The agricultural sector is estimated to account for about 23% of Africa’s GDP while employing over 60% of the African workforce. Furthermore, small and medium enterprises (SMEs) produce, aggregate, and deliver roughly 65% of all food consumed in Africa. However, according to recent research, the funding gap for agricultural SMEs (agri-SMEs) in Africa is estimated to be USD 74bn, with local financial institutions accounting for 65% of the USD 16bn currently being supplied to these businesses.

Traditional financing models have generally struggled to meet the needs of most agricultural small and medium enterprises (agri-SMEs) across Sub-Saharan Africa (SSA). This necessitates looking at alternative and innovative financing models such as commodity-based financing that could enable these businesses to unlock financing to support their growth and development.  

In 2024, with support from Small Foundation, Samawati Capital Partners undertook a research study to uncover the opportunities and barriers to scaling commodity-backed working capital loans for agri-SMEs in the Sub-Saharan Africa region. The study involved a survey of 23 financial institutions across 9 countries in SSA and provides a detailed analysis of the current state of commodity-backed financing, highlighting the key drivers for expanding this model, while seeking to identify the challenges faced by financial institutions in scaling it to meet the needs of agri-SMEs. The research was limited to working capital financing for agri-SMEs above USD 1 million and complements existing research undertaken by other actors such as Aceli Africa, which focuses on smaller loan sizes ranging from USD 25,000 to USD 250,000.

The study reveals that there is indeed a growing interest in commodity-backed financing among local financial institutions, but more work still needs to be done from a policy, enabling environment, capacity development, and funding perspective to enable them to fully embrace this innovative financing model.

In conclusion, it is clear from the study that commodity-backed financing has the potential to unlock significant working capital for agri-SMEs across Sub-Saharan Africa, driving economic growth and enhancing food security. However, to fully realize this potential, targeted support from Development Finance institutions (DFIs), donors, and financial institutions is required. By addressing the key barriers identified in this report, the ecosystem can scale commodity-backed financing solutions and help close the financing gap for agri-SMEs in the region.

This report provides a roadmap for scaling these innovative financing solutions, highlighting the critical role of collaboration between financial institutions and development partners in achieving sustainable impact for African agri-SMEs.

‍

Download Full Report

Samawati Capital Partners is excited to partner with Small Foundation on a feasibility study exploring working capital solutions for agri-SMEs across sub-Saharan Africa.

Samawati will design a collateral management agreement fund to offer financing for agri-SMEs lacking fixed asset collateral. A parallel technical assistance facility will improve capacity and gender inclusion for agri-SMEs while supporting local financial institutions to increase lending.

About Samawati Capital Partners

Samawati Capital Partners is an Africa-based impact investment and advisory firm whose purpose is to direct capital strategically to the private sector in Africa so it becomes a catalyst for sustainable growth and development across the region. We are an experienced team of investment and development professionals based in Nairobi and Kampala with a diversified network of local experts in more than 20 key markets across Sub-Saharan Africa. Samawati partners with investors, non-profits, businesses, and the public sector to create sound investments and effective, sustainable impact initiatives through SMEs in sectors that can drive robust growth in Africa, including food and agribusiness, renewable energy, financial inclusion, healthcare, and education.

Samawati Capital Partners is pleased to have helped facilitate the renewal of a EUR 20m senior debt facility for NSIA Banque CI – the banking subsidiary of the pan-African NSIA Group, a leader in insurance and banking – from an international agri-investment Fund. 

The five-year facility, which is a renewal of the initial agreement signed in 2019, enables NSIA Banque CI to expand its portfolio of customers in the agri-food sector, bolstering its capacity to finance the local agri-food value chain (production, processing, mechanization, distribution, renewable energies, etc.). The loan will be disbursed in one tranche as of October 2023. 

About Samawati Capital Partners

Samawati Capital Partners is an Africa-based impact investment and advisory firm whose purpose is to direct capital strategically to the private sector in Africa, so it becomes a catalyst for sustainable growth and development across the region. We are an experienced team of investment and development professionals based in Nairobi and Kampala with a diversified network of local experts in more than 20 key markets across Sub-Saharan Africa. Samawati partners with investors, non-profits, businesses, and the public sector to create sound investments and effective, sustainable impact initiatives through SMEs in sectors that can drive robust growth in Africa including food and agribusiness, renewable energy, financial inclusion, healthcare, and education.

