Blended finance: a case of innovative partnership in Burkina Faso’s critical cotton sector
Cotton is the main cash crop in Burkina Faso. The cotton sector provides a livelihood for more than 3 million people, and is the largest employer and the second largest foreign currency earner in the country. However, shifts in global demand and commodity prices have made it difficult for cotton companies to secure financing. This threatens the economic development of Burkina Faso, a country that recently went through political unrest.
In January 2016, three partners signed an agreement to provide a second €70 million trade facility to Burkina Faso’s largest cotton exporter, Société Burkinabè des Fibres Textiles (SOFITEX). This facility was jointly planned by the International Finance Corporation (IFC), a member of the World Bank Group; the Global Agriculture and Food Security Program (GAFSP) through its private sector window; and the bank Société Générale. These three very different partners shared a goal: to extend a lifeline to Burkina Faso’s agricultural sector and contribute to a reduction in rural poverty.
The €70 million facility will allow SOFITEX to purchase raw cotton for processing from more than 160,000 Burkinabe farmers and export the production to international markets. Through the facility, IFC, GAFSP and Société Générale will lend to SOFITEX against warehoused commodities, providing the company with liquidity to finance its crop purchases. It follows a similar investment in 2015, which helped to secure the export of a record 750,000 tons of cotton and to preserve the livelihoods of 160,000 farmers.
Aliou Maiga, IFC Regional Financial Institutions Group Head for Sub-Saharan Africa, said, “IFC’s partnership with SOFITEX demonstrates our confidence in Burkina Faso’s cotton sector and our commitment to support the economic revival of the country following a difficult period. Working with local farmers, suppliers and distributors, SOFITEX is playing a leading role in job-creation and rural incomes.”
Donor partners to the GAFSP private sector window are Canada, The Netherlands and the USA. GAFSP funding makes it possible for IFC to invest in riskier projects with strong potential to promote food security and reduce poverty. According to the GAFSP’s website, this project is under its Global Warehouse Finance Program (GWFP), which lends or provides risk mitigation solutions to banks in low income countries. These banks in turn provide loans to small farmers and small businesses, which are backed by the harvested goods farmers deposit in warehouses.