Growing up in a community that depended on agriculture for its livelihood, Shalom Ben Or, Ishai Ben Or and Ismail Kharoub experienced first-hand the challenges that limit farmers.
Primarily, these challenges revolved around poor cash flow, with most of the entities that bought from them taking too long to pay for the agricultural produce they delivered.
Due to the perceived risky nature of farming, most financial institutions were unwilling to offer short-term loans that would cushion farmers against these payment delays.
This prompted them to develop Avenews – a platform that would absorb some of the risk that was deterring financial institutions from lending to the sector – and ensure that there was a flow of capital throughout the value chain.
“In agriculture, cash flow is king. A farmer’s fortune is tied to the changing seasons. If the farmer is not empowered to take advantage of the seasons, then they cannot do well,” Jonathan Tseelon, the CEO of Avenews, said in an interview with Powering SMEs.
Using machine learning technology, the platform assesses the creditworthiness of a business by analysing actual data on the number of trans-actions they have made over a period of time.
“With access to actual trade data, we would be better positioned to assess whether or not a business had the capacity to pay back a loan, thus reducing the rate of default,” stated Tseelon.
Rather than financing farmers directly, the firm provides financing to businesses that buy the produce, enabling them to pay the farmers while they wait to recoup their investment.
“Traditional financing needs collateral to assess risk. We base the risk on transactions. It would be difficult to assess the risk of farmers who, depending on the crop, harvest and trade only once or twice a year,” explains Tseelon.
Kirinyaga County CECM for Agriculture John Gachara, Advisor to the Permanent Secretary State Department of Livestock Development Moses Kimani, Avenews Partnership Manager Betty Simiyu, Avenews CEO Jonathan Teeslon and Avenews Country Manager for Kenya Emmanuel Murai, during the official launch of Avenews.
Photo credit: Pool
While it would not benefit them directly, this kind of financing ensures that farmers are able to access working capital in a more sustainable way, than if they were to take on the credit themselves.
“Farmers are more suited to longer-term financing because they have longer trading cycles. This kind of financing is mostly issued by banks, which often require heavy collateral, due to the risk involved,” said Tseelon.
Financing the companies that buy produce from the farmers would also enable them to buy more goods at a time, which would reduce the rate of post-harvest losses.
While Avenews' financing solution was progressive, a number of factors, including security concerns, inadequate digital skills and limited access to technology, hindered adoption.
To reach the targeted businesses, they would need to work closely with county governments and industry experts who had data on how the country's agricultural value chain worked.
They would also have to participate in stakeholder engagement forums, train agribusinesses in financial literacy, brainstorm and listen to feed-back on what the market actually needed.
“We put a lot of emphasis on listening to the market in order to get the right product market fit. One of the things people wanted was more predictability; they wanted to get their money back quickly,” said Tseelon.
Since entering the Kenyan market in 2021, through strategic partnerships with like-minded organisations, the company has disbursed more than Sh7.5 billion to around 250 agri-SMEs.
Despite directly or indirectly employing more than 50 percent of the population (and contributing to more than 30 percent of GDP), the agriculture sector receives only about three percent of total bank credit.
By opening regional offices across the country, the firm, which currently has a lean team of 12, aims to bridge the Sh65 billion financing gap that is detrimental to food security in sub-Saharan Africa.
“Agri-SMEs' access to financing is highly limited, and the financing that is available to these businesses is not in proportion to the impact or significance of these businesses on the economy,” said Emmanuel Murai, Avenews Country Manager, Kenya.
Bridging these funding gaps, according to Murai, will help to boost the competitiveness of agri-SMEs, particularly suppliers and middlemen who often have to wait weeks or months to be paid for goods delivered.
“Today, a bag of maize may cost Sh4,000. If a buyer does not have enough money to buy today, chances are that in a week, prices will have changed. It can be very difficult for someone who does not have cash flow to compete with someone who does,” said Murai.
The firm recently celebrated its fourth-year anniversary in Nairobi at an event attended by policymakers, financial institutions and farming associations, among other stakeholders in the agriculture value chain.
Speaking during the event, Kirinyaga County Executive for Agriculture, Dr John Gachara, urged fintech’s targeting agri-SMEs, to build relation-ships with organisations, such as cooperatives, that have access to them to increase the uptake of their products.
“There are many people out there who have developed good financial products, but are unable to penetrate the market. How you approach these businesses determines whether you are going to be sustainable in the market or not,” he said.
Dr Gachara urged innovators to address the fears that agri-SMEs have about short-term loans that do not require credit checks, such as hefty penalties for failure to repay.
“One thing agri-SMEs look at is how risky a financial product is. You need to have some assurances in place that when I take credit from you, I will not end up suffering one or two years down the line,” he said.
Meanwhile, Moses Kimani, advisor to the PS State Department of Livestock Development, urged innovators targeting agri-SMEs to design products that speak directly to their uniqueness in order to enhance their growth.
“Many agri-SMEs die not because they lack customers or were mismanaged, but because their order books grew beyond what they could service. They buy goods from farmers to service large orders but are unable to get back their money on time,” said Kimani.
