Agriculture is one of Senegal’s most important industries. According to the World Bank, the sector employs almost 30% of the population and accounts for 15% of Senegal’s GDP in 2020. However, with a low GDP output for a sector that employs so many people, the issue is to modernize agriculture to increase output.
La Banque Agricole in Senegal was founded in 1984 with the mission of financing and supporting agriculture. According to CEO Malick Ndiaye, the bank provides between $325 million and $360 million to smallholder farmers each year. It is the country’s largest Senegalese bank and ranks among the top ten in a market dominated by French and Moroccan institutions.
According to Ndiaye, boosting Senegal’s agriculture sector is the best approach to alter the country’s economy.
“In Senegal, there are a lot of farmers who are vital for each ecological zone,” he explains.
“The bank is assisting farmers in achieving the government’s goal of elevating Senegal by altering agricultural production to meet the needs of both the local market and export markets.”
Assisting in various areas
The bank’s initial mission was to increase financial inclusion and lending to farmers and fishermen. Still, it has subsequently grown to cover agro-value chains and services that link the supply and processing industries.
This involves funding the production, marketing, and supply of agricultural inputs and equipment for various crops such as peanuts, cereals, bananas, horticulture, and cotton, among others. In 2020-21, the bank will invest $39 million in agricultural production and $15 million in agricultural product marketing.
Another priority for the bank, which collaborates closely with the government, is to promote agro-industrialization outside of major cities.
“We have a country that is very much focused on Dakar,” adds Ndiaye, “therefore we need to deploy infrastructure outside the capital city to promote industrial activity and transformation.”
Indeed, President Macky Sall has prioritized infrastructure development in rural and border communities, which helps to explain why he is more popular in rural areas than in cities. Moreover, even though most of the country’s economic activity is concentrated in Dakar, Senegal has a well-established commercial agriculture industry. The Sedima Group, for example, is a large company that produces chickens and wheat on a commercial basis for the home market.
NMA Sanders is another company that makes food products such as wheat and pasta and a range of animal feeds. However, according to Ndiaye, most Senegalese farmers are smallholders that participate in subsistence farming, with low yields due to a lack of education and agricultural inputs such as fertilizer.
He explains, “We labor the ground to survive; we don’t sell anything.” “This paradigm is quite ancient, but it continues to exist since there is no information transfer.” Fortunately, there is a trend toward increased production.”
Lending to smallholders to help them acquire equipment and install irrigation systems is one approach to help them get out of subsistence farming. On the other hand, farmers are a very risky population to lend to because they often have no collateral or credit history. Due to Covid-19, non-performing loans in the sector have climbed by 2% to 3% this year.
“Fortunately, we deal with an agriculture insurance firm that can cover up to $10 million in risk,” Ndiaye explains.
Concerns about the environment
Climate change and the approaching Sahara Desert are major Senegal concerns for smallholder farmers and large corporations. The country’s north is mostly desert, whereas the south and east, particularly Ziguinchor and sections of Tambacounda, are more tropical and productive.
Since 1980, more than 3 million people have been affected by droughts, and less than 5% of the country’s farmed land is irrigated. Droughts in 2002 and 2003 cost an estimated 35 percent of national crop production, amounting to about $50 million. Peanut production, the country’s main crop, fell by 70% during this time, putting food security in jeopardy.
“The weather issue is genuine here,” Ndiaye says. “There are years when there is a lot of rain and then years when there isn’t much.” “Risk is something we have to deal with on a daily basis.”
To assist mitigate the damage caused by climate change, the bank partnered with the government in 1994 to establish three funds that allowed the bank to continue aiding farmers in the event of a natural disaster.
The “calamity fund” was established to assist borrowers in the event of a disaster, mostly by waiving bank loans.
The “bonus fund” lowers lending rates by rewarding the bank for the difference between the market rate and the 7.5 percent charge to borrowers that is required by law. In addition, the “guarantee fund” lowers lending risk by covering up to 75 percent of agriculture (50 percent of livestock) in the event of loan default.
The pledge was extended in 2013, with $6 million set aside for the three programs.
According to Ndiaye, La Banque Agricole is collaborating with a number of partners to guarantee loans, including African Risk Capacity in Johannesburg and the Compagnie Nationale d’Assurance Agricole du Sénégal in Dakar. The African Development Bank (AfDB), for example, has a cooperation with the bank in which the multilateral lender assumes 80 percent of the risk on certain loans.
In 2020, the bank was also granted accreditation by the Green Climate Fund, a global environmental project.
Steps to take next
According to Ndiaye, the bank’s next significant move would be to leverage digital tools to increase financial inclusion and target hard-to-reach rural workers.
“We’re nearing the completion of our strategic plan for 2018-22, and we’ll be looking at digital transformation as a following phase,” Ndiaye says.
While La Banque Agricole is now only active in Senegal, he adds that the company’s medium-term plans include expansion into Guinea and The Gambia.
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