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Tackling the last mile challenge: How can actors in blended finance collaborate to viably finance farmers who sell only within local markets?

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The focus of the article is to contribute to the dialogue around blended finance approaches to build more resilient agricultural supply chains.

Blended finance can be defined as a systematic way which occurs when public financiers provide direct funding for private sector initiatives, through the provision of debt financing, equity finance and or grants. This definition however may lack breadth in taking into consideration other factors relative to such native terminology called blended finance; nonetheless it is within the interest of the author to keep the definition in so.

The focus of the article is to contribute to the dialogue around blended finance approaches to build more resilient agricultural supply chains.

Some approaches will include:

Identify and strengthen scalable aggregation points for channelling capital to smallholder farmers:

 Several of the world’s smallholder farmers are widely dispersed; certain analysis suggests up to 90 percent (and perhaps more) do not participate in closely organised value chains. There may yet be obvious factors contributing towards this including poor transportation and lack of sufficient level of security. Nonetheless, such smallholder farmers are unorganised and lack strong, consistent relationships with buyers coupled with limited access to finance, agronomic training and other support services that usually enhance value chain relationships.

Expand risk management solutions to benefit individual producers:

Due to the uncertainty of the market with consideration of political and economic factors playing a huge contribution – what may appear to be a smart, rational decision to invest one year, may prove otherwise contrary the next. Despite plans in sustainable development goals by producers, DFIs and other institutional and governmental actors; the benchmark price for specific yet important commodities (i.e.: coffee) is still falling short. So, many producers are left very vulnerable to and at least be able to cope with the shocks and stresses associated with the boom and bust price cycles that are ever so recurrent.

Thus, focusing on increasing production, distinguished practitioners and policymakers should increase their efforts to match required attention to designing and disseminating effective risk solutions; that are both accessible and applicable to farmers and their enterprises. To give example; provide crop insurance schemes to protect farmers from downside risk, particularly in times unpredictable natural events and widespread crop failure.

Bundle financial and non-financial support to increase the absorptive capacity of enterprises and individual farmers to qualify for and manage credit:

Very often than never, lack of capacity, limited technical knowledge, and weak internal controls at the aggregator level usually proves a ‘bigger’ challenge to scaling up renovation financing. Based on such reason/s, it is important to create a bundle credit with demand-side agronomic assistance and financial advisory services. This type of support can significantly lower transaction costs for loan estimated risk while reducing risks for both borrowers and lenders respectively.

*There are other factors that may be considered in relation to the approaches required to solve the blended finance topic within the agribusiness space; however the author has decided to focus only on the points raised above.

To conclude; while there are no immediate solutions to the challenges discussed above, nevertheless there are some encouraging signs of progress – from innovative income diversification initiatives to renovation strategies – across various lending portfolios from multiple different institutions (i.e.: Development aid organisations, microfinance organisations and social enterprises to name a few). With hope, there will be more of such initiatives to support several smallholder agribusinesses focusing on multiple agriculture commodities within the African agriculture value chain.

 

Joseph Pelumi

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