Kigali-based East African Exchange (EAX) is discussing with financial institutions to advance credit at a cheaper rate to grain farmers signed up with them, Kadri Alfah, the firm’s country manager, has said.
In an exclusive interview with The New Times, Alfah said the fact that the firm stores farmers’ produce in warehouses it guarantees product quality, meaning that lenders like commercial banks and micro-finance institutions are exposed to minimal risk when lending to farmers. Projects in the agricultural sector are regarded as high risk by most lenders in the country, which pushes up interest rates on loans to the sector rooftop, cutting out many farmers from accessing credit to expand their projects.
The commodities exchange, which was launched last year to enable smallholder farmers sell their produce throughout the year at favourable prices, seeks to defy factors hampering the agricultural sector like bad weather, price fluctuation and lack of access to finance.
Alfah said many farmers today sell their produce at low prices to middlemen, especially when they have excess stock, yet they could store it in EAX’s warehouses and sell through the exchange’s automated trading platform at higher prices.
“Farmers don’t have to sell off all their produce immediately after harvesting at giveaway prices…We have enough warehouses to store the produce and sell it later at better prices,” he explained.
The firm operates 15 warehouses countrywide.
He also pointed out that farmers who work with EAX can easily get bank loans – over half of the total value of the commodity – to finance other projects or expand their acreage.
“If you have a hundred bags of maize valued at $5,000, the bank can give you 70 per cent of that value and pay back the loan later when you sell the grains when the prices are high,” he explained.
He was optimistic that once banks have understood how they have mitigated the risks, they will come on board.
According to EAX, Banque Populaire du Rwanda (BPR) and Equity Bank Rwanda are already on board to support the arrangement.
Alfah said ideally, he would prefer banks to lend the farmers at around 12 per cent, lower than the 17.5 per cent market average, to boost smallholder farmers’ capacity.
The exchange recently adopted a new membership strategy that would bring in smallholder farmers organised under co-operatives to bolster grain volumes. The move will also help reduce costs of having individual farmers having to travel long distance to sell grain and, hence, creating economies of scale as co-operatives will be able to mobilise large quantities of grains, especially maize and beans.
“The overall aim is to enable farmers to earn more from their produce which will encourage them to increase output,” said Gilbert Habyarimana, the Rwanda Co-operatives Agency (RCA) deputy director general, in an interview with this paper recently.
RCA is working with EAX to bring about 200 maize co-operatives to trade their grains through the exchange.
Experts say that when the majority of farmers join the initiative under co-operatives, it will help ease commodity supply constraints EAX faces.
This article was written by Ben Gasore and published in The New Times