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The role of the AFFM is to strategize on innovative financial solutions to foster access to quality and affordable fertilizers in Africa. The Mechanism has identified two credit guarantee schemes for the financing of fertilizer in Africa. These schemes are:
This scheme is ideal for mitigating the risk of working capital. The portfolio credit guarantees target wholesalers, distributors, agro-dealers and retailers. The guarantee scheme gives a participating financial institution permission to attach a partial credit guarantee to any beneficiary meeting the eligibility criteria and for which the partnering Financial Institution has decided to provide a working capital loan or credit facility. Here, AFFM guarantee covers 50% of the unpaid part of the loan principal, plus interest payable at the moment the guarantee is called by the Financial Institution.
This credit guarantee scheme targets private importers, blenders, wholesalers and distributing companies in need of investment capital. Here, AFFM through its local Implementing Partner decides whether to provide a commitment agreement for a guarantee to the target beneficiary. The commitment agreement offers a confirmation by AFFM that a portion of a potential loan can be guaranteed. The beneficiary can therefore use it to shop for competitive interest rate at various financial institutions. Once the financing is secured, AFFM will then provide a partial guarantee to cover up to 50% of the unpaid part of the loan principal, plus interest payable when the guarantee is called by the financial institution.
The trade credit guarantee model proposed by the African Fertilizer and Agribusiness Partnership (AFAP) operates at two levels. The first level entails upstream suppliers to hub agrodealers while the second level is hub agro-dealers to retail agro-dealers. In both cases, the hub agrodealers is pivotal being the channel for the upstream players and source of product and credit for the downstream players. Under this trade credit model, a fertilizer importer, manufacturer or supplier will avail fertilizer to hubagro-dealers on credit and AFFM will share the credit risk involved in the transaction with the supplier at an agreed pari-pasu. The hub agro-dealer will then give the product on credit to distributors, and the chain will continue until the fertilizer reaches the smallholder farmers. The model can also be applicable to farmer’s cooperatives.