Border closures & new sources of funding

In July 2019, the Central Bank of Nigeria issued a curious directive to banks. It mandated that they lend up to 60% of their customer deposits or face consequences. (This has now been increased to 65%.) Suddenly, individuals and businesses across Nigeria started getting text messages and emails from banks offering attractive loans. Development Banks are also offering single-digit loans to key sectors of the economy, including agriculture. Meanwhile, the border closure is sparking increased incentives and demand for local agric. Production. At the same time, export markets are driving demand for raw and processed commodities.

Something even more interesting has begun to happen in the agric. space. State governments have started partnering with private agriculture companies; giving them free arable land, so they can help to boost youth employment and food security. Foreign investors and the Diaspora are also pouring hard currency into agriculture.

Finally, in the last three years, some agric. crowdfunding websites turned away investors, as they became oversubscribed in a matter of hours. What do these things mean to agriculture investors and the crowdfunding space?

Here’s what it means

If we extrapolate the Law of Supply, as access to cheaper sources of institutional funding increases, there will be lesser need for individual investors. Also, as more investors chase limited credible opportunities (such as the few professional and structured crowdfunding deals), those opportunities will become scarce.

This means, we are now in a seller’s market and the crowdfunding companies can afford to reduce the returns they give investors. For instance, when I began to invest in FarmCrowdy (now part of CrowdyVest) in 2016, my annual return was 120%. Now, it is 24%! In the space of 3 years.

The wild profits of agric. crowdfunding may be coming to an end. The few companies that still offer significant profits may end them, once they become structured and their operational expenses increase. Greater structure also means they will be able to access institutional funding.

If you still want to make comparatively higher returns, then it means you must be willing to take risks by betting on independent farms that are yet to make their structural transition.

The question is, do you have the due diligence expertise to make that call?

Thanks for reading!

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