Home News African Development Bank offers $2 million partial credit guarantee and a $528,600 grant to smallholder farmers

African Development Bank offers $2 million partial credit guarantee and a $528,600 grant to smallholder farmers

by Grace Kisembo

The Africa Fertilizer Financing Mechanism (AFFM), managed by the African Development Bank, will provide the African Fertilizer and Agribusiness Partnership (AFAP) in Tanzania a $2 million partial credit guarantee to assist suppliers and importers to purchase fertilizer for Tanzanian hub agro-dealers. A $528,600 grant will be provided to cover 94% of the project’s recurrent costs. AFAP will contribute the remaining 6% of costs.

The project aims to increase productivity by enabling timely access to and appropriate fertilizer use by smallholder farmers. It will enhance access to quality inputs through a functional, efficient and sustainable fertilizer supply chain in Tanzania and improve access to finance for large fertilizer distributors.

The project, which will be implemented from 1 July 2023 through 31 July 2026, has three main components which are support for hub agro-dealers to access the credit guarantee facility, support to increase fertilizer availability, project management and coordination.

In addition to the 14 regions where the 2019 credit guarantee project was implemented, AFAP will expand its current project activities to at least five additional regions: Ruvuma, Manyara, Rukwa, Kagera and Mwanza.

The project is expected to increase agricultural productivity and food security in Tanzania, in line with the Bank’s Feed Africa Strategy. The credit guarantee is expected to be used 15 times to enable the distribution of at least 60,000 tonnes of fertilizer worth $36.5 million.

The project targets five suppliers and 35 hub agro-dealers as direct beneficiaries, 1,000 retailers as indirect beneficiaries, and 550,000 smallholder farmers as the ultimate beneficiaries. The agricultural sector accounts for 29% of Tanzania’s GDP and 65% of all employment. The majority of the agricultural labour force is female (69.9%).

According to a census conducted by the government at the end of 2020, out of 12,007,839 households in Tanzania, 7,837,405 households (65.3%) were engaged in agricultural activity. Despite an upward trend in fertilizer consumption over the years – from 15.858 kg per hectare in 2018 to 19 kg per hectare in 2023 (according to the Fertiliser Regulatory Authority) – it remains well below the continental target of 50 kg per hectare. Tanzania is heavily dependent on fertilizer imports.

Fertilizer demand (2022/2023) in the country is currently estimated at 698,262 tonnes, of which about 418,883 tonnes must be imported to cover the local production shortfall of 43,579 tonnes, with a balance of 117,900 tonnes carried over from the previous season.

Although the Tanzanian Government has established the Agricultural Inputs Trust Fund and the Agricultural Development Bank to provide agriculture financing, the need for appropriately structured financial products and services remains high. Only 3% of commercial bank lending is dedicated to agriculture.

The financing gap that needs to be closed to enable Tanzania to meet the Abuja declaration target of 50 kg/ha of nutrient consumption is approximately $150 million. This project will build on the successes of the Bank’s previous Tanzania Agricultural Inputs Support Project, implemented by AFAP between September 2019 and July 2022, and which helped the private sector fill the gap and facilitate the financing of additional volumes of fertilizer by multiplying collateral by 15. This enabled access to credit and the distribution of nearly 63,000 tonnes of fertilizer worth USD 30 million.

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