CID recently had the chance to sit down with Dr. Richard von Kalmar of Senga Bay Capital about his upcoming speech at the Agrique Africa Investment Summit. Read what he had to say about the current state of agribusiness finance and what every entrepreneur should know about finding financing for their agribusiness.
What is the main message that you will be bringing to the upcoming Summit?
I will be speaking about funding agricultural and agri-processing projects. My main message will be that entrepreneurs in this industry must be prepared to borrow and must try to meet the requirements that lenders have before they approach them for financing. I will aim to present a checklist of items that borrowers should use to prepare themselves for speaking with potential investors and lenders.
What are the unique challenges Senga Bay Capital has seen in agribusiness finance?
A big challenge that we have encountered is that businesses often don’t have the crucial documents needed to approach investors: For example, agronomic research, business plans and feasibility studies. As a result, the business owners have to make a lot of assumptions that are not backed up or validated in anyway. Crop yield, for example, should not be a rough calculation, but rather a precise prediction based on agronomic studies. Without such documentation and thorough research, the ability to fund the project is compromised.
The second biggest challenge we see is simply the availability of, and access to, capital. Entrepreneurs and farmers often think they can simply offer their land as their contribution to a new agricultural business and they can borrow everything else. But the industry simply doesn’t work that way. The lack of properly capitalized agribusinesses hinders the growth of the sector.
What advice do you give your clients for approaching family offices, DFIs, and banks?
Its generally the same message but there are peculiarities between these various lenders and investors. Family offices, for example, typically have a socioeconomic imperative. The individual nuances matter less than the distinct requirements each lender requests from its potential borrowers, however. Entrepreneurs need to understand the nuances of each lender’s requirements and adjust their approaches accordingly.
Have you seen increased interest in investing in smaller firms?
We have observed quite a few new credit and private equity funds that target smaller businesses, yes. There is evidence of renewed interest in finding ways to finance smaller operations, and this interest is growing. However, a misalignment between supply and demand still exists and there are a lot of small businesses looking for finance and far fewer funds looking to invest in such businesses. This relationship limits the flow of financing to smaller firms and some government programs designed to address this have had flaws in their implementation.
In Nigeria, for example, the government has made a lot of commitments to elevate smaller farmers and agri-processors. The mechanisms have challenges. For example, low interest rate loans are available, but they are administered through local banks that are required to assume the credit risk. These local banks are highly risk averse and, although the money is allocated to smaller enterprises, it is hard for them to access it because the banks require guarantees that they simply cannot provide. Nevertheless, this is an example of the great interest in supporting small enterprises. Better designed programs are needed to turn this interest into action.
How important is emphasizing sustainability when seeking investment into agribusiness?
It actually depends on who the lender or investor is. If it is a social impact fund, it is paramount. If its family office, it may be important. But if it is a general credit fund or bank, it is usually less important.
Why are you excited about participating in the upcoming summit?
I look forward to meeting other people involved in this industry very much. The Summit promises to be a gathering place for experts, professionals, and entrepreneurs who need advice and are starting out or have already started. There will be many people from the African investment and agriculture industries, and the Summit is the ideal place to meet and network with them.
Register for the Agrique Africa Investment Summit today!