ABC Bank, EAX eye grain farmers with loans deal

Money Markets

ABC Bank CEO Shamaz Savani (left) with East Africa Exchange managing partner Jendayi Frazer. FILE PHOTO |   NATION MEDIA GROUP

By JOHN GACHIRI, jgachiri@ke.nationmedia.com

In Summary

• Farmers who supply maize and other grains to stores certified by the EAX will be given electronic warehouse receipts which will indicate the quantity and quality of grains that have been delivered.
• Farmers can then present the electronic receipts as collateral for borrowing, similar to the way title deeds and logbooks are used as security for loans.
• Maize, wheat, rice, beans, pulses, sorghum and millet are some of the produce expected to trade at the exchange which the EAGC estimates will be a market worth Sh3 billion in the next three years.

ABC Bank and the East Africa Exchange (EAX) have signed a deal that will make it easier for farmers to borrow through the use of warehouse receipts.

Farmers who supply maize and other grains to stores certified by the EAX will be given electronic warehouse receipts which will indicate the quantity and quality of grains that have been delivered.

Farmers can then present the electronic receipts as collateral for borrowing, similar to the way title deeds and logbooks are used as security for loans.

The electronic receipts give farmers the choice to sell their grain deliveries at a later date when the market is favourable rather immediately.

Should the farmers have pressing financial needs they can borrow from banks using their produce as collateral as indicated in their warehousing receipts.

ABC Bank is also expected to provide clearing and settlement services and payment solutions that include mobile money transfer services.

This method of transaction means farmers can then sell their produce when prices are high, pay back the loans and pocket the difference.

ABC Bank said the system would create price stability in the market which will mostly benefit small-scale farmers who do not have the financial muscle to better negotiate with buyers.

“Smallholder farmers are particularly affected owing to their vulnerability to price fluctuations and their weak bargaining position. With warehouse financing solutions like this, they will now be at a vantage point to bargain for better prices for their produce, thereby enhancing their capacity to produce more, create employment and contribute more to economic development,” said ABC Bank chief executive Shamaz Savani.

Warehousing at certified stores is also being encouraged to reduce billions lost in the form of post-harvest losses.

The East Africa Grain Council (EAGC), the industry lobby group, estimates that between 40 and 60 per cent of grains harvested in the region are lost during transportation, drying and storage of grains.

Pest infestation, disease and poor access to markets are other causes of post-harvest losses.

ABC Bank will finance up to 80 per cent of the value of goods delivered, which will be maize and beans for now but there are plans to add other products.

“We are currently trading grains like maize and beans but going forward we will get into cash crops and soon minerals,” said EAX managing partner Jendayi Frazer.

Farmers and grain handlers are also showing interest in creating a vibrant warehousing systems which is necessary if receipts are to be traded similar to stocks on the Nairobi Securities Exchange.