The Key to Agricultural Financing: Unlocking Lending in East Africa    

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Across Africa, agriculture comprises a nominal percentage of the banking sector’s loan portfolio compared to its share of the gross domestic product. This asymmetry is largely due to perceived risks of agribusiness finance.  While a number of banks are starting to realize that agribusiness can be a viable sector, wider-scale lending has been stymied by limited understanding of the dynamics of agriculture within the banking sector.

To help banks better serve the agribusiness sector, Global Communities, through its United States Department of Agriculture (USDA)-funded Agribusiness Investment for Market Stimulation (AIMS) program, worked with the Kenya School of Monetary Studies (KSMS) and Financial Access to develop a practical course on agriculture finance.

Barclays Bank Kenya employees being trained on Agriculture Lending Fundamentals, a topic under ECAF
Barclays Bank Kenya employees being trained on Agriculture Lending Fundamentals, a topic under ECAF

The Executive Certificate in Agricultural Finance (ECAF), launched in June 2016, targets loan officers, credit analysts, sector heads and other staff involved in loan underwriting, to build their understanding of the dynamics and risks of agribusiness finance and how to mitigate them.  The intensive six-day course has been rolled out in Kenya, Malawi and Tanzania, the three target countries of AIMS.

Established in 1997 by the Central Bank of Kenya to build the capacity of the banking sector, KSMS has become a leading bank training institution in the region, and given the promise of ECAF thus far, it may continue the training beyond the AIMS program ensuring sustainability of the program. As a registered training institution KSMS offers certified degree courses.   KSMS also has an agri-business training course–Certificate of Agricultural Finance (CAF)–developed with support of the USAID-funded COMPETE program that targeted bank executive staff.  However, KSMS did not have a course that built the capacity of frontline staff responsible for identifying viable deals, putting together agribusiness loan packages, and assessing them.  So AIMS collaborated with the Financial Access East Africa (FAEA), a financial services advisory firm largely staffed by former bankers.  One of its key focus areas building capacity in agribusiness finance in the banking sector.  The three parties developed ECAF from the lessons learned from CAF and input from the banking sector in Kenya, Tanzania and Malawi.

In addition to developing course curriculum, AIMS discounted the initial ECAF trainings to encourage banks to enroll.  Over nearly a year, KSMS trained 350 people on ECAF, exceeding the target of 300 trainees due to high interest in the course.  The trainees included 188 from Kenya from 13 financial institutions, 103 from Tanzania from eight financial institutions, and 59 from Malawi from 10 financial institutions. The participants from Kenya included Central Bank of Kenya staff to build their capacity to provide better oversight in agri-finance lending.  By comparison KSMS has trained 203 bank staff on CAF between 2011 and 2016.

 Already the program is changing the attitude of banks and their employees on agriculture lending. Middle East Bank Kenya, which had developed four agribusiness products four years ago but had not used them, disbursed its first agri-business loan in March 2017 – a $2,000 facility for wheat farming after its staff attended the training. Loise Ochola, Assistant Manager-Credit Administration at Middle East Bank Kenya, attributes the uptake of agriculture lending within the bank based on the better understanding of potential risks  and ways to mitigate gained by staff who attended the ECAF training. Senior Officer Agribusiness Onesmo Mwansanga at Equity Bank Tanzania said the ECAF trainings helped them strengthen their agribusiness approach which has led to increased efficiency in loan processes and better monitoring. This in turn has resulted in an expansion of its agribusiness portfolio. Mr. Phillip Madinga,

ECAF session in Tanzania; participants demonstrating best practices in agriculture value chain financing
ECAF session in Tanzania; participants demonstrating best practices in agriculture value chain financing

First Merchant Bank Ltd Malawi’s Group General Manager, Corporate and Commercial Banking, commended the ECAF model for improving the lending process for all involved.    “One of the key lessons leant from the training was on cash-flow based lending for smallholders farmers, structuring loans according to the funds that farmers get not only from the funded crop but from other sources,” said Mr. Madinga. “This approach not only reduces the risk of default but also improves the family income from the funded crop as the majority of the proceeds go to the farmer, not loan repayment, thereby achieving food security and economic empowerment.”

