Access to finance is a major challenge for small farmers, especially those working in developing countries. Shut out from traditional forms of banking, these farmers have little access to formalized financing. At harvest time, with no credit, they are unable to store their crops in reliable and safe warehouses. Often working in remote areas, they find it difficult to get their harvested goods to market. In many cases, in the absence of warehouse finance loans, farmers are forced to sell their produce earlier than they desire, or to arrange financing through credit lines with local banks with fixed assets as collateral.
In Tanzania, the agricultural sector is a major contributor to the country’s GDP, and employs the majority of the national workforce. The sector is mainly dominated by small-scale farmers, relying on rudimentary production means. The agribusiness sector suffers from several investment barriers including high costs of capital and a lack of affordable financing solutions. This is particularly problematic for SME aggregators which have fewer financing options than established companies, including large exporters, and which in turn struggle to offer affordable access to finance for farmers in their supply chain. The Tanzanian agricultural sector also suffers from a lack of warehouse financing owing to bank constraints in liquidity, a lack of warehouse financing instruments and warehouse receipts system.
The Global Warehouse Finance Program (GWFP) supports the agriculture sector by enabling banks to provide commodity-backed warehouse financing through risk mitigation and development of skills in warehouse finance. Through GWFP, IFC supports local banks to develop commodity financing portfolios and skills in countries based on Warehouse Receipts (WHR) or other forms of collateral documentation for moveable assets. Under GWFP, IFC takes local bank risk and provides liquidity to those banks for on-lending to commodity owners or by providing guarantees to other funders to provide funding in local/foreign currency to banks. GWFP focuses on pre-export financing but also includes post-import financing and selective inventory financing for domestic sales, particularly to support food security crops or other support for agricultural productivity in IDA countries.
In Tanzania, IFC and the Private Sector Window of GAFP will provide up to $35 million in financing for a short-term agri-finance facility under the GWFP to National Microfinance Bank (NMB), Tanzania’s second largest bank with a network of 189 branches and a focus on MSMEs and the agribusiness sector. The project will allow NMB to extend credit to support traders, aggregators, and farmer cooperatives based in Tanzania, an IDA-only country. This is expected to improve market access for medium-sized domestic traders and farmer cooperatives especially, and increase income of smallholder farmers, while better integrating them into the global supply chain.
IFC and GAFSP’s support for NMB’s warehouse financing will enable NMB to expand its operations and meet the increasing demand for warehouse financing, thereby expanding the popularity of warehouse receipts as a viable and reliable financing solution for the Tanzanian banking and agribusiness sectors. The project will enable NMB to better integrate smallholder farmers into the global supply chain for key export cash crops such as coffee and cashew. Without IFC and GAFSP’s combined support, NMB would be limited in its ability to expand the business and both NMB and its clients would miss the growth opportunities.
- Access to Finance
Improving SME sector development
Through access to longer-tenor loans small and medium enterprises (SMEs), including women owned enterprises, will have greater flexibility in making investments to develop their businesses, and improve productivity and income generation. Additionally, the project will help NMB extend banking services to outlying and under-serviced communities as the Bank increases its reach through alternative banking channels and platforms.
Improved access to finance for Tanzanian smallholder farmers
This project will contribute to the working capital needs of the agricultural supply chain in Tanzania helping to grow the Bank’s activities in agri-lending. Improved availability of credit to the agri-sector will continue to support growth, and promote employment and the generation of higher incomes in this sector. The low banking penetration in a number of NMB’s target markets gives the potential for robust returns and high development impact.
Improved integration of smallholder farmers into the global supply chain
The project will better integrate Tanzanian smallholder farmers into the global supply chain for key export cash crops such as coffee and cashew. The project will also promote food security by reducing post-harvest losses and promoting efficiency in agri-infrastructure and storage systems.