Financing the Missing Middle - Comments from the World Economic Forum
During the World Economic Forum held in Cape Town– one specific term was repeatedly mentioned – “Money follows money”. To truly understanding this concept is to understand why many farmers struggle to find working capital and growth funding. Commercial banks and traditional funding sources are often unwilling to take on the risk of lending to them. If the extraordinary high interest rates alone where not enough, the lack of collateral, credit history, proof of cash flows amongst others, are fatal. What emerges is a situation where the economy in general, is composed of mostly very large or very small firms. This market failure creates a missed opportunity for economic growth. Therefore, it is paramount to find mechanisms to bridge the gap between micro finance and commercial lending.
Financing option for the missing middle —-
- Agdevco works to invest in business and value chains in geographical clusters supporting business to the point where they can attract private investment from domestic and overseas investors. The investment mechanism is in the form of equity with an eventual exit strategy.
- The objective of IFC’s Global Agri-Finance Advisory Program is to foster a measurable increase in the availability of agriculture finance by:
- Building capacity of client financial institutions in Agri-finance: conducting diagnostics, improving risk management systems and processes, designing new products;
- Linking financial institutions to sustainable supply chains: promoting access to finance for stakeholders along sustainable supply chains.
- Grow Africa leverages from its multinational network of companies such as Unilever, Heineken and Tiger Brand to create a forum known as the Grow Africa Investment Forum where companies can make a “pitch” of their business models to investors for financing.
- SPEED’s work under the New Alliance also seeks to pass a bill known as the Private Credit Information Bureau, as to create an alternate “private” institution other than the central bank that serves as a key enabler for expanding lending by distributing information about the payment behavior of consumers and commercial entities. This institution will:
- Increases access to credit
- Supports responsible lending and reduce credit losses
- Strengthen banking supervision and monetary losses.
The story of credit and credit worthiness will remain nonnegotiable as long as the central bank continues to peruse an inflationary control driven monetary policy – but there are alternatives……