The World Bank has estimated that the value of food and agricultural markets in Africa may rise to US$1 trillion a year by 2030. But, on current trends, spending on food imports in the continent will triple by 2022. The question is: will African farmers tap into this huge market or will the continent simply continue to be a net food-importing region?
To take advantage of fast-growing regional agricultural markets, African countries must invest in modernising their agricultural sectors, says Akinwumi Adesina, president of the African Development Bank. And the involvement of central banks is crucial in this process; these financial institutions are taking up developmental mandates and directly intervening to facilitate access to credit for priority sectors such as agriculture.
At the 4th AFRACA (African Rural and Agricultural Credit Association) Central Banks Forum 2016, 13-14 October 2016 in Accra, Ghana, around 150 African central bankers and agricultural sector stakeholders are gathering to agree on a radical new direction for central bank involvement in agricultural finance. The Forum will be guided by the theme Taking stock of gains and misses in extension of financial services to rural and agricultural communities in Africa.
Thematic areas for discussion include:
- The role of central banks in rural economy and agriculture finance: regulation or development?
- Risk sharing mechanisms and other forms of alternative collaterals;
- Central banks’ role in promoting sustainable finance and sustainable economic development;
- Financial inclusion in promotion of rural and agricultural finance. How do we maintain the momentum?
The Forum is jointly convened by AFRACA, the New Partnership for Africa's Development (NEPAD) and the Bank of Ghana with support from CTA and the International Fund for Agricultural Development (IFAD).
Improving access to finance by farmers: what can central banks do?
The greatest challenge small-scale farmers are currently faced with is lack of access to finance. Most financial institutions do not lend to the agricultural sector because they consider it too risky. For example, before the government set up a specialised institution to promote agricultural lending (the Nigerian Incentive Based Risk Sharing for Agricultural Lending, NIRSAL), only 1.4 per cent of all bank lending in Nigeria went into agriculture, a sector that is the mainstay of the economy employing about 70% of the labour force and accounting for about 40% of GDP. “The reason was because banks could not find the money trail in the agriculture sector”, claims Adesina.
In addition, interest rates applied to the farm sector are very high – over 15% annually, according to the NEPAD Agency. According to Lamon Rutten, head of CTA’s Policy, Markets and ICTs programme, “this could change if African central banks come up with innovative measures that will make it easier for banks to lend to farmers in confidence.”
A good example, according to Rutten, is the partnership model provided by the Alliance for a Green Revolution in Africa (AGRA). “In Nigeria, AGRA partnered with the Central Bank of Nigeria (CBN) and with commercial banks to develop NIRSAL, which has a seed capital of US$500 million. NIRSAL offers strong incentives and technical assistance to banks, building the confidence and agricultural understanding of lenders with the goal of increasing the percentage of bank lending to farmers and agricultural enterprises from 1.4% to 7% in the next 10 years.”
During the 4th AFRACA Central Banks Forum, participants will explore the scope for proactive action in the area of agricultural finance, learning both from historical and current international experience. They will attempt to provide solutions that will allow cheaper loans to be granted, permitting farmers to expand their production. This in turn will increase food supply into cities and pave the way for economies to take advantage of fast-growing regional agricultural markets.
A solid partnership between AFRACA and CTA
CTA has been partnering with AFRACA since 2013. Through their partnership, they have sought to build a platform for central bankers to periodically deliberate on policies and interventions to enhance inclusive finance access to rural communities in Africa. The 4th edition of the Central Banks Forum will see the culmination of an active and effective partnership between CTA and AFRACA with the laying out of a set of measures for the realignment of the role of central banks to the evolving agricultural landscape in African countries.
Find out more
- Improving access to finance by farmers: what can central banks do?
- Feed Africa- Strategy for Agricultural Transformation in Africa 2016-2025
- Speech Delivered by President Akinwumi Adesina of the African Development Bank at the 7th African Agricultural Science Week and FARA General Assembly, held in Kigali, Rwanda, June 13, 2016
- Bank of Ghana’s experience in supporting agricultural finance in Ghana
- African Rural & Agricultural Credit Association