Blending Grants, Loans and Angel Investments for Sustainable Agribusiness

Festus Oluwadamisi Okunlola

Agriculture is a highly risky sector across the globe with little to no effort from the commercial banks to lend to business owners in this sector. Factors contributing to the high risk facing agriculture majorly emanates from the climate change, which is a global issue that affects almost everything on earth.

Should we abandon the sector that feeds the whole world because of risk?

In Africa, food worth $35.4 billion gets imported yearly (AfDB, 2016), of the little food produced in the continent, 80% of it comes from the smallholder farmers (IFAD, 2011). To make African agriculture sustainable, there is a need to empower the farmers. The smallholder farmers in Africa cannot make African agriculture sustainable, hence the need to involve African youths in the sector.

If we want youths to get involved in agriculture, agriculture has to move from business as usual (subsistence) to business unusual (agribusiness) with an enabling environment to eradicate hunger. A key component of the enabling environment is financing, I want to believe that almost every other sector bessides agriculture faces little financial hitch for its start up and up scaling.

With various interventions in Africa to engage youth productively in agribusiness, if we must succeed as a continent, agri-finance must be done in such a way that it would absorb or share risks with the agripreneurs (agric entrepreneurs).

How then can we go about this?

Agribusiness is associated with risk, no doubt, but for start-ups, two forms of financing could be provided. Grants could be provided with strong mentoring for start-ups from zero to a level of stabilizing. With grants for start-ups, Agripreneurs would learn and get the strategy right – unforeseen circumstances associated with agribusiness could be mitigated, business reality could be felt and agripreneurs adjust accordingly.

Another possible financing for startup is “Angel Investment”. An Angel investor is an individual that has abundant supply of money and provides capital for a business start-up, usually in exchange for ownership equity. Advantages of angel investment over loans for startup are collateral; interest rate and the fear of running from pillar to post to pay back the commercial bank’s loan are totally out of play.

To upscale, loans would be necessary, however, lessons would have been learnt during start-up and Agripreneurs are now equipped with business reality and knowledge on how to manage funds.

For loans to be more accessible, some changes are needed. Loans from commercial banks in most African countries come with a double-digit interest rate, which has not enabled agribusiness to thrive. Better loan structure needs to be designed with single-digit interest rates, which would enable agribusinesses to use their profit for business expansion.

Agribusiness is a good way of sustaining the African economy but we need to blend the right agri-finance to help start-ups and help them in up-scaling.

Photo Credit: www.mischiefcapital.com

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CTA is a joint international institution of the African, Caribbean and Pacific (ACP) Group of States and the European Union (EU). CTA operates under the framework of the Cotonou Agreement and is funded by the EU.