The quality and practicality of ECAF has resulted in strong interest in the course beyond what was envisioned for AIMS support. Barclays Bank, Family Bank, Kenya Commercial Bank and other institutions that participated in ECAF have expressed interest in training additional staff on ECAF. “Banks and other financial institutions see the value of the certificate program, otherwise they would not have participated at all,” said KSMS Academic Coordinator Dr. Phares Ochola, adding that the high quality of the program is why many institutions have returned for additional training.” “Participants see ECAF, which is a certified program, as a way to develop their skills and for upward growth.”

Interest in the course has expanded beyond the target AIMS countries:  based on positive feedback from the Barclays Kenya team, Barclays Ghana paid for two staff to participate in ECAF training in Kenya held in April,  and are in discussions with KSMS on training additional  staff in Ghana. The French Development Agency in partnership with the African Rural and Agriculture Credit Association (a regional association of financial and non-financial institutions involved in promoting rural and agricultural finance in Africa) plans to translate ECAF and CAF (which has since been renamed the Executive Diploma in Agricultural Finance (EDAF) after the launching of ECAF) into French and roll out the courses in French-speaking West Africa.  In Rwanda and Uganda KSMS and Financial Access are exploring with Agricultural Business Initiative Trust in Uganda and Financial Sector Deepening Rwanda to deliver ECAF in those countries.    And the World Council of Credit Unions, an umbrella body for financial co-operatives, has also expressed interest in ECAF training to equip them as they build capacity of their agribusiness cooperative members.

The partnership with Global Communities has also encouraged KSMS to revisit how it delivers its courses.   Usually KSMS provides courses at its campus in Nairobi, making it expensive for banks in other countries to participate KSMS’s courses.  Under AIMS, Global Communities supported KSMS to deliver courses in Tanzania and Malawi.  Out of this experience, KSMS is now exploring how it can deliver ECAF and other courses outside of Kenya.  It is in discussions with the Bank of Tanzania Training Institute and Malawi Banker’s Association on possible collaborations that would enable KSMS to facilitate future ECAF trainings in these countries.

KSMS has wanted to develop an online platform for course delivery but previously did not feel it had a course with wide enough interest for such an investment. But now, KSMS is developing an online version of ECAF.     KSMS has already contracted mElimu, an e-learning platform service provider, to further extend the outreach of ECAF to a wider regional audience.  KSMS expects to launch its e-learning version of ECAF later this year.

The development of ECAF has enabled KSMS to provide a pathway for agrifinance learning.  ECAF graduates interested in continuing their education agribusiness finance can enroll in EDAF, a newly developed diploma course in agriculture lending.   The ECAF training credits are applicable to EDAF; those who successfully compete the ECAF program are exempt from the first of the three modules under the EDAF program.  The process of developing ECAF and tailoring it to the needs of banks has also enabled KSMS to improve EDAF.  Informed by feedback from ECAF participants, KSMS enhanced the EDAF curriculum to include agricultural value chain financing.  KSMS is also looking into revising the structure of EDAF further including the timing of the course based on the lessons learned from ECAF which will help with the uptake of EDAF.

ECAF graduates have started sharing questions and experience on social media platforms like WhatsApp.  KSMS is currently looking at how to formalize this interaction through the creation of a dedicated web platform targeting ECAF and EDAF alumni for knowledge sharing, online exchange of ideas on agriculture finance through which it can provide guided support.     It also is looking into establishing an association of agriculture professionals, including ECAF and EDAF graduates and other stakeholders in agribusiness finance. The principal objective of the association will be to  promote agriculture trade in the region through capacity building, serving as a knowledge repository, consultancy and research services; attracting financing to the farming sector; acting as a lobbying group; enhancing marketing; and serving as a  clearing house for technology, public-private partnerships, investment and lending opportunities.

According to Dr. Ochola, “ECAF was a worthwhile investment for KSMS as it has ensured that these financial institutions are better able to understand the particularities of agriculture, gain confidence in agribusiness lending, and are able to see the opportunities in the sector. Banks also see it as an investment opportunity, especially banks that are seeking to tap into the agriculture sector. They are already starting to see the return on their investment through better lending practices and quality loan packages.”

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