The African Union and ActionAid officials are rallying private companies to finance public credit guarantee schemes using part of their huge corporate social responsibility budgets.

It is hoped providing financial guarantees to lenders could stimulate financing to agriculture as the continent seeks to increase food production and stimulate growth.

The OECD-FAO Agricultural Outlook 2016–2025 for sub-Saharan Africa projects the region will continue importing foods over the next decade as demand by the growing population outstrips production.

The outlook forecasts demand for food to grow at more than 3 per cent over the coming decade, outpacing total agricultural production projected to rise by only 2.6 per cent a year.

This means Africa will continue spending millions of dollars on importing food to fill the production gap that has been widened by a combination of erratic weather due to prolonged dry spells, erratic rains and low funding of agriculture sector.

In separate interviews with officials from African Union and ActionAid, they told The EastAfrican that Africa's food concerns can be addressed partly by tapping into corporate social responsibility budgets to increase the liquidity of credit guarantee funds to help African farmers access funding.

The argument is that already the companies are investing in social projects and when that money is pooled to specifically finance agriculture, they would have addressed the issues in the communities they work.

Disadvantaged

“The agriculture value chain needs financing. This financing can only be accessed through borrowing money from lenders,” said Rhoda Peace Tumusime, the Commissioner for Rural Economy and Agriculture at the African Union Commission (AUC).

The ActionAid Rwanda country manager Josephine Uwamariya said most smallholder farmers in Africa are disadvantaged as they do not own property making it difficult for them to access the over collateralised credit.

“The women need credit guarantee funds to access financing from the traditional commercial banks for Africa to boost food production and agro business,” said Uwamaliya.

However, most credit guarantee funds in Africa are run by governments that always complain about small resource envelops to fund several social investments and development projects.

The limited funding of the schemes means thousands of unbankable smallholder farmers and businesses are locked out of access to financing.

“There is a huge funding gap for the credit guarantee scheme. We have only managed to fund 3 per cent of the financial industry loan application,” said Innocent Bulindi CEO of Rwanda’s Business Development Fund (BDF), a public company managing the credit guarantee scheme.

In Rwanda the fund has supported 4755 projects worth $65 billion stimulating loans worth $171 million, some of the money was invested in agricultural projects.

The many agriculture loan application rejections also point to another challenge the sector faces. For instance, in Rwanda, between January-December 2015, National Bank of Rwanda statistics shows that at least 49 per cent of agriculture loans were rejected worsening the food security in the country.