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South Africa’s minister of agriculture, land reform and rural development, Thoko Didiza, hopes to launch a blended finance scheme with commercial banks before the end of June 2023.
“The department has been consulting with commercial banks through the Banking Association of South Africa (BASA) since 2019 and hopefully the final paperwork will be signed soon,” Reggie Ngcobo, spokesperson for DALRRD told AgriOrbit.
Dr Langelihle Simela, business development manager at Absa AgriBusiness, told AgriOrbit that this finance scheme would ease the ability of many of the bank’s clients to gain access to financing. “It is however important to understand that a client will still need to meet the bank’s lending criteria.”
The grant contribution will assist in a number of ways, such a reducing the loan amount so that the client can borrow, re-pay and cover some of the costs of borrowing. However, the client would still need to meet normal lending criteria, such as having adequate technical farming skills to ensure that they can run a viable business, as well as the ability to service the repayment of debt.
“A startup that has never been involved in an agricultural business probably won’t be able to gain access to these funds, because they still need to learn to farm before they immerse themselves into debt and run the risk of not paying it back.”
However, those who do qualify, will probably also be able to secure a loan at a competitive interest rate, because the client will immediately be a lower risk client, Simela added. “Absa tries to support developing farmers as far as possible, to enable them to access finance and run a viable farming enterprise.”
Similar to parastatal blended schemes
Ngcobo said the blended finance scheme with commercial banks will work more or less that same as schemes that are currently in place at the Industrial Development Corporation (IDC) and Land Bank. The hope is that these schemes will lead to more affordable capital for commercially viable small, medium and major producers/farmers and agri-processors based on the qualifying criteria.
In October 2022, Didiza launched a R3,2 billion blended finance scheme with Land Bank to assist farmers, and which would be rolled out over the next decade. According to the conditions of the agreement, the department and bank will both invest R325 per annum, which will effectively result in the creation of a R650 million per year fund.
“Strategic partnerships such as these are critical to ensure growth, food security, development of farmers and transformation of the agricultural sector, and contribute towards job creation,” Didiza said during the launch.
- South African citizens with a valid identity document.
- Black owned and managed farming enterprises that are commercially viable in commodities prioritised in the AAMP.
- In the case of joint ventures, the non-black partner should have 40% but not less than 26% ownership in the enterprise.
- Enterprises with 10% farm worker profit sharing.
- Youth (40% targeted), women (50% targeted), people with disability (6% targeted) and military veterans. – Susan Marais, Plaas Media