Back to basics: funding agricultural projects

CAIRO – 11 October 2020: The COVID-19 pandemic has made self-sufficiency a priority, now more than ever. Accordingly, investing in basic goods can be quite a safe option in the upcoming period, as a global recession is highly expected.

Underlining one of the most vital sectors: food, which relies heavily on agriculture, here is a glimpse into funding programs designed to serve investors in the agrarian industry

General Funding

One main funding program is provided by The Agricultural Bank of Egypt, which offers funding to small and medium enterprises that produce solar power irrigation systems; greenhouses; introduction of modern irrigation systems; cultivation equipment; agricultural inputs; and other agricultural projects.

Moreover, the emergency measures taken by the Central Bank of Egypt (CBE) to mitigate the economic impact of COVID-19 include guarantees worth LE100 billion issued to banks in May. This has thereby encouraged financial institutions to be part of an initiative offering loans of 8 percent, thus diminishing balance interest rate to private investors in the sectors of manufacturing, agriculture and constructions

Additionally, in June, the Saudi Arabia Grant Committee agreed to finance five new projects in Egypt. The Saudi Arabia grant comes with a total value of LE200 million, contributing to financing small, medium and micro projects in Egypt.

The Egyptian Agricultural Bank will obtain LE100 million to finance three of these projects in coordination with the Ministry of Agriculture, to support food security and small farmers, namely a project to develop rural villages, a project for a value chain financing program, and a program for financing dairy products and dairy laboratories. The three projects aim to provide financing for all small and micro projects in rural villages, targeting projects carried out by rural women and all handicrafts and activities aiming to achieve rural development. The projects will be implemented across all parts of the country, with a focus on Upper Egypt’s governorates, and governorates outside Greater Cairo and Alexandria in general.

Intermediate financing entities can apply to benefit from the grant funds and direct them to support the MSME sector in order to serve the development purpose of the grant funds.

Targeted funding

The Micro, Small, and Medium Enterprises Development Agency (MSMEDA) offers a number of financing programs for small investors and feasibility studies, including a one-year grace period per each loan.

Among the above is a meat cattle fattening programme consisting of two phases, where the agency finances 75 percent of the investment costs. The first phase is worth LE130,000, while the value of the second is LE255,000. The first phase consists of fattening 20 calves over one year, until the weight of each becomes 80 kilograms on average. The second phase consists of fattening 20 cows over one year until the weight of each reaches 250 kilograms on average.

Another programme targets dairy cattle fattening, consisting of two options. The agency can fnance 70 percent of the investment costs - worth LE215,000 – needed to fatten five buffalos; or, it can finance 75 percent of the LE310,000 needed to fatten five Holstein cows. In both options, the investor is given a one-year grace period to pay back the loan.

The agency also funds 75 percent of the investment costs of four greenhouses, worth LE150,000. The crops cultivated must be bell pepper, cherry tomato, green beans and cucumber; and must be exported.

Additionally, MSMEDA grants investors the opportunity to establish units for edible, medical, and aromatic oil extraction, refining, and packaging producing one ton per year. The average cost is LE1.8 million, of which, 70 percent are financed by the agency. For the purpose of maintenance, the units must stop working for a month each year.

The French Development Agency (AFD) launched in 2012 a project worth €30 million aimed at creating 400 SMEs, which will offer 20,000 direct and indirect jobs. The project requires a financing fund and a guarantee fund. The former already exists and is dubbed the Agricultural Research and Development Fund. The latter is still being set up, and is expected to have 16,000 beneficiaries within seven years. The project primarily targets dairy and aquaculture sectors.

Chairman of the Agricultural Research and Development Fund Sobhi al-Nagar stated in a phone-in in July that his establishment offers soft loans worth up to LE16 million per project and repaid over five years. One investor can receive several loans as long as the projects are in different types of industries. There are 11 types, including meat cattle fattening projects, dairy cattle fattening projects, pourtly farms, pisciculture, and other agricultural manufacturing sectors.

Egypt is also implementing the Calves Programme offering funding to investors by the Ministry of Agriculture and Land Reclamation. The calf is supplied by the ministry at LE15,000, with a 5 percent diminishing interest rate on the payback. If the number of calves requested exceeds 20, a licensed farm is a must. If the calves are not just fattened and are used for other purposes, the investor repays the loan in regular interest set by the CBE. The loan is paid back after the fattening period is over.

Last by not least, in July, the International Finance Corporation (IFC) and the National Bank of Egypt (NBE) signed a cooperation agreement to fund the introduction of solar-powered water pumps in fields.