AFEX Commodities Exchange Limited (AFEX), Nigeria’s leading private commodities exchange company, has announced the first warehouse receipt-backed commercial paper in Africa, with tech-enabled operations and a 24-hour fast cash turnaround for borrowers.

With over $50 million raised for agri-SMEs, this bridges the funding gap between lenders and borrowers in the Nigerian agricultural sector with a commodity-backed instrument – for the first time.

The AFEX financing deal will help eradicate the high cost of procurement incurred by processors by deploying a discounted value of a warehouse receipt distributed among five leading players in the food and beverage, trading poultry, and animal feed segments in Nigeria.

According to AFEX, the receiving companies are top 10 players in their respective segments. Now, they have been enabled access to a tool for managing price volatility, creating 30percent direct savings on prices.

“With our vision to reach a cumulative total of over $5 billion in investment in the agricultural sector over the next five years, this financing deal is right on track to achieve this goal,” said Ayodeji Balogun, chief executive officer of AFEX Commodities Exchange.

“As we move towards building a derivatives market in Africa, we want to be able to reduce exposure to price risk for stakeholders, by enabling them to hedge their positions and trade in commodity derivatives,” Balogun said.

The warehouse receipts, which can then be transferred from commodities to a financial asset and listed under the borrower’s portfolio on the AFEX trading platform, will create a sustainable funding structure and address underfunding in the country’s agricultural sector.

With the warehouse receipt system linked to financiers, the system allows financiers value and marks the commodities’ price to market on a real-time basis.

Similarly, Akinyinka Akintunde, VP – financial markets, AFEX said that the mission of the organisation is to provide low risks working capital facilities to players in the agricultural sector in a transparent and very viable investment return.

“As a licensed commodities exchange and warehouse receipt system operator, we deploy a warehouse receipt system and collateral management infrastructure to increase market confidence for both lenders and borrowers,” Akintunde said.

With AFEX’s goal to support Africa’s food security while promoting a fair exchange of value among players in commodity value chains, this deal’s social impact is delivered through market access for farmers and reduced post-harvest losses, he said.

AFEX continues to contribute to the United Nations Sustainable Development Goals 1, 2, 5, and 8; no poverty, zero hunger, gender equality, decent work, and economic growth.

AFEX harness Africa’s commodities and talent to build shared wealth and prosperity. AFEX’s infrastructure and platform investments work to unlock capital to power a trust economy in Africa’s commodities markets.

Since its inception in 2014, AFEX has developed and deployed a viable commodities exchange model for the West African market and is on track to impact one million producers; providing services in productivity and value capture and access to finance and markets. By deploying an efficient market system, we will facilitate trade with Africa worth over $500 million in the next five years.

AFEX’s vision is to be the reference point for commodities in Africa. To achieve this goal, AFEX looks to introduce products that de-risk the sector, drive financial inclusion for rural communities, develop technology for data collection and market access, and enable capital deployment.

SOURCE: BUSINESS DAY