“There is nothing genius about what we decided to do,” believes Kenyan entrepreneur, Alex Mwaura Muriu, 27.
“We just looked around and asked: how come no one is giving ‘agri-preneurs’ money without too many strings attached? How come no one realises these young farmers do not have the things they are asked for [to get financing], like collateral?”
Muriu is the founder of Farm Capital Africa, a new risk-sharing, crowdfunding model that enables investing in small-scale African agri-preneurs. The company aims to address the funding challenges they face, and was recently selected as one of 10 finalists for 2015’s Innovation Prize for Africa.
“We have 60% of the world’s arable land on this continent, but the irony is despite so much farm land we are still plagued by food shortages year in, year out,” Muriu told How we made it in Africa.
Lack of financing
“We discovered that small-scale agriculture in Kenya has an annual funding gap of about U$1bn.”
“There are many young entrepreneurs who are well educated, very savvy and enlightened, and who opt for a career in agri-preneurship. But the one thing they don’t have access to is the financing needed. And it’s always a shock for them when, with all these credentials and plans, they are told by banks: ‘Sorry, we can’t provide finance because you don’t have collateral’.”
However, Farm Capital Africa’s model offers funding without the need for collateral and monthly premium payments by developing a risk-sharing arrangement between Farm Capital Africa, investors and the farmer.
So how does it work? According to Muriu, it all comes down to lowering the risks for investors associated with funding farmers.
For example, the company only invests in projects with a source of irrigation, such as access to a river or borehole, and which does not rely on unpredictable rainfall. All projects are also insured against ‘acts of God’ and field officers are appointed to assist farmers.
Farm Capital Africa also develops contractual relationships with the buyers of the farm produce. “We promise buyers that if they work with us, we have a number of farmers who can deliver produce consistently and at a very good price. So contracts are signed between the buyers and Farm Capital Africa.”
When produce is sold to the buyer, the money goes into a company account, and there is no room for misappropriation of funds by the farmer. Farm Capital Africa then works out how much of the pool goes to the farmer, the investor and Farm Capital Africa.
Identifying and screening
To be selected to receive funding, farmers must be between 25 and 35, and engaged in farming for at least one year.
Farm Capital Africa also advertises its offering online, receiving applications through an online portal which Muriu said was a strategic decision.
“First of all we are only making ourselves [available] to farmers who have some sort of access to information – to the internet – and therefore enlightened to some extent.”
The company then shortlists candidates who, in their application, display a well thought-out plan for their project. Phone interviews and site visits are then conducted, followed by a risk-analysis.
Foreign, local investors
The company officially started operating in June last year and currently only has a handful of farmers in Kenya under its wing. However, Muriu said the goal is to establish a model that can be scaled-up and delivered to other countries across the continent.
The model has caught the attention of both foreign and local investors, especially investment co-operatives which have grown particularly popular in Kenya.
“The government now recognises such groups, so they can register as a company and open a bank account. We have been targeting those groups, and in Kenya alone there are about 300,000 of them.”
Farm Capital Africa has also recently partnered with an investor in Britain who will assist with fundraising, particularly from the diaspora, which Muriu believes holds huge potential for the company.
Third time lucky?
Muriu has played around with entrepreneurship from the age of 10. And since starting college, where he studied computer science, he has launched three companies.
The first – a website development company – failed after five years. But according to Muriu it was here that he learnt some of his most valuable business and entrepreneurial lessons. The greatest, he noted, was humility.
His second company – a digital innovation house – is still going, but he sold his stake to fund Farm Capital Africa after realising the concept of financing farmers had become his true passion.
Don’t fear talking about your idea
“What has helped me get to where I am has been not fearing to talk about my business to everyone and anyone willing to listen.”
Many entrepreneurs fear sharing their idea with others in case someone steals it. However, he explained, that by keeping ideas hidden entrepreneurs can potentially miss opportunities for finding people to help them advance.
For example, before his idea for the Farm Capital Africa model was even fully formed, Muriu submitted it to every entrepreneurship competition he could find. Through this he discovered opportunities to be mentored, as well as attracted advice from industry professionals.
And before he knew it, he had a fully-formed idea.