AFEX launches commodity-backed instrument to act as funding bridge in agriculture industry

NIGERIA – AFEX Commodities Exchange Limited (AFEX), a leading private commodities exchange company in Nigeria, has announced a financing deal featuring tech-enabled operations, a 24-hour fast cash turnaround for borrowers and uses commodity as security.

This will be made possible through its Warehouse Receipt Backed Commercial Paper, the first in Africa, aimed to bridge the funding gap between lenders and borrowers in the Nigerian agricultural sector.

With over US$50 million raised for Agri-SMEs, this 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.

“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.”

Ayodeji Balogun – CEO, AFEX Commodities Exchange

According to AFEX, the receiving companies are top 10 players in their respective segments. They have now been enabled access to a tool for managing price volatility, enabling up to 30% direct savings on prices.

“With our vision to reach a cumulative total of over US$5 billion in investment to the agriculture sector over the next five years, this financing deal is right on track to achieve this goal.

“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,” said Ayodeji Balogun, CEO, AFEX Commodities Exchange.

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 Nigerian 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.

“Our mission is to provide low-risk working capital facility for stakeholders in the Agro sector, in a way that is transparent and has a very high 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,” said Akinyinka Akintunde, VP Financial Markets at AFEX.

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.

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.

Founded in 2014, AFEX have developed and deployed a viable commodities exchange model for the West African market and are 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, they are planning to facilitate trade with Africa worth over US$500 million in the next five years.

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