The productivity of Kenya's agricultural sector has been largely stagnant in recent years, with small farmers and enterprises unable to grow. The limitation is related to the lack of financing for the agricultural sector. 7.8 percent (FinAccess Household Survey, 2021) of Kenyan farmers use formal lending channels to finance their activities while the largest coming from profits from product sales.
One of the solutions to this problem was the establishment of a warehouse financial system governed by the Warehouse Receipt Systems Act 8 of 2019 and the Warehouse Receipt System Regulations of 2021.
Warehouse financing is a form of regulated subsidy in which capital is provided by a lender to a borrower whose obligations are secured by goods owned by the borrower and held in a warehouse owned by an independent third party. The independent third party provides the borrower with a warehouse receipt, which serves as a record of ownership of the goods held in the warehouse.
Warehouse receipts serve as actual ownership documents for goods or collateral stored in an authorized warehouse.
A typical warehouse financing structure allows the borrower to repay the principal using the proceeds from the sale of the secured assets in the normal course of the borrower's business.
Warehouse receipts serve as actual documents of title for goods or collateral stored in an authorized warehouse. Once issued and registered in a Central Registry, it will be considered a negotiable security transferable from one party to another or used as collateral to access credit from participating financial institutions or traded in commodity markets.
Within the Digilogic consortium, thanks to the support of Trusty Srl, Radava Mercatile, a Kenyan player in the commodity exchange market, has initiated the integration of Trusty's Blockchain technology into the Warehouse Receipts system (registration and buying and selling) to increase transparency and authenticate transactions on the platform.
All of this enables small farmers to participate in a modern and efficient market by facilitating contact with large traders and agricultural processors, which, thanks in part to Blockchain technology, will encourage an opening to international investors and markets.
A new system that encourages lending to the agricultural sector by providing alternative collateral (commodity) and mitigating risk for banks, effectively encouraging youth entrepreneurship.
