There is a profitable opportunity for banks to finance small to medium-sized agricultural enterprises in southern Africa and globally, said Randall Brummett from the World Bank.
According to Brummett, the average capital expenditure of aquaculture farms in Southern Africa is more or less $5 million, meaning most of the farms operate between the $5 million to $10 million range.
“Unfortunately for farmers and for bankers, there is no financial mechanism that targets this range or user group effectively.”
The only financing options for operations exceeding $10 million are from big, corporate financial institutions who demand high interest rates, institutions taking a 30% share and a payback time of only 18 months. The option for farmers with smaller operations is borrowing from micro-credit schemes.
“This means there is a big gap for financing in the aquaculture sector, basically the whole agriculture sector for finance mechanisms that serves small to medium enterprises,” Brummett said.
“Bankers need to think about taking advantage of this space. There is money to be made in the small and medium agricultural space, globally.”
Brummett said for every corporate sized farm, there are thousands of other farms.
He said mechanisms should include financing for farmers over a longer term, to give their businesses time to grow.
He said by providing these financial options to smaller operations, banks will also stimulate economic growth.
“Providing such investments in agriculture, including aquaculture, produces larger and more equitable gains for the GDP of a country than other sectors does. Agriculture and the aquaculture sector have huge potential to improve the economics of Africa.”
Brummett addressed a session on Financing in African Aquaculture during the annual World Aquaculture Congress underway in Cape Town.