Warehouse Receipts Help Fill Africa’s Agricultural Financing Gap
Improving the performance of the agricultural sector is seen as critical for driving economic growth and poverty reduction in Africa. In most regional economies, though, agribusinesses face a large financing gap.
In Ethiopia, IFC’s Warehouse Receipts Financing Initiative has been helping expand access to financing for farmers, traders, and cooperatives and develop agricultural commodities markets since 2009.
Ethiopia’s economy is based on agriculture, which accounts for almost 50 percent of GDP, 60 percent of exports, and 80 percent of employment. However, producers and farmers have limited access to finance.
Funded by donors including Japan, the Netherlands, Belgium and Spain and co-sponsored by the Ethiopia Commodity Exchange (ECX), IFC’s Warehouse Receipts Financing Initiative has increased the availability of warehouse receipt financing in the country.
Warehouse receipt financing is a lending technique that allows farmers, producers, and traders of agricultural commodities to access bank loans by pledging their warehouse receipts issued against commodities deposited in warehouses.
“Small-scale producers are the target beneficiaries of warehouse receipts, and Ethiopia is proud of being able to offer access to finance opportunities for this market segment,” said Dr. Eleni Gabre-Madhin, CEO of ECX. “We hope other African countries can learn this product from Ethiopia’s experience.”
To highlight lessons learned from the project in Ethiopia, IFC and ECX hosted a two-day symposium in Addis Ababa early this month for over 200 global representatives of the financial sector, trading community, regulatory agencies, and development banks.
The symposium provided participants with a venue to foster new partnerships, exchange ideas, identify best practices and formulate a framework for warehouse receipt financing.
“Ethiopia is the most successful example of IFC’s warehouse receipt financing initiative in Africa and we are pleased to share the results from what IFC and ECX have been trying to institutionalize with the help of donor communities,” said Georgina Baker, IFC Director, Trade and Supply Chain. “IFC will continue to support the African banking sector with the Global Warehouse Finance Program as well as with advisory services.”