Nigeria’s Sterling Bank alongside Binkabi, a builder of decentralised trading commodity network and AFEX, Nigeria’s first licensed private commodities exchange on Tuesday announced that the world’s first fully digital, blockchain based commodity trading and financing platform has been created on account of their partnership.
According to the partners, the platform will decentralise agriculture commodity trading in Nigeria and all emerging economies, helping to reduce intermediation in trade while distributing profit more widely across the value chain.
Sterling Bank is committing a minimum of N10 billion for lending to farmers at preferential rates, Abubakar Suleiman, its chief executive officer said, as he addressed how the partnership will create immediate value to the agricultural secto.
“What this means is that anybody who has the beneficial ownership of the essential receipt that comes from this process, can bring it into Sterling Bank and we lend against it,” Suleiman said, adding that the rates are guaranteed to be an improvement from current commerical lending rates obtainable at the financial market.
The bank is able to improve the rates because the operational cost of lending, documentation and trading processes is significantly lowered and because the cost of credit is also lowered, Suleiman explained, adding that “when you lend against such collateral (receipts on warehoused products), the chances of losses are reduced.”
Suleiman further explained that the lending and verification process could be done digitally and also to farmers and players who aren’t customers of the bank. “As long as you are part of this platform and we can validate that you have assets within the platform, we will be able to lend to you speedily and with very limited cost and preferential interest rates on the back of what we have built,” he said.
The platform would de-risk the sector, make commercial lending more viable to farmers and proffer salvaging opportunities, especially with Nigeria losing about half of its agricultural products yearly to post harvest processes, he said.
The partnership will benefit specific crops, with cereal grains such as rice, maize and soya beans which are among the basic staple foods across Nigeria that suffer the most loss among all agricultural commodities, set to see such losses reduced by applying some of the latest scientific storage technologies and providing liquidity that will increase margins for the farmers. It will thus provide a wider pathway for more banks to lend to farmers without intervention funds.
Quan Le, co-founder and CEO, Binkabi pointed out that despite the complexity of a blockchain technology, Binkabi has been able to hide the complexities from the users, making the platform a normal mobile app which can be easily operated by farmers and other agric value chain stakeholders.
“If they (farmers) press a button on the app, they can essentially put a commodity into the warehouse or apply for a loan with Sterling Bank. We want to make it convenient so as to encourage adoption,” he said.
Ayo Balogun, country manager Nigeria at AFEX said “we are excited that a reputable commercial bank like Sterling Bank has come on board to enable farmers reduce exploitation by middlemen. As a result of this partnership, farmers can use their receipt as collateral to procure loans or other financial services. They can also sell the receipt on the commodity exchange market without transferring their agro commodities from the warehouse.”
On the part of the investors and on enhanced trading on the exchange, Balogun explained that a retail Sterling Bank client that is on a platform to invest in treasury bills but is also looking for something else to invest in, can from the mobile app of Sterling Bank choose to pick a farmer from his hometown to finance production.
“That way he earns an economic return for his investment and also invest in the lives of someone on the farm,” Balogun said.
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