malawi, under the Agricultural Transformation initiative;

2. Transaction advisor in Kenya, under Kenya Investment Mechanism;

3. Transaction advisor in acquisition of Dairy related entities in Africa;

4. Offering business support to Horticulture Firms in East Africa on navigating Covid

effects;

5. Capital raising for a financial institution that focuses on funding agriculture businesses in Kenya.

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