Issue date: Monday, January 28, 2019


1.  Introduction

The Eastern Africa Grain Council (EAGC) is a membership not-for-profit organization whose mandate is to develop and promote structured grain trading systems that stimulates backward and forward linkages between the various levels of value chain actors resulting in increased opportunities for the smallholder farmers to participate in formal structured grain markets. To achieve the objectives EAGC implements interventions intended to achieve a more organized marketing system that include developing markets institutions, provision of market information, capacity building and policy advocacy.

Since its incorporation in 2006, EAGC has been promoting Warehouse Receipt System (WRS) as an integral part of structured trading and financing. The Council has been implementing WRS in Kenya and there has been substantial benefits attributed the system including encouraging storage of grains in more efficient facilities, guarantee delivery of quality commodities by warehouse operators, use of stored commodities by depositors as collateral for loans and provision of a credible and formal market for grain commodities with inventory financing opportunities. The EAGC WRS was later transformed into the G-Soko trading system in order to facilitate regional grain. The G-Soko System is an electronic system comprising of a network of automated grain bulking /aggregation centres and certified warehouses, linked to a virtual trading platform, as well as participating banks for settlement and clearing. The GSoko Clearing & Settlement system enables grain sellers and buyers to interact with the banks through funds borrowing, funds transfer and payment settlement.

Lack of access to credit is a severe constraint for many farmers. A main reason for their difficulties to obtain credit is that farmers are often unable to offer sufficient conventional loan collateral. Warehouse receipt financing is a collateralized commodity transaction where the agricultural commodities especially grain provides security for the loan. Warehouse receipts are means of accessing post-harvest finance for working capital needs. The financing cycle begins after the harvest. The harvested crop is stored in a licensed/certified warehouse that issues a receipt proving that the commodity is physically in the warehouse. This receipt forms the basis of the financing.

This system binds several participants together: farmers, warehouse operators, banks and the regulator. The role of the regulator is to build a legal and institutional framework that guarantees the performance of the system and minimizes transaction costs. If properly designed, the system provides benefits for farmers through an enhanced access to credit, a reduced cost of commodities storage and the possibility to delay their sales and take advantage of the seasonality of prices. Financial institutions gain by decreasing their risk exposure, through the utilization of collaterals that can be easily liquidated.

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