Financing

In the African business environment, financing is a daunting issue, especially for smaller agricultural projects. Although farming is a risky undertaking, irrigation reduces the impact of agriculture’s most important risk, drought. Irrigation also provides a year-round “rainy season” to ensure steady production at commercial volumes. Commercial farmers in Africa have adopted center pivot irrigation to increase production and ensure profitability year after year. Because center pivots can be removed in case of default, pivot project assets can be leased or offered as collateral. These positive impacts of center pivot irrigation can be reflected in a project’s financial model.

Financial institutions from the public and private sectors have been reluctant to make loans to Africa’s smallholders, but this situation is changing. Commercial banks, NGOs, micro-lenders, governments and private investment funds now pursue opportunities in African agriculture. New ways of defining collateral, expanded availability of crop insurance, contract management compatible with cellular phone communications and payment systems, and the emergence of modern logistics are creating a foundation for commercial agriculture at the smallholder level. Additionally, several African governmental programs can support the infrastructure and training that smallholders need.

Any group of smallholders interested in investing in a shared irrigation system must consider how to obtain financing. A credible business plan is the key to obtaining financing for irrigation equipment, farming equipment and crop inputs. The business plan is also an important tool for communicating project details to the community and government. Issues to be considered in building a business plan include:

Site selection: soil quality, ground/surface water availability, drainage, logistics

Marketing plan: market evaluation, cropping plan, target customers

Equipment requirements: Infrastructure needs such as cold storage, drying facilities, initial vs. longer-term

Training and ongoing support: farm management, irrigation management, financial management

Financial projections: These can be used for project implementation and for discussions with project funders. Click here for an example of a investment return projection based on a business plan with detailed farming assumptions:

With a sound business plan supported with financial projections, smallholder groups can pursue financing from micro-lenders, banks, government agencies and other sources.