Ayodeji Balogun is the country manager for AFEX Commodities Exchange Limited and the regional director of Africa Exchange Holdings. In this interview with BusinessDay’s Endurance Okafor, he shares insights on how AFEX, a platform that provides innovative solutions for the agricultural sector in Nigeria is helping to include small farmers into the financial cycle. Excerpts:
Tell us about yourself and how AFEX is able to include small-scale farmers into the financial cycle.
My name is Ayodeji Balogun. I am the country manager for AFEX Commodity Exchange in Nigeria. We are a licensed commodity exchange and we provide access to financial and commodity markets for smallholder farmers; smallholder famers because basically they are the most underserved. So the market is there; on the buy side you have the processing companies, blue-chip processing companies, and on the sale side, you have farmers, traders and merchants. Predominantly we ensure that our services reach smallholder famers because we think they are the core and foundation of the entire agricultural value chain.
So until the system pays deliberate attempt to recognise and create a structure that works for them, we would hardly have a functioning agricultural sector and so it’s at the core of our strategy as a capital market institution that we are able to unlock financing for farmers to ensure that they produce competitively and then we would have a market to sell their harvested product.
So what are the step-by-step procedures you follow in unlocking finance and providing markets for these farmers?
Like almost every other economy, the greatest thing you want to achieve is to make this guy an economic actor, and it starts by identification. It is always the Know Your Customer (KYC), so if it’s small farmer living in the rural area because that is the most viable place to produce food, there is very big chance that he is 60 kilometers from the closest bank and about 40 kilometers from the closest ATM service. Yes, we have a huge, wide and growing agent network but they are all servicing the cities and the banked.
There is a very recent report that out of the over 30 million of BVN accounts that we have, less than 10 million of them are actually financially served, meaning that over 20 million of the people that even have BVN do not have access to normal financial services and so a lot of the solutions that are out there in the public are focused on the people that are banked than providing alternative banking journal.
The customers and farmers that we work with on a daily basis are people that actually do not have bank accounts and when we do register them to have BVN and open bank account, either microfinance bank account or commercial bank account, for them, they happen to be the first in their generation or in their family to ever have a bank account. So that is the scale of impact. What makes it easy for us to do business with them is that it ensures that they have access to credit and loans to boost their productivity and increases their livelihood and access to build wealth.
It also opens door for a number of people around them because it becomes a source of motivation for two or three other households.
Do you go in search of these farmers in some targeted states?
Based on how we are configured as a commodity exchange, we have presence in over 40 locations across 14 states, mostly in the northern part of the country, but also as close as in Oyo as we will have operations there. These operations and warehouses are set up within the production communities. What we then do is to map out the growing communities and areas, we then organise them by groups, co0rporatives and group them into sets, and then we link them to the warehouse. In that process of registration, on-boarding and training about the exchange is one of the core parts of what we do to ensure that they get financially included.
So the warehouse becomes branches where they could come in and access financial services.
So does AFEX give loans to these farmers?
We do not give loans but we facilitate access. So, on one side, take for example we have 100 farmers, who we have their credit rating due to some several number of times they transacted with us, we know they are credible, and on the other side we go to negotiate a loan with either micro finance bank or a commercial bank or bundle the farmers into a capital market instrument and then issue a note for a willing financer. We have had several notes that we have issued in the past four years we have been running this programme for almost seven seasons across several states within the country.
We have credit portfolio growing close to N10 billion in loans and last year alone, 25,ooo farmers accessed loans through our channels and we hope to grow the number to over 50,000 this year.
Meanwhile, in the last four years of operation, 108,000 farmers have been financially served through our platform.
Apart from your products tailored to farmers, are you looking at designing a similar one for some other sectors of the Nigeria economy?
If you look at it, for us there are two markets on the exchange: there is physical market which ensures that producers produce comfortably and can sell efficiently and also make sure that the buyers, which are the processors from food and beverage companies, can easily buy the products from the sellers. That’s one market.
On the other side is an investment, cash market where an investor that is interested in investing in an alternative asset class or looking at the new, different kinds of instruments that we invest in can invest in a commodity which is like equity type of instrument, that is commodity-backed, or he wants to invest in input loans. He could work through a number of broker partners that we have and then buy these instruments and then invest against them.
So we are going to build a lot of investable agriculture-backed assets which we are launching just like some we have lunched in the past. We have our index which is published in BusinessDay every Wednesday, the first agricultural commodity index published in Africa, tracking the number of major commodities in the country. And through the published index, investors can also know their competence and say am I beating the market index.
In your four years of operation in Nigeria, what would you say have been the challenges your company has had to manage?
We have had a lot of collaborations with various stakeholders in the system. We have had tremendous success with microfinance banks, increasing with the capital market operator as well as a number of the crowd-funding platforms. We have had strong partnerships with them and we have invested heavily in technology which has made the system almost seamless to partner with us and have visibility on what transactions are.
Commercial banks have naturally stayed behind. They are more risk averse and are actually less configured to manage the operation that has to do with smallholder farmers’ very small transaction sizes as there is a lot of operation monitoring, leg walking required. That is where we have had challenges in the past but with the number of partnerships like those with CBN and a couple of programmes, a number of them are now supportive.
Infrastructure has been the biggest challenge, and I think there is need for a business like ours, a commodity exchange, a critical infrastructure for any economy that is agriculture-based would help pull most of the problems of the millions of farmers it works with and create a business model that solves it.
The road is a challenge because transport costs are high, double of what they should be. That is a very big challenge, as we restricted to dealing with agricultural products because if you go into the perishable, then power becomes the biggest nightmare.
Telecommunication infrastructure is another source of challenge. Almost everyone thinks we have solved that problem in the country, but when you go into the farming areas you will find out that there are no networks even when you carry all four different SIM cards. Financial challenge is one, but there are a whole lot of others.
If you look at the data, what they suggest is actually scary; the largest pool of farmers that produces the food that we eat as a country are the poorest community and the most financially excluded communities. That correlation suggests that they are not just under served-financially but that they are actually shut out of the formal economy of the country.
Are there some other ways AFEX is helping to spur financial inclusion in the country?
One other way is the fact that we partner with Verve. We do issue cards to the farmers. So even when they cannot go to the banks, they actually can use their ATM cards to withdraw from closest ATM or go to some of our registered and trained agents, who will use their structures. We are able to provide services for the farmers. The agents therefore act as intermediaries and also carry other transactions besides just registering them on the platform.
One thing is to register them on the platform, the second thing is to have economic transactions that they are doing. The third is to have access to where they can execute these transactions. We have the convergence of the three elements.