About NSIA Banque CI

Filiale du Groupe panafricain NSIA, présent dans 12 pays et leader en Assurance et Banque, NSIA Banque CI fait partie du pôle bancaire dudit groupe fort de 3 banques et 2 succursales en Afrique de l’Ouest. Cotée à la Bourse Régionale des Valeurs Mobilières (BRVM), elle compte aujourd’hui, plus de 80 points de ventes en Côte d’Ivoire intégrant un réseau d’agences entièrement consacré à la prise en charge de la Clientèle Entreprises. Elle dispose également d’un parc de plus de 120 automates ainsi qu’un bureau de représentation à Paris (France) dédiée à la diaspora. Dès lors, elle se positionne comme le partenaire privilégié des Particuliers et des Entreprises.

Elle contribue fortement au développement de l’économie ivoirienne par le financement de plusieurs projets, ce qui lui a valu d’obtenir trois prix d’excellence décerné par l’Etat de Côte d’Ivoire, dont Celui du « Meilleur Etablissement du secteur financier » dans la catégorie « Domaine de la gestion économique et financière». NSIA Banque CI est, également, lauréate du prix 2023 de la meilleure Banque Teneur de Compte et Conservateur (BTCC) décerné par la Bourse Régionale des Valeurs Mobilières (BRVM). Elle compte plus de 1 000 employés.

Plus d’informations sur www.nsiabanque.ci

In Q2 2023, Samawati Capital Partners successfully helped facilitate the closure of a USD 10m CMA facility agreement with ROBUST INTERNATIONAL LIMITED PTE for an international agri-investment Fund. Robust International PTE Limited was founded in 2006, initially exporting timber products to India. In 2011, the company began trading in its current core products – raw cashew nuts and sesame seeds – eventually adding commodities such as soybeans, shea nuts, gum arabica, dried hibiscus flowers, and peanuts in 2012. An agricultural trader and processor, Robust sources soybean and sesame from farmers in Tanzania and cashews from Mozambique for sale to European and Asian markets. The company's impact lies in its work with these local farmers, purchasing directly from them while providing certification, inputs, and training, and subsequently improving their access to revenues through exports to these global offtake markets. With this newly secured financing, the company aims to trade and process a higher volume in these countries while also aiming to increase its network of local aggregators that purchase directly from the farmers.

About Samawati Capital Partners

Samawati Capital Partners is an Africa-based impact investment and advisory firm whose purpose is to direct capital strategically to the private sector in Africa so it becomes a catalyst for sustainable growth and development across the region. We are an experienced team of investment and development professionals based in Nairobi and Kampala with a diversified network of local experts in more than 20 key markets across Sub-Saharan Africa. Samawati partners with investors, non-profits, businesses, and the public sector to create sound investments and effective, sustainable impact initiatives through SMEs in sectors that can drive robust growth in Africa, including food and agribusiness, renewable energy, financial inclusion, healthcare, and education.

Samawati Capital Partners is proud to have supported in originating Rogathe Dairy Farm Products Limited for the Social Enterprise Fund for Agriculture in Africa (SEFAA); a fund managed by Sahel Capital that has provided the company with a 3-year USD 675,000 term loan facility.

Rogathe is a dairy processing company based in Msata, Tanzania, that actively collaborates with smallholder farmers, sourcing fresh milk while enhancing their productivity and profitability through extensive extension services. Rogathe currently sources raw milk from 2,000 smallholder farmers and farmer cooperatives from surrounding communities, which it then processes into pasteurised milk and yoghurt. With its current expansion, Rogathe expects to reach over 6,000 farmers in the next three years.

Rogathe will utilise the loan facility to acquire refrigerated trucks to strengthen its supply chain from milk sourcing to distribution to end customers and finance raw milk purchases from smallholder dairy farmers. Sahel will also extend support via SEFAA’s technical assistance facility to improve the productivity of the dairy farmers within Rogathe’s network. As a result, the dairy farmers would produce more milk and have a guaranteed market for their milk. This will significantly impact the income and livelihood of these dairy farmers and their families. This investment highlights Sahel Capital's commitment to generating positive social and economic change in Africa through impactful investing.

