By Jeph Ajobaju, Chief Copy Editor
AFEX Commodities Exchange (AFEX) has raised $50 million to fund agricultural small scale enterprises (Agri-SMEs) in Nigeria to help bridge the funding gap between lenders and borrowers in the sector with a commodity-backed instrument.
The scheme is being floated for the first time.
It comes on the heels of plans by the Central Bank of Nigeria (CBN) to increase its bank credit to the agricultural sector by over 50 per cent in the next four years, in a plan disclosed in September 2020.
The CBN seeks to increase loans to agricultural sector to 10 per cent of total bank credit instead of the current 4 per cent, to boost national food production.
CBN Governor Godwin Emefiele urged banks to increase their support for the agricultural sector as coronavirus has caused disruptions to global supply chains and food supply from other countries.
In his view, the opportunities banks could explore in the agricultural sector include addressing gaps in the value chain like storage centres, transport logistics, and technology platforms, that can enable rural farmers to sell their produce directly to markets.
Warehouse receipt
AFEX, a private commodities exchange company, also announced the first Warehouse Receipt Backed Commercial Paper in Africa, which has tech-enabled operations and a 24-hour fast cash turnaround for borrowers.
This was disclosed by AFEX in a statement issued on Thursday, reported by Nairametrics.
“The AFEX financing deal will help eradicate the high cost of procurement incurred by processors by deploying a discounted value of a warehouse receipt distributed among five leading players in the Food and Beverage, Trading Poultry and Animal Feed segments in Nigeria,” AFEX CEO, Ayodeji Balogun, said.
“The receiving companies are top 10 players in their respective segments. They have now been enabled access to a tool for managing price volatility, enabling up to 30% direct savings on prices.
“With our vision to reach a cumulative total of over $5 billion in investment to the agriculture sector over the next five years, this financing deal is right on track to achieve this goal.’’
Balogun said AFEX plans “to reduce exposure to price risk for stakeholders, by enabling them to hedge their positions and trade in commodity derivatives.”
Operation of warehouse receipt system
Nairametrics explains that the warehouse receipts, which can then be transferred from commodities to a financial asset and listed under the borrower’s portfolio on the AFEX trading platform, will create a sustainable funding structure and address underfunding in the Nigerian agricultural sector.
With the warehouse receipt system linked to financiers, the system allows financiers value and marks the commodities’ price to market on a real-time basis.
AFEX’s mission is to provide low-risk working capital facility for stakeholders in the Agro sector, in a way that is transparent and has a very high viable investment return.
As a licensed commodities exchange and warehouse receipt system operator, it deploys a warehouse receipt system and collateral management infrastructure to increase market confidence for both lenders and borrower.