Warehouse receipts to unlock farmers’ loans

Eastern Africa Grain Council Executive Director Gerald Makau Masila (left), Ministry of Public Health and Sanitation, Deputy Head, Division of Nutrition, Gladys Mugambi (centre) and EAGC Chairman Judah arap Bett during the launch of Cereal Cook Book at a stakeholder luncheon at Safari Park Hotel, Nairobi on April 18, 2013.   Photo/SALATON NJAU

In Summary

• Smallholder farmers can now use warehouse receipts as collateral to access loans.
• The agreement covers farmers and traders of wheat, maize, barley and sorghum, who store their grains in warehouses accredited by EAGC.
• Chase Bank’s head of agribusiness, Kathleen Goense said the financial sector is now ready to offer farmers and traders this form of financing.

By JOSHUA MASINDE
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Smallholder farmers can now use warehouse receipts as collateral to access loans.
This follows a move by Chase Bank to partner with the East African Grain Council (EAGC) to offer short-term loans to farmers and traders in form of warehouse receipt finance in order to increase production.

The agreement covers farmers and traders of wheat, maize, barley and sorghum, who store their grains in warehouses accredited by EAGC.

Chase Bank’s head of agribusiness, Kathleen Goense said the financial sector is now ready to offer farmers and traders this form of financing. She said farmers and traders of grains can now access 65 per cent financing upfront from the bank using their warehouse receipts.

“With 80 per cent of the entrepreneurs in the country being in agribusiness, addressing this sub-sector will significantly boost the small and medium enterprises (SMEs),” she said in a statement.

The warehouse receipt system (WRS) allows farmers to deposit their commodities in a warehouse which dries, cleans and grades them according to established standards.

The warehouse then issues farmers a receipt, while holding the commodities until the farmer sell them.

The warehouse receipt financing is new in Kenya and the necessary legal framework and regulatory structure is still being put in place.

COMMODITIES EXCHANGE

Upon completion and approval of the legislation, warehouse receipts will be negotiable instruments in trading of commodities, a move that is set to transform agricultural production.

The system is also set to get a boost once the proposed commodities exchange is implemented.

However, low level of awareness on the system has led to low uptake by farmers.