Samawati Capital Partners, as part of its mandate with Sahel Capital, supported the firm in originating the transaction, lending our expertise throughout the deal cycle until its approval. We are thrilled to have played an integral part in facilitating this support to Rogathe Dairy.

About Samawati Capital Partners

Samawati Capital Partners is an Africa-based impact investment and advisory firm whose purpose is to direct capital strategically to the private sector in Africa, so it becomes a catalyst for sustainable growth and development across the region. We are an experienced team of investment and development professionals based in Nairobi and Kampala with a diversified network of local experts in more than 20 key markets across Sub-Saharan Africa. Samawati partners with investors, non-profits, businesses, and the public sector to create sound investments and effective, sustainable impact initiatives through SMEs in sectors that can drive robust growth in Africa including food and agribusiness, renewable energy, financial inclusion, healthcare, and education. 

About Sahel Capital

Sahel Capital currently manages two funds with a combined US$90 million in assets: Fund for Agricultural Finance in Nigeria (“FAFIN”), which is fully invested with eight (8) investments in SME agribusinesses in Nigeria, and Social Enterprise Fund for Agriculture in Africa (“SEFAA”) which provides primarily structured debt to agribusiness SMEs across 13 countries in sub-Saharan Africa. sahelcapital.com

About SEFAA

Launched in 2021 with KfW Development Bank as the sponsor and anchor investor, SEFAA aims to stimulate economic activities among smallholder farmers by supporting and scaling the social enterprises that engage with them. SEFAA invests in 13 countries across sub-Saharan Africa, including five (5) priority countries – Côte d’Ivoire, Ghana, Kenya, Nigeria, and Uganda. sefaafund.com

In January 2018, Samawati Capital Partners supported the Africa Agriculture and Trade Investment Fund in closing a USD 4m facility to enable CKL Africa Ltd (CKL; formerly Cooper K-Brands Ltd) to finance a new processing plant for minerals and nutritional supplements used in the livestock sector, thereby increasing the company’s local value addition. CKL is a family-run company set up in 1906 that over several generations has become a leading animal health and agricultural inputs company in Eastern Africa. The company remains one of the oldest standing local companies in Kenya’s well-established livestock sector providing critical inputs, know-how, and R&D assistance to farmers.

AATIF partnered with the company to support the expansion of its operations which includes increasing its capacity for local processing and further growing its product diversification and outreach to local farmers. Through this financing, the Fund seeks to continue working with CKL towards its goal of contributing to the transformation of the agricultural sector in East Africa by developing and delivering innovative and affordable animal health and crop protection products within easy reach of every famer in their markets accompanied by a wide variety of knowledge-sharing and training activities.

‍

In October 2022, Samawati Capital Partners supported the Africa Agriculture and Trade Investment Fund in closing a USD 25m funding line with Union Bank of Nigeria to expand its agricultural business footprint. In response to the Nigerian government’s effort to reduce food imports and ultimately create a sustainable market for local farmers to sell their farm produce, Union Bank has anchored its food and agri-finance strategy around the promotion of local food processing.

Union Bank boasts a long-standing track record in the agricultural sector and has since risen to become one of the top 5 agricultural financiers in Nigeria, highlighting the sector's great potential for future expansion and innovation.

The bank targets key value chains in rice, poultry, dairy, cassava, maize, and soybean, among others, and aims to provide tailor-made funding and technical support to the different actors along each of the selected value chains.

The funding from AATIF will support Union Bank’s expansion and outreach to Nigerian agri-businesses. The expected impact is linked to the development and deployment of innovative agri-product offerings and an increase in funding directed to agricultural businesses. This is expected to further contribute to the growth of the competitive food and agricultural sector in Nigeria that is fully aligned with national priorities including improved food security, increased agricultural production, and local food processing.

AATIF’s facility will also be accompanied by technical assistance support to improve efficiency and accelerate impact within the sector.

Samawati Capital Partners is proud to partner with Sahel Capital as a sub-advisor to its new fund mandate, the Social Enterprise Fund for Agriculture in Africa (SEFAA). 

