EAGC inks deal with EFKEN Leasing Ltd to facilitate MSME trade

It's a new dawn for cereal value chain players in the region after East African Grain Council (EAGC) and EFKen Leasing Ltd (EFKen) struck an agreement to increase efficiency in food production.

The deal involves providing equipment for farm mechanisation, and agro processing in a leased loan arrangement. In the two to four year programme, value chain players will be required to raise 20-30 percent of the actual cost of the equipment they need.

According to EAGC Chief Executive Officer, Gerald Masila, members allied to the Council may also purchase the equipment as a group and lease them at a fee which they will use to repay the loans.

"This kind of arrangement is packaged in a way that the loans are attached to the cash flow and crop seasonality," he told People Daily. 

The Council has close to 500 members across the East African region who include producers; millers, packers and warehouse food operators. 

Masila said the groups will raise about Sh1m to Sh1.5 million,  but then they will get an equipment worthy Sh5 to Sh6 million which, in this arrangement, it is a security to itself.

This means that value chain players will not be required to come with a title deed as a security. And by raising that much, Masila said they will be able to get an asset that will generate money, and start generating an income for themselves.

"At the moment farmers, and SME operators and investors in the agribusiness are having a big challenge to access equipment to handle and process their merchandise," he added.

The cost of thus particular equipment, for instance, he noted is high being capital goods that are technical.

Imported equipment is usually subjected to a lot of taxation; import, VAT, freight costs and other taxes that push up the cost in the region substantially.

The period of leasing is between 2 to 4 years depending on the item; its economic life, price the repayment structures, will determine the leasing and financing period, 

"Interestingly this leasing is “Lease to own” so that when they pay instalments at the end of the day, they will be paying leasing instalments and later on the players in the value chain will own that equipment," he explained terming it a good solution "to take us to the next level of mechanisation."

This approach, according to EFken Managimg Director, JudyAnne Wanjiku, will help to address the pressing issue on collateral when borrowing, a major hindrance to financial access by small and medium enterprises.

“We are pleased to partner with EAGC to support mechanization in the agricultural value chain, by enabling the MSMEs to access financing through our flexible terms and accommodating solutions that ease agricultural processes and improve output in terms of volume and value," she said at EAGC headquarters in Nairobi. 

Supporting the cereals value chain players to mechanize their operations, Wanjiku said is EFken's objectives.

Again, in this arrangement, EFken Leasing Limited will provide lease finance at preferential rates and processes for between 70 to 80 percent. This will facilitate services to Micro, Small and Medium Enterprises (MSMEs) towards improved livelihoods and food security.

This agreement is in view of the fact that agricultural mechanization has the potential to transform Africa’s agriculture by helping farmers to intensify their businesses. However, mechanization levels remain very low across the continent.

According to Africa Renewal, in 2019, Africa had an average of about 1-2tractors per every square kilometer in Rwanda to about 43 tractors per every square kilometer in South Africa, compared to developed countries, where India had 128 tractors while Brazil registered 116 tractors both per square kilometer. According to the World Bank report on Agribusiness Indicators for 2013, the degree of mechanization in Kenya is about 3 tractors per 1,000 hectares or 26.9 tractors per 100 square kilometers.

This is attributed to the fact that mechanization is capital intensive, requiring special financial  products such as long-term capital, credits, or leasing arrangements, which is beyond small holder farmers and MSMEs. Nevertheless, where the small holder farmers access mechanization, they are required to go an extra mile to maximize the potential of the agricultural machines which if not maximized, compromises repayment plans and becomes a threat to profitability of the machines.

The MoU lays a foundation for collaboration along the agricultural value chain in promoting mechanization. The partnership will cut across financing, capacity building and training of the MSMEs.

EAGC will sensitize its members among them millers, warehouse operators and farmers including Grain Trade Business Hubs (G-Hubs) that need mechanization for lease financing and trade facilitation. The arrangement will promote mechanization in the value chain for reduced costs, improved efficiency, increased quality standards, access to better markets and increased incomes for all actors.

To counter the problem, EFKen offers equipment finance to small scale farmers and SMEs targeting the agricultural value chain; production, logistics, processing and manufacturing sectors. 

Therefore, apart from farm equipment EFKen also finances, trucks, mills, storage facilities, refrigeration facilities, processing lines, dairy equipment, cane loaders, among others. EFKen has a unique financing approach that treats the leased equipment as collateral and needs no additional collateral requirement, contrary to the conventional approach used by other lending institutions. 

"The MoU illustrates the potential that lies in agricultural financing, given the existing huge demand in the market to access similar financial services," she said.

The tractors, Masila noted that are being supplied by equipment suppliers and vary in prices depending on the brand, capacity, and other features; whether it is a two-wheel, Four-wheel or hose power. 

"We have done all that market survey and have quotations from almost 7, 8, 9 different suppliers of tractors and equipment and the pricing can sometimes range between Sh4 and Sh6 million," he noted.