PTA bank tips firms On agro financing
Local commercial banks have the potential to partner regional development finance institutions (DFIs) to break the procyclical trend of agricultural financing, an official of PTA Bank has said.
Procyclical agriculture financing increases with favourable weather and tightens in the event of disruptions.
PTA adviser on structured trade finance and fund management Gerald Nsomba said one approach is to roll out a programme for large-scale financing towards commercial production of food crops, including maize through rain-fed and irrigation farming under firm forward buying contracts.
“In any case, there is sizeable strategic storage capacity in the country available with the public and private sectors that would off take excess output from the programme for either cushioning intermittent food gaps or for export,” he said in a presentation at a recent Financial Market Dealers Association (Fimda) 2016 Annual Lakeshore Conference in Mangochi.
The new mode agro financing is premised on the recent decline in food crop output due to El Niño-induced weather phenomenon, which is indicative of inherent weather-related vulnerabilities in the agricultural sector.
Agriculture experts believe that efforts to enhance resilience should include a review of the nature and levels of support from the financial market towards this important sector of the economy, which contributes about 30 percent to the national economy.
Nsomba said the requirement of both short-term financing for seeds, fertiliser and working capital as well as medium-term financing for irrigation equipment underscores the need for collaboration among commercial banks and DFIs to unlock the appropriate classes of funding.
He said: “Key considerations include the strategic importance of food crops to millions of citizens; hence, the extent to which this countercyclical intervention could purely be executed in the commercial sector needs analysis.”
Vice-President Saulos Chilima, who officially opened the Fimda conference, noted that despite a number of positive innovations in the financial infrastructure, the financial sector is yet to meet the growing needs for more diverse sources of finance.
He advised financial market dealers to address the challenge of missing markets such as the lack of long-term financing to support long-term investments that expand the productive capacity of the economy.
Financial market analyst and investment banker Misheck Esau, who is also chief executive officer of CDH Investment Bank (CDHIB), called for a shift to debt funding as an alternative to the traditional bank or money market funding to stimulate economic growth and infrastructure development. n
