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Alternatives to the bank loan – The new equipment financing landscape in Africa

“If I was running a real estate fund, I would have investors lined up out the door. But when you talk about financial services for agribusiness value chains, you find that the risk appetite is somewhat limited largely due to misconceptions,” says Ivan Mbowa, chief executive of a ‘new generation’ financial institution in Kenya.

Mbowa’s company provides collateral-free working capital to traders, processors, farmers and cooperatives in the agribusiness value chain. Enterprises can borrow against 80% of their outstanding invoices and financing is available for amounts ranging from $10,000 to $500,000 with monthly interest ranging between 1.6% and 2.5%.

Financing is just one example of the new services available to agribusiness companies in Africa. Leasing has recently become an alternative option, but is still in its infancy in Africa and most entrepreneurs are wary of a financing method that they don’t fully understand. Insta-Pro’s partner VAELL lists 9 reasons to consider leasing as a better alternative to using own funds or conventional bank loans. Lease-to-buy contracts are 24 or 36 months, annual interest ranges from 12-13%, down-payment is 25% and importantly, no collateral is required. Ownership of the leased equipment is transferred to the lessee at the end of the lease period.

With Africa’s stunning demographics staring them in the face – one out of two people born in the world between now and 2050 will be born in Africa – major companies are desperate to get a foothold in the African market. Investors have been taking advantage of this opportunity through private equity (PE) funds and developing partnerships with private companies or individuals looking to invest in Africa.

Private equity (PE) funds invested $8.1bn in Africa last year. Several PE funds are focused on agriculture and agribusiness, with significant investments in poultry farms, fish farms and processing industries, making this an ideal option for people in the agriculture industry. An attractive option for private investors is to partner with – or purchase – a local company that is established in the market and knows how things work. Like private equity funds, these partners inject cash and knowledge, enabling African companies to upgrade equipment and skills.

Insta-Pro can assist customers, anywhere in the world, to find resources to help finance equipment. If you’d like to learn more about financing solutions, please contact our sales director nearest you.