African Guarantee Fund for Small and Medium-sized Enterprises (AGF) has signed a Memorandum of Understanding with Tanzania Agricultural Development Bank (TADB) that will allow the bank to disburse up-to USD 20 million worth of loans to agribusinesses in Tanzania.

The MoU, which was signed today at TADB Head Office in Dar es Salaam, will enable the agri-bank to guarantee SMEs in the agri-value chain applying directly for loans at the bank.

At the signing ceremony, the Commissioner for Financials Sector Development, Dr. Charles Mwamwaja, representing the Minister for Finance and Planning, Mwigulu Nchemba, said that the partnership has come at the right time, as it is in line with the recently launched Five Year Development Plan 3 (FYDPIII) which aims at: increasing the country’s capacity for production; building a competitive economy that will stimulate the country’s participation in trade and investment; and stimulate human development.

“SMEs constitute 95 per cent of businesses in Tanzania, and 35 up-to 50 per cent of the country’s GDP. They are the backbone of growth in production, employment and innovation, it is therefore crucial to us as we are moving at realizing Vision 2025 to provide an enabling environment for agricultural SMEs in Tanzania,” said Mwamwaja

“Most traditional banks and financial institutions require collateral worth 125 up-to 150 per cent of the total loan amount an applicant is requesting. I would therefore like to congratulate TADB and AGF for this meaningful partnership that will see more agri-SMEs access more and affordable financial support, and ultimately contribute to the transformation of agriculture, the economy and lives of Tanzanians,” noted the Commissioner.

While access to credit is the major constraint, most SME owners prefer not to borrow due to high interest rates, lack of collateral, absence of institutions to lend their businesses and more often than not, they do not know how to go about it. Thus, the importance of this MoU.

TADB’s Managing Director, Japhet Justine, said that the partnership is a great opportunity for TADB and more so for the agri-sector in Tanzania, as it allows room for lower interest rates and lending conditions that are affordable and friendly.

“We are proud to be one of the initial institutions in the country to spearhead the FYDPIII. This deal realizes one of our roles as a Development Finance Institution in mobilizing low-cost sustainable financial resources for affordable agricultural financing and enhancing financial inclusion,” said Justine.

“In the new FYDPIII, the government has reiterated its commitment in promoting the private sector and non-state actor’s participation in economic development.  Interventions to further deepen industrialisation, driven by Science Technology and Innovation (STI) capabilities for value addition in manufacturing and productive sectors including agriculture, fishing, livestock are mentioned as its top priorities,” emphasized Justine. 

 “Our Integrated Value-Chain Finance (ICVF) model that we have adopted also ensures that a wide-range of agri-SMEs are compatible for this loan product, as our bank aims to empower SMEs involved in the different stages of the agri-value chain, for instance inputs, infrastructure, production, storage, processing, transportation, and markets. Overall, by enabling the SMEs in the agri-sector, we foresee more markets created for our farming produces,” emphasized Justine.

On his part, AGF Group CEO, Jules Ngankam said: “AGF views TADB as a very strategic partner in achieving significant impact within the SME sector in Tanzania. TADB as a government owned DFI, has the required capacity to lend to SMEs and particularly in the critical agricultural sector. Through the MoU, AGF will consider providing individual guarantee relating to loans granted to Tanzanian agri-SMEs on a case-by-case basis. With the backing of such guarantees, TADB is proposing to disburse USD 20 million of loans to Tanzania agri-SMEs.”

“While this partnership is of great importance to SMEs owners and prospects in Tanzania, it is also a trailblazing opportunity for women-led or owned businesses. Through the Affirmative Finance Action for Women in Africa (AFAWA) partnership that we have with the African Development Bank Group (AfDB), AGF will also be able to extend the AFAWA Guarantee Facility to TADB to increase financing of Tanzanian women-owned agri-business. Women businesses in different agricultural value-chains will be able to access loans from TADB on much better terms,” added Ngankam.

Some of the criteria to be used to asses a female agri-business may include but not limited to; situations where the board of the business, the shares, business founder is a woman. Also, whenever the workforce, or the produce directly benefits more women, that too will be a consideration for the business to access a more advantageous interest rate to the finances they require.