Sahel Capital will act as investment adviser to the $24 million fund sponsored by the German development bank KfW. KfW has been a committed supporter of agricultural development on the African continent and over the past eight years has anchored several other funds such as Africa Agriculture and Trade Investment Fund (AATIF), Fund for Agricultural Finance in Nigeria (FAFIN), and Lending for African Farming Company (LAFCo). Samawati is a sub-advisor to the investment advisor of AATIF supporting activities in the East and Southern African region, and Samawati will now further support Sahel Capital on the SEFAA mandate, originating transactions within the same region.

SEFAA is an impact fund with the goal of reducing poverty by investing in agricultural enterprises that contribute significantly to enhancing the business eco-system, or income opportunities, of smallholder farmers (SHFs) in sub-Saharan Africa. 

The fund will invest across the agricultural value chain with a particular focus on enterprises or intermediaries that increase productivity of smallholder farmers (SHFs), address market access limitations or information asymmetries, or offer agricultural finance tailored to the specific needs and production cycles of SHFs. In addition to SEFAA’s targeted impact of reducing poverty through its investments, the fund is also expected to create and preserve jobs and deliver on six of the UN sustainable development goals (SDGs 1, 2, 3, 4, 5 and 6). 

SEFAA will invest primarily in debt (but with flexibility to invest some equity or quasi-equity) with the aim of filling the financing gap for earlier-stage enterprises that may not yet be mature or profitable enough to get equity and/or debt from commercial capital providers. 

The SEFAA’s sub-advisor mandate fits well with Samawati Capital’s mission of directing capacity and capital to high-growth SMEs in Africa to drive socio-economic transformation in the region.

Samawati Capital Partners supported in the closing of a USD 4m senior secured CMA facility for the purchase of maize and soybeans from local smallholder farmers in Zambia through the Africa Agriculture and Trade Investment Fund.

Seba Foods is a family-run business founded in 1997 as a subsidiary of the company 260 Brands Africa. The company’s activities to date include purchasing, processing, packaging, and shipping of maize and soya products for human consumption, with about 5% into animal feed products. Their key products include textured soy as a meat alternative, powdered/instant drinks, corn soya blend (porridge), and snacks, where the company is among the top market leaders in Zambia.

The USD 4m facility provided by AATIF will allow 260 Brands to maximize the output of a recently installed plant. Structured as a 12-month CMA facility, it enables the company to purchase maize and soybeans in the local market during the optimal time for further processing at its own facilities.

On 30/05/2022, the CMA loan facility was renewed from USD 4m to USD 6m, after a successful 12 months during which the company broadened its market base by exporting its products to the USA and increased its local outreach with the launch of an organic soya out-grower scheme.

Speaking to local publication in September 2020, the Tanzania Board of Tea (TBT) managing director, Nicholas Maurya, told a local publication that a new Dar es Salaam tea auction was set to officially start by October of the same year, pending a few more approvals¹.

This is major news in the tea world, given that, to date, the only existing tea auction in East Africa is Kenya’s Mombasa Tea Auction. This has meant that East African countries such as Rwanda, Burundi and even Tanzania have been forced to incur extra transportation costs in getting their product to the market.

However, should this new plan come to pass, as it is looking very likely to, the Tanzania auction is set to challenge this status quo. The Board is targeting tea producers within East Africa, offering a more cost-sensitive alternative to the Mombasa Tea Auction. One could see Rwanda and Burundi opting to transport their tea to their closer geographical neighbour, mitigating the higher costs of getting their product to Kenya.

History of the Mombasa Tea Auction

The Export Auction System was initiated in November 1956 in Nairobi on a very small scale, with only small quantities of secondary grade teas offered under the umbrella of the East African Tea Trade Association (EATTA).

With quantities and volume increasing over the years, incentive for international buyers to set up offices in Kenya grew, which had the knock-on effect of spreading interest to international markets beyond the United Kingdom.

The decision to move the Auctions to Mombasa from Nairobi was taken in 1969, relocating to the hub of the main warehousing, handling and shipping activities².

Auctions are held weekly on Mondays and Tuesdays, with main grades auctions held on Tuesdays, and secondary grades auctions held on Mondays from 9:00am.

In what can be considered somewhat of a monopoly, the Mombasa Tea Auction presently handles tea from fellow East African nations Uganda, Tanzania, Ethiopia, Rwanda and Burundi, even handling product from the Democratic Republic of Congo, Malawi and Mozambique.

