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Agric crowdfunding operators warn Nigerians against scams, pool N20bn for investment

By Femi Ibirogba, Head, Agro-Economy
24 February 2020   |   3:20 am
Nigerians have been warned to avoid traps of scammers in the name of agricultural crowdfunding platforms offering unrealistic return on investments. Operators have also said that since inception of the innovation

Onyeka Akumah, CEO, Farmcrowdy

Call on SEC, CBN to regulate the sector

Nigerians have been warned to avoid traps of scammers in the name of agricultural crowdfunding platforms offering unrealistic returns on investments.

Operators have also said that since the inception of the innovation, the platforms have sourced about N20 billion for agricultural investments using the power of the crowd.

To farmers and other industry players, the platforms provide a veritable cheaper and less cumbersome agricultural financing, as against the lukewarm disposition of commercial banks to agricultural facilities.

However, described as new ‘wonder banks,’ some self-acclaimed agro-tech crowdfunding scammers have jumped into the train, offering larger-than-normal interest rates for investors apparently to defraud unsuspecting Nigerians.

With a promise of about 50 per cent return on investment, professionals describe such offers as unrealistic if profit is shared among the platform, the farmer and the investor.

It will be recalled that MMM and other networking platforms wrecked financial havocs on unsuspecting Nigerians, leaving losses and indebtedness in their wake before the regulatory authorities intervened.

One of the operators and Managing Director of Agrecourse Integrated Services, Mr Ayoola Oluga, admitted that currently, it is difficult managing the space.

Ayo Arikawe, ThriveAgric CTO

However, he suggested that some of the things that prospective agricultural investors through tech-based platforms could do to avoid being defrauded are “to find out the people (directors) behind the company and ascertain their credibility; find out how long the business has been in existence and how many successful payouts have been done; how the company mitigates against possible risks (insured or not); and look out for consistency.”

Oluga also gave a hint, saying, “Many scammers are not usually consistent. If they tell you A today, they will probably tell you B next week. Get the company to explain what they invest in and how they operate.”

On the need for intervention of regulatory agencies in the control of agro-tech crowdfunding players for public confidence and assurance, Oluga agreed that it is high time the government stepped in.

“I believe regulation will help to separate the scammers from the real platforms. However, the regulatory bodies should not be too stringent to the point that it will be difficult for most of the real platforms to operate,” he suggested.

He revealed that agro-tech crowdfunding platforms could have “Probably sourced around 20 billion” for farm investments in the country.

Head, Agriculture Micro Credit, Leadway Assurance, Mr Ayo Fatona, emphasised the importance of agro-tech companies, saying, “They contribute to food security efforts of the nation by providing alternative sources of finance to farmers engaged in food production. The business operating models also ensure the farmers have access to market and modern forms of agricultural practices through farm extension services.”

Sweet potatoes

He, however, warned that investors should look for possible red flags when investing through these platforms in order to secure and protect their investments both in the long and short runs.

One of such red flags, Fotona said, is “The offer to pay outrageous ROIs by these Agritech platforms. An offer to pay 50 per cent on maize investment for a six-month period based on the business operating model looks unrealistic on the basis of existing production models.”

He cautioned that agricultural venture is a real business with its inherent peculiarities, “and any return on investment above 30 per cent on crop investment with a life cycle and a six-month moratorium looks pretty unrealistic.”

He insisted that the return margin must be realistic and investors are advised not to part with their hard-earned financial resources by investing in agro-tech platforms because of the offer of highly outrageous returns within a short period.

The risk specialist warns, “We could say that 50 per cent ROI for maize production in 12 months is reasonable and achievable as there is the possibility of running three full cycles in a year for short maturing varieties. Investors are advised to request for the operating business models for appraisals.”

One of the operators in the crowdfunding space, Founder and Chief Executive Officer (CEO) Farmcrowdy, Mr Onyeka Akumah, told The Guardian that, “At this time, there is no regulation for crowdfunding but a roadmap for one is in the works. Once that has been finalised, the investing public will have all the information they need to be able to identify platforms they can trust.”

He argued that “Innovation always goes ahead of regulation and Nigeria is no different with platforms like ours where we innovated at Farmcrowdy with a new model to fund small-scale agriculture using the power of the crowd.” 

He, however, admitted the need for the public to be cautious and regulatory authorities to control the operating space to save the investing public from fraudsters. “Yes. There is a need to regulate the space,” Akumah agreed.

Another sector player, who is the Co-founder and Chief Technology Officer (CTO) of Thriveagric, Mr Ayo Arikawe, said the public should verify platforms before investing their funds on any crowdfunding platform.

Verifications could be done by conducting due diligence around owners and managers of such platforms, farms in which they invest, their off-takers and insurers, he said, pitching his tent with Oluga.

Arikawe said, “I think basic due diligence should start from checking out the team; probably visiting the farms themselves; how long they’ve been doing this, and their [managers’] backgrounds. Also, investors might want to go through the hard work of looking out for consistency in communication among other things that help guts judgment.”
Things to look out for before investing through agro-tech platforms

From the operating business model of the existing agro-tech platforms, the business flow is that funds are crowded from the investing public and deployed into specific farm projects, produce trading through off-taker agreements and processing.

As a risk management strategy, the agribusiness projects are insured, and as a safeguard, investors are advised to request for the policy numbers of their previous projects insured for confirmation before investment decisions are made on the platform.

Another means of monitoring after investing is to request them to furnish you with the policy number of the new project after the window closes.

Investigation by The Guardian revealed that 23 of the existing agro-tech investment platforms are insured by Leadway Assurance.

Investors are also advised to request for the physical inspection and or visitation to the site of the agricultural projects further verify what the platform is doing with the funds.

Risk analysts also advised that investors to demand the profiles of the executive management of the operators of these agro-tech platforms to ascertain their pedigrees, skills, competence and capabilities in handling investments in the agricultural value chain, saying platforms with boards of trustees are better.

“If they have been existing for more than one year, ask for their financials. Ask that the testimonies of previous investors should be uploaded on their websites and social media handles with their full names and social media handles.

“Finally, it is advised that the agro-tech companies playing in this space should push for regulations from the Federal Government to check the activities of scammers who may want to put a spanner in the works of those with genuine intentions,” Fatona advised.

Also, Executive Director, Leadway Assurance, Mrs Adetola Adegbayi, during a forum on modalities of crowdfunding platforms, warned the public that insurance coverage for the platforms did not indicate a guarantee of their return on investments, but an assurance that the capital invested on the farm is assured if unforeseen circumstances, such as natural disasters and fire, destroy the farms and hence, erode the capital.

Opportunities for youths in agribusiness
Akumah said as an important engine of economic development, agriculture has created many opportunities for the youth through jobs in agri-business, apart from just farming.

He explained, “Agricultural are prospects well known such as engagement in the value chain, technology, service provision for agricultural activities, and research are all that is required to switch from considering agriculture simply as a subsistence production to one that can accommodate our swelling youth population in a number of ways both on and off the farm.”

Arikawe supported this view, saying, youths can “use machinery, drones, and other available innovations.”

He added that there are opportunities to act as aggregators for produce, input suppliers and even offering agronomist extension services to farmers, saying, “The agricultural value chain is one that consistently has a number of opportunities to plug.”