NADF, Sahel Capital Eye Lower Lending Rates for Agribusiness SMEs
*Partnership seeks to blend public, private capital to unlock affordable credit for agricultural businesses
James Emejo in Abuja
The National Agricultural Development Fund (NADF) has moved to address the high cost of financing confronting agribusinesses.
Partnering Sahel Capital Fund Manager Limited, the initiative seeks to develop a blended funding arrangement aimed at lowering borrowing costs and attracting more private investment into the agricultural sector.
Under the proposed arrangement, the two institutions will explore combining NADF’s development financing with private capital managed by Sahel Capital to provide cheaper funding for small and medium-sized enterprises (SMEs) across agricultural value chains.
The initiative comes against the backdrop of prohibitively expensive commercial lending, with agribusinesses currently borrowing at interest rates of between 24 and 27 per cent, according to Sahel Capital, a development that continues to constrain expansion, investment and productivity among agricultural businesses.
Speaking at the signing of a Memorandum of Understanding (MoU) between the institutions, NADF Executive Secretary, Muhammed Ibrahim, said the partnership was designed to move agricultural financing beyond direct public-sector interventions towards an investment-driven ecosystem capable of mobilising sustainable private capital.
He said the fund would deploy its catalytic and development mandates, as well as its understanding of Nigeria’s agricultural priorities, while Sahel Capital would bring investment structuring expertise, market knowledge and experience across different agricultural value chains.
According to him, combining public-sector and concessionary funding with private investment expertise would help establish a financing structure capable of attracting additional investors and expanding the pool of capital available to agribusinesses.
Ibrahim said the ultimate objective was to create an ecosystem in which viable agricultural enterprises could access funding, generate sustainable returns and attract further investments into the sector.
He acknowledged that agriculture was often regarded as a high-risk investment destination but argued that appropriate financing structures and strategic partnerships could unlock its considerable investment potential.
Also speaking, Managing Partner of Sahel Capital, Mezuo Nwuneli, said the proposed collaboration would help reduce the effective cost of borrowing for agribusiness SMEs by blending NADF funding with capital managed by the investment firm.
He said prevailing lending rates of between 24 and 27 per cent were placing considerable pressure on agricultural businesses, limiting their capacity to finance expansion and invest in productive assets.
Nwuneli explained that combining funding from both institutions would lower the blended cost of capital for beneficiaries, freeing up resources that businesses could otherwise commit to servicing expensive loans.
He said, “One output we expect is that when we’re providing capital to SMEs in the space, that blended cost for them would be much lower than what it would be.”
He said the partnership would provide an opportunity for both institutions to identify structural bottlenecks in agricultural value chains and deploy their respective expertise and resources to address them.
He cited NADF’s interventions in ginger production, farmers’ access to agricultural inputs and irrigation as evidence of the institution’s commitment to tackling critical constraints within the sector.
According to him, Sahel Capital was attracted to the fund’s deliberate approach to addressing agricultural challenges and the capacity demonstrated by its management team to drive interventions.
Nwuneli disclosed that Sahel Capital had executed 45 investments across eight African countries over the past 15 years, providing growth equity and private credit to SMEs with annual revenues ranging from N500 million to N20 billion.
Under the MoU, both institutions will assess the feasibility of blended financing arrangements through which NADF could provide funding alongside capital managed by Sahel Capital, including its Sahel Agribusiness Private Debt Fund (SAPDF).
The proposed structure could incorporate risk-sharing arrangements, concessional financing and other funding mechanisms intended to improve access to affordable capital for eligible agricultural enterprises.
Sahel Capital is expected to contribute investment structuring, fund management and technical expertise, identify qualified agribusinesses and establish monitoring and reporting frameworks for the proposed financing facility.
Other areas of collaboration include information sharing, developing a pipeline of bankable agricultural projects, technical assistance and capacity building.
The partnership, however, remains at the exploratory stage, with the MoU providing a framework for both institutions to assess the viability and structure of the proposed financing arrangement.