©FAO/ Meeting with stakeholders in Maputo

During the annual meeting of the government-led platform for agricultural sector financing on May 22, FAO, together with key stakeholders, presented the way forward for enhancing affordable finance in the agricultural sector. Through technical support, FAO effectively strengthens, bridges and aligns public and private investment capacities to attract and expand private sector investment and finance in the sector.

The agricultural sector receives a disproportionately low level of formal credit, whereas the economic activities contribute 26 percent of the country's Gross Domestic Product (GDP) (World Bank, 2023).

This results in a substantial financing gap for agricultural economic agents of micro, small and medium sized enterprises (MSMEs). The lack of affordable and formal finance, for both working and investment capital, inhibits their commercial potential. Promoting financing schemes for MSMEs will create economic opportunities and in turn improve rural livelihoods.
During the annual meeting, FAO and the Ministry of Economics and Finance (MEF), the Ministry of Agriculture and Rural Development (MADER), the Alliance of Financial Institutions and the Central Bank presented the policy and strategy framework of the sector for financing of economic agents.

Under the auspices of the Central Bank, participants discussed what and how innovative financial instruments address both financial institutions' risk appetite and private sector financing needs.
The presentation detailed four complementary areas of actions that were identified through an earlier FAO-led high level policy visit to Nigeria, in March 2024.

First, the strategy focuses on deploying effective risk reduction instruments at a large scale, such as guarantees, first loss and cost of capital subsidies. Furthermore, the partners agreed on efficient facilitation models of direct loans through the Central Bank. This will be ensured by channeling resources through third-party entities using wholesale term financing models via financial institutions.

Financial institutions called on the need for effective risk assessment tools to evaluate exposure to agriculture and climate related risks. Lastly, a detailed overview of policies and regulations that encourage banks to make loans through their own balance sheet, in exchange for incentives was discussed.

Second, the partners presented a newly developed concessional financing model: Fundo Nacional de Financiamento Agrário (FFAM), a model through which the Central Bank, the Government and Financial Institutions aim to mobilize concessional capital that will effectively enhance the flow of affordable finance in the sector.

Meanwhile, FAO is scaling agricultural finance activities in its own projects. Under the PROMOVE Agribiz project for example, the Blended Finance Fund offers concessional finance to agricultural agents to upscale commercial farming activities. After an initial successful capitalization of 50 investment projects, co-investments in another 250 investees are foreseen in the upcoming months.

FAO continues to commit to provide technical assistance in establishing the Agricultural Finance Fund (FFAM) and systemize blended finance initiatives for economic agents operating in the agricultural sector. In further support to the government, FAO is currently mobilizing resources for co-financing initiatives and the FFAM.