Major markets such as the United Kingdom, Sudan, Egypt, the United Arab Emirates and countries in the Middle East rely on the Mombasa Auctions to access the vast majority of tea they import, placing all the countries that use the Mombasa Tea Auction at Kenya’s behest.

This means that significant political and economic forces, for instance, that affect Kenya internally, end up indirectly affecting all the African countries seeking international market for their product through Mombasa.

Instances that Disrupted Operations in Other Countries

In January 2008, ongoing post-election violence in Kenya forced the Rwanda tea authority (Ocir-The) to call off tea auctions for a number of days³. The violence, which forced the Africa Tea Brokers Ltd to suspend auctioning operations, also had a similar effect on the tea industries in Uganda⁴­­­ and other Eastern and Southern African states⁵.

While these suspensions of operations lasted only days, it was telling that a single country’s political atmosphere had threatened to upend the livelihoods of farmers, brokers and other actors along the value chain.

More recently, the most pertinent example of this seemingly flawed system lies in the region’s response to the novel coronavirus pandemic.

In March of 2020, the first case of COVID-19 was recorded in Kenya. Although different measures were employed to help curb infection rates (to varying degrees of success), the scale of the matter was yet to be truly grasped.

The tea sector was among those hit hard, with tea prices falling to a then year’s-low. The 12th Sale report (25th and 26th March 2020)⁶ revealed that the initial scare of the first wave of the pandemic drove prices of multiple commodities down, with the tea auctions temporarily suspended amid fears for individual health and safety.

COVID-19 was as unexpected as it is deadly, with unprecedented ramifications felt in every facet of life. Pinning the aftermath only on Kenya would be short-sighted and reactionary at best. Every country dealt with the pandemic in wildly different ways.

Tanzania, for example, has all but opted out of reporting daily figures on COVID-19 infection rates as of 29 April 2020⁷, with President John Magufuli declaring the country coronavirus free through prayer.

The East African nation was also embroiled in post-election turmoil of its own, with reports of excessive force being used to detain and assault opposition leaders and protesting citizens in November of 2020⁸. Clearly, post-election violence is not unique to Kenya.

Yet, it is worth considering the implications of having more than one tea auction, placing less emphasis on the economic and political winds of a single state while mitigating certain avoidable cost factors.

Reduced Cost to Dar es Salaam Instead of Mombasa

The tea value chain is spread out across 5 key areas – inputs, tea gardens, factory, handling and market. The costs involved at each level are varied and significant, as tea farms can cost up to KES 300,000 just to set up, not to mention taking 3-4 years before becoming viable.

In an average factory, the cost of transporting tea to the auctions sits at around 2% of total costs involved, with warehousing a further 2% and brokerage at 0.75% (figures accurate in 2014). These figures are mostly based on proximity to the port city, as one would imagine that the cost of transportation is significantly influenced by geography.

Countries like Burundi, Rwanda and Mozambique are faced with transporting their product over thousands of kilometres, all while sinking more costs into trying to preserve the quality of the tea and prevent bruising as it is en route to Mombasa. Additional costs must then be accounted for in warehousing and storage of the product leading up to the auction.

What are the possibilities?

With Tanzania set to break Kenya’s hold on the tea trade in Eastern Africa, one cannot help but think of the possibilities this would facilitate.

The most obvious would be reduced transportation and warehousing costs, as the cost of transportation would reduce with reduced distance. Beyond this, however, is the possibility of spurring further economic growth in Tanzania through empowering smallholder farmers and offering them a more easily accessible market to sell their product.

Another opportunity that could prove pivotal is the difference in election cycles between Kenya and Tanzania. Kenya typically holds its general elections in separate years from Tanzania. Should election violence rear its head in any of the states, regional and international tea trade would be poised to adapt and continue without being forced to suspend operations. Even more telling would be the aftermath of such an unwanted scenario on the auction that is hit by this, as rebounding may end up not being as easy in the presence of a regional competitor.

The tea trade has shown its resilience over the years, having bounced back from the political turmoil of Kenya’s post-election violence, to maintaining its importance to African economies during a global pandemic.

Having a duopoly of sorts will be interesting to watch, as the possibility of undercutting each other’s sales presents a unique dynamic to the relationships of the two states, as well as setting the stage to observe who will take their product to the new auctions and who will stick with Kenya.

