Structuring African Warehouse Receipt Systems to Succeed

Abstract

Development economists have preached that functioning warehouse receipt systems (WRSs) will help smallholder African farmers access loans to help reduce poverty and enhance financial inclusion. Unfortunately, many reviews of African country WRSs have concluded that anticipated benefits are not accruing to smallholder farmers. Given the theoretical case and positive experience elsewhere, this paper meticulously reviewed reports that WRSs are not working in the interest of African farmers to identify the challenges. Then, several scenarios in respect of use of WRSs were formulated and analysed for Ghana and Uganda. Scenarios include paying/not paying collateral management fees, grading/not grading maize, using/not using warehouse receipts (WR) as collateral, using community warehouses, etc. Malawi and Zambia are also discussed. The paper concludes that the potential for positive impact of WRSs on the lives of smallholder African farmers exists. However, it is necessary to structure WRSs to suit the situation of smallholder African farmers. The key to profitably implementing WRSs in Africa is not to blindly replicate WRSs as implemented in other jurisdictions. Important African specific context ingredients include focusing on community warehouses rather than commercial warehouses, not focusing on grading of grains and not implementing full-scale collateral management arrangements. Keywords: warehouse receipts, smallholder farmers, Africa, Ghana, collateral management fees, community warehouses