FROM THE FARM
Amidst a breakdown in relations between clerks and their employers, the Irish Banks Standing Committee took the drastic step of closing banks for six long months in 1970.
At the end of the period, the Central Bank of Ireland carried out a review. Not only did the Irish economy continue to function, but the level of economic activity increased over the period, recounts Felix Martin in Money – The Unauthorised Biography.
Trust was what kept things going. During the period of closure, cheques or corporate IOU’s were personal, and sellers did their own risk assessment.
If money is the wheel on which the modern economy runs, the banking system is the engine. This is why the health, innovation and versatility of the banking sector can be a key measure of the strength and potential of an economy. But banks are by no means the only measure.
In China, the shadow lending industry is worth a mind-boggling $15 trillion, or 80 per cent of GDP, according to Bloomberg data. The informal credit sector accounts for 38 per of African GDP, the IMF reported in 2017.
Would the economy be sustained if the Irish Bank Crisis happened today? Probably even more so, given the multitude of alternative systems of exchange, information networks and distributed ledger systems such as blockchain.
While banks provide important safeguards, the process leading to bank lending sometimes takes several months. Worldwide, non-performing credit tend to be lower in the informal sector because parties within the value chain understand one another far better than the banks, who are outsiders, hobbled by inadequate knowledge, paralysed by fear of the known and oftentimes, it must be said, chastened by arrogance.
Nowhere are banks more neglectful of their duties than in Africa. Even the Irish Banks Standing Committee would blush for its modern-day peers on our financially bereft continent.
Less than three per cent of total bank lending in Africa goes to agriculture even though farmers account for 70 per cent of all employment and nearly 40 per cent of gross domestic product, according to the African Development Bank and the International Center for Tropical Agriculture.
With no indication of this gap shrinking any time soon, we agriculturalists must find more ways of establishing our own systems of trust outside the banking system.
Some of this is already happening through vendor credit financing. Machinery manufacturers and distributors are finding innovative ways of financing buyers, and processors and input providers are funding farmers. Any major value chain participant with a reasonable turnover who is not involved in this shadow banking activity risks losing long-term competiveness and growth.
But much more needs to be done if we’re to properly resource our farming community to feed our children.
Like the Irish, we need to create clusters of trust networks among our food and agriculture commodity businesses, processors, consumer groups, farmer cooperatives, mechanisation equipment and service providers, as well as seed, agrochemicals and fertiliser and other input providers. Key to this process is finding ways of enabling safe and innovative use of technology, materials and services to the benefit of consumers and value chain participants.
A farmers’ cooperative, for example, can work with a food processor that acts as an off-taker in tandem with the sales and distribution companies closest to the consumer payment point. The processor’s note supplemented by a small amount of funds activates mechanisation service providers, who are in turn financed at least partly by equipment manufacturers. Through mutual understanding of each other’s services, we can build an ecosystem where the farmers are collectively guarantying one another’s work as project managers and system integrators.
The entire structure can be underpinned by a series of technology based enablers that manage and track climate risks, logistics, farm management, IOU’s, price movements and other key indicators to maximise efficiency and minimise risk.
Only once we have such a system tested, proven and up and running, will our banks do the job they’re supposed to do. As the Irish-influenced poet Robert Frost wrote, a bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.