One thing is for certain. The power dynamics will be interesting to watch.

¹ Start of tea auction in Dar a boon for Tanzanian farmers - The Citizen

²The Mombasa Tea Auction - East Africa Tea Trade Association - East African Tea Trade Association (eatta.com)

³Kenyan violence halts Rwanda tea auction | The New Times | Rwanda

⁴Uganda: Tea Industry Stalls As Mombasa Auction is Suspended - allAfrica.com

⁵Kenya's turmoil could cost economy $1bn (tradearabia.com)

⁶Download (tbeal.net)

⁷Coronavirus: John Magufuli declares Tanzania free of Covid-19 - BBC News

⁸UN rights chief Bachelet condemns Tanzania election violence | | UN News

Samawati Capital Partners supported in the closing of a USD 15m term loan to fund the expansion and working capital demands of a Tanzania milling business through the Africa Agriculture and Trade Investment Fund.

The milling business is affiliated with other local businesses operating across various sectors in Tanzania and has in recent years expanded its operations to include food processing. It has an existing mill that has been operating at capacity, processing 150MT/day of wheat for local market consumption. This has necessitated increasing its milling capacity to 500MT/day by adding a second mill, therewith enhancing its operations to meet the growing market demand for wheat-based products in the region.

The investment supports local value addition and import substitution as the company has ongoing initiatives to improve the standards of wheat crop grown locally, hence increasing its sourcing from local farmers.

Samawati Capital Partners supported in closing a EUR 20m trade finance facility with Phoenix Commodities through the Africa Agriculture and Trade Investment Fund. Phoenix is a global food and agribusiness operating across the value chain in production, procurement, processing, trading, and distribution across five continents. Its activities are managed through more than 25 offices that connect over 70 origin and destination markets. Its team of 2,500-plus manages more than 45 supply chain assets and facilitates the production and/or trade of 12m+ MT of essential commodities and goods, supplying more than 4,000 customers worldwide.

The EUR 20m facility with a tenor of 4 years will be used for the purchasing and export of cashew nuts from Côte d’Ivoire. With the country being the world’s largest producer of cashew nuts, increased exports will benefit not only the larger economy, but also those working across this agricultural value chain. Phoenix plans to invest in processing units in the continent for different commodities which will support the aim of having more value remain on the continent.

Samawati Capital Partners supported in the closing of a USD 5m facility to Mount Meru Millers Zambia through the Africa Agriculture and Trade Investment Fund. Mount Meru belongs to the larger group of Mount Meru companies in Southern- and Eastern Africa active in the food processing, logistics, construction, and petroleum sectors. The company produces edible oils and feed cakes as well as several smaller by-products from soya, sunflower, cotton, and palm oil. Products are sold in local and regional markets. Mt. Meru buys 95% of the inputs from local commercial farmers and aggregators/traders while 5% is sourced from smallholder farmers.

AATIF’s loan of USD 5m with a tenor of seven years will be used to fund the expansion of the refinery capacity, (silo) storage capacity, processing capacity, and packaging units in Zambia. Furthermore, AATIF seeks to work with the company on its local sourcing strategy, increasing its engagement with smallholder farmers producing sunflower and cotton seeds for further processing at Mount Meru Millers.

In August 2018, Samawati Capital Partners supported the Africa Agriculture and Trade Investment Fund in closing its latest transaction, a USD 11m CMA facility to African Milling Limited (AML) in Zambia. AML is an established family business that has been running a wheat and maize mill since 2006. This collateral-based facility, the first of its kind for AATIF, will enable AML to purchase wheat and maize locally from smallholder and commercial farmers in Zambia.

This investment is in line with AATIF’s objectives of fostering local value addition and regional trade of key staple foods. Maize will be processed into breakfast meal, roller meal, and maize bran used for stock feed, while wheat will be processed into wheat flour for human consumption and wheat bran used as livestock feed. Final products will be packaged and sold on the local and regional markets in East and Central Africa.

The working capital and CMA facility has subsequently been renewed on an annual basis from April 2019, maintaining the same structure, while crowding in other financiers through syndication of the facility. AML has contributed to local value addition through its local processing facilities for maize and wheat and further engages in regional trade with export to markets such as DRC and others.