Making Agriculture Finance a Profitable Business

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30 Νοε 2013 (πριν από 3 χρόνια και 6 μήνες)

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Making Agriculture Finance a
Profitable Business

Nwanze

Okidegbe

Consultant


17
th

AFRACA General Assembly

Kinshasa,

Democratic Republic of Congo

November

24, 2010

1

The World Bank

Background


Millinium

Development Goal 1 (Poverty and
Hunger) and Food Security cannot be achieved
without agriculture


Agriculture is engine of growth for many
economies in Africa and major source of
employment


Agriculture is the main source of foreign exchange


Agriculture Finance is profitable for many banks in
Armenia, Kyrgyz Republic, Thailand, etc, it can
also be profitable for African banks


2

Understanding Agriculture Sector


Key Players:


-

Subsistence Farmers


-

Smallholder Farmers


-

Medium
-
scale farmers


-

Large
-
scale farmers



-

Agribusiness/food systems (SMEs and large
enterprises)

3

Understanding Agriculture Sector

Continued….


Major Agriculture Financing Needs:


-

Short
-
term loans (inputs, agric. Trade, storage, etc)


-

Term loans (tractors, harvesters, processing
equipment, tree crops, irrigation schemes, trucks,
etc.)

4

Understanding Agriculture Sector

Continued….


Agriculture Financing Challenges:


-

Risks ( weather, post harvest losses, pests, etc)


-

Policies ( price controls, subsidies, etc)

-

Bankable Collaterals


-

Lack of access to markets


-

low agric. Productivity of small
-
scale farms

5

Fundamentals for Making Goods Ag. Loans


Sound Appraisal


Sound Institutional Capacity


Control of Operating Cost


Risk Management

6

Sound Appraisal of Agriculture Loans


Careful assessment of ability to repay


Risk assessment


Assessment of collateral or collateral substitutes


Market assessment


Assessment of policy and legal framework

7

Sound Institutional Capacity


Staffing and training


Good agriculture lending policies and guidelines


Effective supervision and monitoring


Management oversight


Internal controls
-
checks and balances


8

Reduction of Operating Costs


Group lending for smallholder farmer


Mobile banking


Trade
-
based lending/repayment system


Lending through producer cooperatives


Out sourcing arrangements

9

Risk Management


Loan diversification within agriculture portfolio
( across crops, regions and scale of operations)


Effective risk mitigation plan


Use of crop and drought insurance


Risk
-
based pricing, especially for small loans


Use of biometrics to identify borrowers


Use of credit
-
risk sharing arrangements among
produce buyer, lender and borrower

10

World Bank Initiative: Agriculture Finance
Support Facility


Vision
-

Significantly increased access to financial
services for smallholder farmers in Africa and Asia


Objective
-

Demonstrate that the provision of
financial services for smallholder farmers and other
rural entrepreneurs is a profitable business for
banks


Activities
-

Provide matching grants for capacity
building and facilitate knowledge creation and
learning

11

Why
AgriFin

?


Globally, few financial institutions have lending for
agriculture as a business line


Provision of financial services in rural areas costs
more compared to provision in urban areas because
lower density of economic activity


Financing of agriculture further constrained by
unique and covariant risk such as weather and pests,
and limitations of land as a collateral


Finally, perceptions of risk often higher than actual
because of inadequate domain knowledge

12