This explosive urban growth will require a corresponding increase in food production – and innovation along the way to meet the changing tastes of middle class, urban consumers.These consumers are demanding greater variety and quality of packaged indigenous foods that cater to local tastes. They also want to know where their food is coming from.Such shifts demand specialised agribusinesses, in both peri-urban communities and in farming regions far from the cities. They also present enormous opportunities for young people in African countries, many of whom grew up on the small farms that still produce the majority of Africa’s food.
Africa’s youth are energetic, creative, and tech savvy. They tend to be are natural risk takers. These attributes position them well to take advantage of emerging business opportunities in the agricultural sector, which itself is being rapidly transformed by technology.But to tap into these emerging opportunities, young people must first have access to funds for investment. There is little such funding available. Only 3 percent of funds loaned by African banks go to agriculture, and even less is available to youth or small-scale farmers.Youth face two major obstacles in obtaining investment capital. First, they lack collateral to pledge against a loan. Second, they do not have a track record showing their financial worthiness.
To overcome these obstacles, it is time to find innovative alternatives to collateral as the basis for loan qualification.
Take the case of M-Shwari mobile banking service in Kenya. Through M-Shwari, consumers including young people can open savings accounts in order to save and obtain 30 day loans. These loans are approved based on mobile money transaction histories.The problem with these loans, however, is their very short grace period before repayment begins. A month is an impossibly short time for most small-scale farmers to earn income back on their investments and begin loan repayments.
Other options are emerging. In Kenya, the all-digital microfinance organisation Musoni has developed an agricultural loan specifically for smallholder farmers. The product, Kilimo Booster, uses the popular M-Pesa service to allow easy mobile phone payments.
Importantly, it is also structured to meet the timetables of crop cycles, not of banks. Loan repayment is not linked to the venture that the loan is funding. In addition, Musoni extends loans to smallholder farmers including youth who do not have formal collateral.
Creditworthiness of young people can also be judged based on daily records of their farm enterprises or other initiatives. Youth can be encouraged to have clear and up-to-date records to help secure funding.
Farming records could include the yearly acreage of crops, expenses incurred during the production season, and profits made from sales. Such records can be accompanied by receipts for farm inputs as well as sales records and bank account financial statements.
In addition, governments, private institutions and other business partners should set up special start-up funds for young people in agriculture. In the US, for example, the Department of Agriculture’s Farm Service Agency gives loans or loan guarantees to first-time farmers who are unable to obtain credit elsewhere. These loans help farmers to graduate to commercial credit. Similar programmes could be replicated.
Alternative funding initiatives must be accompanied by a range of non-financial support including training in agriculture and business development.
The most innovative financial services, including the Kilimo Booster loan, couple digital agricultural training – delivered via mobile phones or tablets – with tailor-made financial products. In Ghana, Kenya, Mozambique and South Africa, TechnoServe has partnered with Barclays Bankto equip enterprising youth with the business and technical skills needed to build sustainable agribusinesses.
Governments and private institutions must play integral roles in creating new models for youth financing. There is a window of opportunity for Africa’s youthful population to build businesses to feed the region’s rapidly urbanising populations.