The Alliance for a Green Revolution in Africa (AGRA) has made a $500,000 grant to be disbursed over a 3 year period to Umati Capital to support smallholder farmers under Umati Capital's Supply Chain Financing (SCF) product, which is accessible via a software application.
The App is called Umati Application it is only available to their clients, in this case; smallholder farmers. With SCF, farmers can now sell to more professional buyers who offer better prices but have delayed payments as opposed to selling to informal traders who pay cash on delivery but offer low prices. This product will, therefore, streamline cash flows for smallholder farmers offer the much needed financial cushion during the waiting periods..
Ivan Mbowa, Umati Capital co-founder says, "Our investors see a great opportunity in the agricultural sector which contributes US$ 16.6 billion to GDP. However, the sector has a credit gap of US$1.8 billion unserved by traditional financiers. To bridge this gap, the funding will advance Umati's goal of financing and providing associated technology to increase the productivity for smallholder farmers."
AGRA's financial support will be used to design, pilot and implement various capacity building models for both agricultural buyers and suppliers in collaboration with Umati Capital. These models will focus on defining the basic financial literacy knowledge for smallholder farmers to understand how to assess various financing options to grow their agricultural businesses and then to understand Umati Capital's Supply Chain Financing product. The models will also incorporate cost-effective methods to deliver this knowledge at scale.
"Agriculture is the next installment of the Africa rising narrative. However, access to finance continues to be a major hindrance. We believe that through public-private partnerships and engagements such as this partnership, we can support farmers to contribute to economic growth by linking them to better and less risky finance options such as Umati Capital's SCF product," said Dr. Agnes Kalibata, AGRA president.
"We are grateful to our friends at the MasterCard Foundation who have made this possible through the Financial Inclusion for Smallholder Farmers in Africa Project implemented by AGRA," Dr Kalibata added.
The Supply Chain Financing product will allow a smallholder farmer (supplier) to access 80% of the invoice value at any time before the supplier is paid by the buyer in full. Umati Capital can process the SCF loan without additional requirements of collateral in near real-time after sale or within 24-48 hours. Repayments are received directly from the buyer on behalf of the supplier with funds being transferred via integration with bank or mobile money systems.
With support from AGRA's monitoring and evaluation function, Umati Capital will be able to assess and quantify the actual impact of Supply Chain Financing on smallholder farmer's productivity and net income at the end of the project period.
Ivan concludes, "We have aligned our objectives with AGRA to support smallholder farmer financing and through this disruptive financing model - with an initial roll out focusing on staple crops - we believe that we can increase farmers' financial backing, grow their productivity and increase food security."