Lending to the agriculture sector is low despite the sector’s importance as the backbone of livelihoods. According to the Bank of Sierra Leone (BSL) National Strategy for Financial Inclusion 2017 – 2020 commercial banks’ portfolio, lending to agriculture is only 6% of the total lending portfolio. 88% of agriculture-related Micro, Small and Medium Enterprises (MSMEs) surveyed by the Ministry of Trade & Industry, cited access to finance as “very serious” barrier to their growth.
The Small and Medium Enterprises Development Agency (SMEDA) Draft Government Micro Credit Scheme Operational Manual for MSMEs has three main financial instruments to Financial Service Providers (FSPs) which includes loans; partial guarantees; and grants/TA for institutional capacity building. The aim of the partial guarantee facility is to de-risk MSMEs so that FSPs have confidence lending to them. The guarantee cover is expected to decline over years as FSPs develop confidence in lending to MSMEs and start using substitute collateral such as moveable assets that can be registered with the Bank of Sierra Leone collateral registry.
In the 2020 Budget the government committed itself to supporting MSMEs with the sum of Le100 billion Leones as micro credit fund, stretching from 2020 to 2023. As a result, the Ministry of Finance will provide 22 billion Leones for 2020 as an initial starter of the scheme. The funds will be managed by SMEDA with direct supervision by the Ministry of Trade and Industry.
The Fund will provide partial guarantee facilities to FSPs as a risk sharing mechanism and also as an incentive to encourage FSPs especially commercial banks that may not have appetite to lend to MSMEs because of lack of collateral. FSPs seeking to use the partial guarantee facility will apply to the Fund. The Fund will perform due diligence on the FSP before approving a partial guarantee facility.
Once approved, the FSP can use the partial guarantee facility as collateral when lending to MSMEs that cannot provide collateral, especially MSMEs that require larger loans. Julius Kandeh Kanu, SMEDA, Outreach and Public Education Officer, said before now it was difficult for financial institutions to lend agriculture businesses as they need long term loans due to their business financing duration.
“We want to encourage farmers to go in for that type of loan, currently they are being credited as other normal businesses, they need to be given time and we are the only ones with this type of credit product” said Kanu. He said that only MSMEs that are registered businesses with Office of the Registrar General or Corporate Affairs Commission will access these loan facilities. To qualify the business must fall within the SME bracket, the small bracket must have an annual turnover of zero Leones to Le99.9 million and the medium should have between Le100million to Le500million.
“We will only lend to active businesses, if it is an agriculture business, the farm will be assessed. We do not intend to lend loosely as this is one way of boosting the agricultural sector” he said.
By Zainab Iyamide Joaque