Currently, the agricultural industry employs more than half of all Sub-Saharan Africans, with 70% to 80% of people working on their own farms in rural areas. Unfortunately, agricultural small and medium enterprises (SMEs) are especially hit hard by the pandemic wreaking havoc on Africa’s agriculture sector.

However, a 2018-2019 study found that lending to agricultural SMEs is twice as risky as lending to other industries and yields lower earnings. Individual farmers usually operate on too small a scale to be economically investable, but Uganda-based capital investment firm CapitalSavvy is poised to change that narrative through a partnership with Switzerland-based FinTech company Monetix.

Too big, yet too small

There is a floating idea that many SMEs are too large to benefit from microfinance while also being too small to qualify for commercial bank loans, resulting in agricultural SMEs receiving less than 10% of commercial bank lending in most countries. However, shifting conditions including major African firms linking farmers to lines of credit or alternative markets have created opportunities for them to expand.

Most lending in Africa, particularly in high-risk areas like agriculture, trade and retail, has exorbitant interest rates, usually to the point where it is difficult for the borrower to afford them. Because blockchain eliminates the middleman (hence, there is no need for a margin), both the lender and the borrower will benefit from reduced interest rates and better rates of return, dramatically cutting the whole cost.

It was actually because of its partnership with Monetix that CapitalSavvy was introduced to the wonders of a scalable blockchain. The BSV Blockchain not only allows for the storing of big data and the processing of a high number of transactions per second (tps), but it also offers the lowest transaction fees. 

Averaging 20,000 tps, having a hard cap of 4GB data block size and having a range of 1/100 to 1/1000 of a cent per transaction, it is not a wonder why BSV offers real efficiency and practicality. And scaling means that these figures can be increased as the market demands them to, while continuously lowering fees in the process. 

“I love the fact that the BSV blockchain has positioned itself as a blockchain that is solving for enterprise challenges and there is a lot of utility in that. And then of course there’s the fast transactions, scalability, security, and no downtime which really attracted me to the BSV blockchain,” Reginald Tumusiime, CEO and founder of CapitalSavvy, said.

In an exclusive interview with Monetix, African coffee exporter Seth & Cushman Market Traders Ltd. presented their tale about how they began using bank financing to access facilities. However, the bank left them defeated by requiring a 3% processing fee to proceed. It was a good thing they came across CapitalSavvy.

“For example. I want to do logistics to shipping with MSC to maybe, Russia or Italy and I have taken out five containers and maybe I need $6000 or $7000 per container, and I don’t have enough liquidity on me or working capital. CapitalSavvy has really been there. They worked with me and supported my business in a certain type of model and their charges are also extremely fair to me,” Sylvester Kamuli, Seth & Cushman Market Traders Ltd. CEO, shared.

Kamuli cited CapitalSavvy’s efforts to create a welcoming and pleasant environment in his sort of company, as well as sufficient investment, as reasons to continue doing business with the venture capital for the next ten years and beyond.

“No. 1, there are no finances that are enough. No. 2, CapitalSavvy has created a homely and comfortable environment in my kind of business. At the end of the day, when CapitalSavvy gives me time to clear my dues, I’m very happy about that, and next time I have the confidence to go back because of the way I was treated earlier,” Kamuli added.

Agricultural SMEs are making a comeback 

Lenders collect a wide range of information during the pre-due diligence phase that many SMEs cannot provide. This data comprises standard commercial statistics and the business operations’ agricultural or social and environmental impact metrics. Likewise, lenders differ in what information they collect about the borrower, making it difficult for agricultural SMEs to prioritize what they should document.

Most African trade finance institutions also believe that any transaction worth less than $5 million is not worth the time and resources required to analyze the risk and structure the credit, effectively eliminating SMEs. If traders use blockchain to develop their businesses, they may be eligible for loans ranging from $10,000 to $100,000.

CapitalSavvy bridges this gap with Monetix by eliminating paperwork that is often a hurdle in determining the user’s risk worthiness. Users may monitor their credit score, credit age, payment histor, and inquiries as credit karma does, but with additional details. This potential enables multinational SMEs to become stronger candidates for financing, independent of their respective countries’ credit systems.

Monetix is designed in such a manner that farmers can create a profile based on the data that other people have on them, removing the need for them to alter anything about their practices. With additional financing available, agricultural SMEs could improve their production capacity and reinvest the profits in their operation, such as purchasing irrigation supplies, to get more out of their loan.