Innovative and Inclusive Finance for Youth in Agriculture
Oct 19, 2015
Conclusions and Recommendations Financing youth in agriculture is a must. Financing mechanisms that are beneficial to young agripreneurs are also beneficial to others, and to a large extent, developing sound mechanisms that improve access to finance for young people that wish to become more involved in agriculture or to expand their existing agribusinesses is a matter of improving the overall environment for agricultural financing in a country. A few concluding points, specifically about youth should, however, be made. Limited access to formal sector finance, both for investments and for working capital needs, is a greater constraint for youth than for older entrepreneurs, as they have less assets and less access to informal finance. Female youth in SSA face even more challenge in accessing agricultural finance than their male counterparts. Hard data on this problem, however, are still somewhat scarce. It is important for each African government willing to improve youth financial inclusion to produce and share reliable statistics on youth employment in agriculture and their financial inclusion. In this respect, the design of a system of monitoring and evaluation on the financial inclusion of youth in agriculture is critical to support learning-by-doing processes and enable the continuous design of products and services and effective policies and strategies. (...) Young agripreneurs, having fewer assets, will especially benefit from forms of finance that do not require fixed collateral, but rather are based on the expected future production/sales of the borrower (through contract farming or value chain arrangements), or on floating assets such as equipment (leasing) or commodity stocks (warehouse receipt financing). For the same reason, young agripreneurs can also benefit greatly from factoring, as it removes a considerable part of the working capital burden of an enterprise (it no longer needs to finance the deferred payment conditions that many buyers want). Young agripreneurs, many of them relatively well educated, may spot emerging market opportunities and formulate high-potential business plans to realize such opportunities. Unfortunately, African banks rarely provide financing just on the basis of a business plan, and especially not for young, inexperienced entrepreneurs. There is also a scarcity of venture capital firms on the continent (and moreover, most agricultural ventures are too small for them). Therefore, impact investment and challenge funds fill a critical gap in the market. Such funds should continue to be supported, including by development partners. Their country coverage in Africa should be broadened. The need to improve the situation in African agriculture is evident to many people. Also, many urban consumers are showing an increasing interest in healthy food chains, which implies sound, socially and environmentally sustainable production methods, and well-managed value chains to bring produce from farm to fork. As the success of crowdfunding sites show, in developed countries consumers are increasingly willing to invest themselves in making this happen; such consumer engagement could be promoted in Africa too. Crowdfunding platforms need support for further expansion, and governments should remove all barriers that prevent them from operating properly. (...) Inclusion in well-organized agricultural value chains addresses many of the prime constraints that youth face when becoming involved in agriculture. Markets must be reasonably secure, inputs provided on credit, the availability of additional funding against the security of future sales, access to technical support, well-established logistics to bring goods to market, etc. The growth of African cities and the increasingly sophisticated demand of many of their denizens create large opportunities for the development of short-distance (national or regional) food value chains in the continent. While supporting the development of such chains they should not be focused on youth alone. It is clear that the youth will be among the main beneficiaries. Many of the opportunities for youth in agriculture are not in primary production, but elsewhere along the value chain, from advisory services to treatment of crops, to storage, market linkages, processing and so on. African banks should develop expertise in value chains so that they understand where such opportunities arise, and how young entrepreneurs propose to capture them. Governments and their development partners who aim to enhance agricultural finance, for example by the creation of guarantee schemes, should consider how their schemes can be made to include specific support for value chain ventures other than primary production. Young entrepreneurs often lack experience, and training and mentoring greatly enhances their chances of success. In this regard, using such methods as incubation, intensifying hubs and accelerators, business development training for agribusinesses, and their integration to international and local value chains, can allow them to become bankable. Good financing schemes for young agripreneurs include sound training and mentoring services. Helping a young agripreneur establish herself in a value chain and providing her with intensive training and mentoring greatly reduces the risk of failure of her enterprise (Youth Business International, 2010). Banks, however, may not be fully aware of this, and not take it into account in their loan approval procedures. In this situation of information asymmetry, it may well make sense for an agency providing agripreneurs with such support to offer partial credit guarantees to banks, at a rate that is likely to bring revenue to the agency. The instruments highlighted above can be effective if, and only if, government and international development organizations provide strong support to improve policy and regulatory frameworks in Africa. They must build not only the capacity of young agripreneurs, but also that of the institutions in the formal financial sector that can work with and support them in their endeavors. *If you find value in this excerpt, you may enjoy reading the full report, Africa Agriculture Status Report 2015 : Youth in Agriculture in Sub-Saharan Africa, a publication of the Alliance for a Green Revolution in Africa (AGRA).