review of warehouse receipt system and inventory credit initiatives in ...

each with 2 members on the Board, and each country with at least 5 members (of all kinds) is
entitled to a country representative.
EAGC has established a system for certifying warehouses to receive grain deposits and issue
transferable warehouse receipts. A conventional set of certification criteria has been
developed covering capital adequacy, insurance cover etc. Certification is provided on the
basis of documentary information and the due diligence of inspection companies –
requirements are set out in http://www.eagc.org/warehouse_Rules_protocols.asp . The
problems of bank support, often the bane of nascent WRS, appear to have been largely
overcome, as one bank has already committed to the product while a further four are
interested.
Notably Equity Bank 20 has invested time and energy in understanding the WRS, developing
policies and procedures, and training at branch and head office level. Equity does not require
borrowers to put up guarantees additional to the warehouse receipt, and claims to turn round
credit applications in three days. One of the other banks mentioned as a constraint the fact
that WRs were not title documents and feared that disputes would end up in Court; they want
there to be legislation to address this. However, EAGC has checked with legal experts and
banks, concluding that it is not urgent to have an enabling Act.
EAGC certified the first warehouse site in April 2008. This is a 50,000 tonne silo facility in
Nakuru, belonging to NCPB and leased to Lesiolo Grain Handlers which acted as operator.
The post electoral violence caused supplies to be short in 2007/08, but Lesiolo took in about
1,000 tonnes of deposits of maize, mainly from smallholder farmer groups. Warehouse
receipts were issued for 100 tonne lots, and Equity Bank provided finance against some of
these. The crop was easily sold resulting in depositors making an average profit of KSh 600
per bag (over $100 per tonne).
As a result of Government interventions, no deposits were made after the 2008/09 harvest.
Notwithstanding, other operators are seeking to get certified with a view to taking deposits in
the 2009 harvest, some as ‘private warehouses’ that would issue WRs against their own grain.
The most significant development is an opening with NCPB, which is rethinking its role in
the light of the financial difficulties which have emanated from its previous interventions. It
is considering separating its trading and warehousing activities and operating its sites as
EAGC-certified warehouses.
Main conclusions: The establishment of EAGC makes sense in terms of market
requirements and the underlying political economy. While providing for the development of
modern market institutions in the Region, it helps stakeholders establish a dialogue with
Governments that gives greater weight to issues that affect the longer term development of
the grain industry vis-à-vis Governments’ immediate political concerns.
Due to the political situation and policy constraints, it is taking much longer than hoped to
establish the WRS in Kenya. However EAGC has achieved solid progress, and it is to be
hoped that donors will continue supporting long enough for the political situation to stabilise,
20
This relatively new and innovative player has 106 branches and 3.2 million clients in Kenya, and 30 branches
and 300,000 clients in Uganda. It has did KSh 1.5 billion (over US$ 20 million) in agricultural production
lending in 2006/07, some of it to producer organisations, and this made it aware of the need for complementary
post-harvest financing.
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