BY MADUABUCHI EFEGADI
Nigeria and Africa’s rural microfinance institutions and agricultural sector are to benefit from a European Investment Bank’s (EIB) €22.5 million European solidarity financing fund for Africa known as FEFISOL II.
The FEFISOL II is dedicated to financing the continent’s rural microfinance institutions and agricultural entities, sourcing from small-holder farmers in the continent, according to a statement by the European lender. It comes with a first closing of €22.5 million and a technical support envelope of €1 million.
The first FEFISOL fund closed in July 2021. Its promoters, the social investors, SIDI (Solidarité Internationale pour le Développement et l’Investissement) and Alterfin, have structured this new fund to finance the continent’s rural microfinance institutions and agricultural entities sourcing from small-holder farmers in Africa.
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The EIB, Proparco via FISEA+ (the AFD Group’s facility implemented by Proparco as part of the Choose Africa initiative), the Belgian investment company BIO, the Alternative Swiss Bank, Crédit Coopératif, Banca Etica and SOS Faim Luxembourg, recently signed up for a stake in the fund.
The FEFISOL II Fund is designed to respond to the crucial issues of financing vulnerable populations in rural areas in Africa, and more particularly the financing of the agricultural sector.
Penetration rate of microfinance in rural areas in Africa remains very low: less than five percent of the loans disbursed by traditional financial institutions are intended for the agricultural sector. Also, less than 10 percent of farmers in the continent have access to formal sources of credit.
Nevertheless, the agricultural sector accounts for 23 percent of the continent’s GDP, but contributes 55 percent of the continent’s collective employment. Despite increasing urbanisation, almost 60 percent of the population of sub-Saharan Africa lives in rural areas.
Meanwhile, family farming plays a major role on the continent, whether in terms of the number of farms. Not less than 100 million family farms are located in the 47 countries of sub-Saharan Africa. In terms of employment, 75 percent of the sub-Saharan population is involved either directly (production) or indirectly (processing) in agriculture, or as an important source of value added. Family farming is also key in terms of environmental issues, and contributes directly to the preservation of biodiversity.
The FEFISOL II fund noted that financing the agricultural sector in rural Africa is therefore of uttermost importance in terms of food security, employment, resilience in the face of climate change, and finally, in terms of the financial inclusion of women who, even though they represent more than half of the agricultural workforce, often do not have the same access to financing as men.
It is projected that the sector would be a $1 trillion industry by 2030.
Notwithstanding the fact that the agricultural sector makes a major contribution to many African economies, and that its growth directly contributes to poverty reduction, it remains financially underserved because it is often perceived as too risky or not profitable enough.
Data obtained by our newspaper indicate that the gap between capital needed by agri-SMEs and that provided by the market is estimated at $65 billion a year across sub-Saharan Africa.
Managed by Inpulse (a Brussel-based investment manager, subsidiary of Crédit Coopératif and SIDI), FEFISOL II is structured to financially and technically support locally designed solutions to these challenges.
The first FEFISOL fund successfully ended in 2021, validating the innovative approach adopted at its launch. It has had considerable impact over the past decade such as: €86.5 million disbursed, of which 93 percent in sub-Saharan Africa, 60 percent in low HDI countries, and 90 percent in countries vulnerable to climate change; 75 percent of average outstanding loans in local currency; 92 clients financed in 25 countries; and 139 technical support projects carried out with 51 clients.
The positive outcomes of the first fund have convinced investors to invest in the new FEFISOL II fund. In addition to SIDI and Alterfin, which are contributing €4.8 million and €2 million respectively, the European Investment Bank and the private sector subsidiary of the French Development Agency, Proparco, are each investing €5 million. The French social bank Crédit Coopératif and the Italian Banca Etica have also renewed their commitment. New investors have joined the initiative: the Belgian investment company for developing countries BIO, the Alternative Swiss Bank (BAS), as well as the NGO SOS Faim Luxembourg.