This section shows key achievements in Quarter 3 of 2020 for the initiative implemented under the Sombreiro Kapital. Sombreiro Kapital was set up as a sustainable corporate enterprise to facilitate access to finance innovations for smallholder farmers in the Niger Delta using a market system approach.
The intervention model is aimed at encouraging sustainable lending to small-scale farmers without recourse to collateral in the long term. Specifically, the initiative will be addressing the identified constraints through the capacity building of smallholder farmers and agricultural risk sharing with commercial banks and other partner institutions. For the first six months, July to December 2020, Sombreiro Kapital will be testing and evidencing the viability of the proposed model and products in the pilot sectors and States: Aquaculture, Palm Oil Processing and Poultry in Bayelsa, Delta, and Ondo States.
During the quarter, PIND successfully engaged several partner financial institutions for the pilot transactions and finalized the design of the initial financial products. Specifically, the partnership with Sterling Bank Plc. is expected to facilitate lending to smallholder farmers at 9% interest per annum for one year.
Other collaborations being explored are with Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc), NIRSAL Microfinance Bank, Central Bank of Nigeria, Royal Exchange General Insurance Company (REGIC), USAID Feed the Future Ag-investment, Alluvial Finance, and the International Fund for Agricultural Development (IFAD).
Sombreiro Kapital’s overarching goal can only be achieved through collaborations with licensed financialinstitutions, agricultural service providers, and other non–bank institutions with intersecting objectives. It is envisaged that formalizing these partnerships will provide Sombreiro Kapital the needed platform to facilitate loans to smallholder farmers through a licensed commercial bank, build the efficiency of smallholder farmers, and increase the initiative’s impact on its target market.
PIND commenced its series of engagement by networking with commercial Banks in a bid to identify and subsequently onboard a lending partner with a proven and sustainable risk appetite for smallholder farmers. Although most of the commercial banks consulted were reluctant to PIND’s proposed credit extension in favor of smallholder farmers without a tripartite risk-sharing arrangement being in place, PIND formalized a partnership with Sterling Bank with an offer to significantly cover their exposure. This places a responsibility on the bank to lend at 9% per annum with a risk-sharing arrangement in the ratio of 20:50:30 between the farmers, Sombreiro Kapital and the Sterling Bank.
In addition, PIND engaged non-financial institutions such as NIRSAL Plc, Alluvial Agriculture (a farming collective) and USAID Feed the Future Ag-investment Activity in a bid to identify converging areas for possible collaboration that is mutually beneficial to an agricultural risk-sharing arrangement with NIRSAL Plc.
An agricultural input credit extension to cassava farmers to be facilitated by Alluvial Agriculture at no interest expense is being considered, as well as a product co-creation in the aquaculture sector.
PIND concluded its series of engagement by consulting with farm service providers who are charged with the mandate of engaging, training, appraisal, and recommendation of smallholder farmers for credit appraisal. During a meeting convened by PIND, eight farm service providers were onboarded to train, appraise and recommend 200 smallholder farmers whose loan appraisal is being reviewed by the Sombreiro Kapital credit review team. The recommended 200 farmers will benefit from one of the following financial products tailored to meet their farming cycles and needs:
• Working Capital Facility: To finance procurement of inputs, business expansion, salary payment, and other recurrent expenditure. The product would be provided by financial institutions at 9% interest per annum.
• Input Finance Facility: Provided by input companies to enable farmers’ access to input/raw materials on a credit basis.
• Asset Finance Facility: Designed to procure farm assets needed for harvesting and processing, especially in the palm oil processing value chain.
