KEY QUESTIONS ON AVAILABILITY AND COST OF INVESTMENT

1. Are commercial banks in the producing country willing to offer long, medium or short term loans to small-scale producers on affordable terms?

Considerations:

• most national banks, particularly in Africa, require a level of collateral and demonstration of creditworthiness which small producers have great difficulty in satisfying.
• furthermore the interest rates on such loans are as high as 30-40% pa in some countries, while returns expected on equity investments are often just as unaffordable.
• however in many countries there are alternative financial sources - micro-finance banks, venture capital funds, trust funds etc - which can replace or supplement commercial banks: for example the Export Development Investment Fund in Ghana, or similar funds established in East Africa for this purpose.

2. Are there international sources of finance which are more appropriate for small producers and more likely to lead to profitability in small producer-based enterprises?

Considerations:

• international financiers such as the World Bank and Commonwealth Development Corporation, when lending or investing in small-scale production, commonly operate through local companies or financing institutions which are likely to follow local banking practice in their investment policies.
• however, several aid-funded initiatives offer funds for small enterprise development on more attractive terms: for example the USAID-funded African Growth and Opportunities Act (http://allafrica.com/agoa) and the CARE-funded AGENT Project in Zimbabwe.
• some European supermarkets and other buyers, particularly in the fair trade market, offer to prefinance production of the commodities in which they trade following the principles established by the Fair Trade Labelling Organisation (www.fairtrade.net). Since the prefinancing facility is normally denominated in the currency in which the products are bought, the exchange risk is removed and the terms are more favourable to the growers.