value chain finance vreideselanden gerda heyde 091202

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Vredeseilanden

Facilitating Access to Finance for Sustainable

Agricultural Chain Development

Workgroup Social Economy ATOL

December 2, 2009

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Content

a) Value Chain Financing- Financing needs- Different actors - Modes of interventions

b) VE’s policy- Principles + Objectives of VE’s policy- Strategies: 7 axes- Grants Vs Credit- Conclusions

Case: APROVAG - Senegal

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Value Chain - Bananes APROVAG

GIE de producteurs

Consommateurs

APROVAG

3 grossistes

- Dakar, Touba, Kaolack

Demi-grossistes

Détaillants

Intermédiaires

CoxeursTransformatrices

urbaines

Transformatrices

rurales

Financing NeedsChain Phase Activity Type of credit

Input provisionPurchase of inputsEquipment

Short term (< 1yr) revolving fundMedium term

Production Growing/ maintenanceShort term (<1yr) revolving fund

Gathering and storage

Cash purchasesInfrastructure

Short term (1yr) revolving fundMedium and long term

Processing

Infrastructure

Medium and long term Equipment

Processing costs Short term (1yr) revolving fund

Marketing/trading Working capital Short term (1yr) revolving fund

Export Export costs Short term (1yr) revolving fund

Retailing

Working capital Short term (1yr) revolving fund

Investments MT and LT loans

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• Interdependency of the different stages – see terms of payment at different stages

• Several short term financing needs• Medium and long term financing

needs for investments

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Two type of actors finance the chain:

• Finance institutions- Microfinance institutions- Commercial banks- Agri-development agencies- Specialised investment funds

- Private sector chain operators = embedded finance

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Rural finance history

• 60s & 70s – agricultural financing parastatals

• 80s & 90s – SAPs and collapse• Funds Re-directed to micro-

finance institutions

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Microfinance

• Increasingly reaching poorer populations

• Including a broader range of services – loans, insurance, remittances,…

• Gradually moving from donor funding to private capital

BUT : • Quasi only small amounts + short

term !!!• Hardly available for agriculture (6%)

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Commercial banks

• Increased liquidity• Renewed interest of the political world for

agriculture• Donor interest to involve commercial banks in

agrifinancing (e.g. USAID, Action-Aid,..)

BUT

reluctance to finance agricultural production due to:- High transaction costs- Seasonality- Vagaries of weather- Pests & disease,…

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Value Chain Financing

• A bridge between financial and product/market orientation

- Considers all chain actors and their services, constraints, opportunities, demand etc.

- Considers Financial Institutions(FIs) and the range of products, constraints & opportunities

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VCF – financial sector actors

Chain Phase Type of credit Chain actor Credit Provider

Input provision

ST(< 1yr) revolving fund

Farmers MFIs , SACCOsMiddlemen, Money lenders

ProductionST (<1yr) revolving fund Farmers

MFIs, SACCOs,MiddlemenMoney lenders

Gathering and storage

ST (1yr) revolving fund

Farmers' organisations

SACCOsLocal FI Higher level FIs e.o. through warrantage

Processing

MT and LT FO

Local FI (Few International FI)

Local FI (Few International FI)

ST(1yr) RV Local FI

Marketing/trading ST(1yr) RV FO Local FI, SACCOs

Export ST(1yr) RV FO Local FI, International FI

Retailing

ST (1yr) RV FO Local FI

MT and LT loans FO Local FI

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VCF - Embedded finance - private

Chain PhaseType of credit Chain actor Credit Provider

Input provision

Short term (< 1yr) RV

Farmers + FOSME + larger companies

SME + larger companiesTraders’ credit

Production ST(<1yr) RV Farmers Contract farming

Gathering and storage

ST(<1yr) RV

Group of interest; Farmers' organisations *

Warehouse certificates /Warrantage

Processing

Medium and Long

term FOSME + larger companies

Local FIFew Intern. FICommercial banksLeasing

ST(<1yr) RV Local FI

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VC + private sectorChain Phase

Type of credit Chain actor Credit Provider

Marketing/trading ST(1yr) RV

FO + SME + larger companies

Trader credit – via commercial bank financing

Export ST(1yr) RV

FOSME + larger companies

Trader credit – via Commercial bank financing

Retailing

ST(1yr) RV

FOSME + larger companies

Local FICommercial banks

MT and LT loans

FOSME + larger companies

Local FICommercial banks

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Case of APROVAG

• Farmers obtain loans from the APROVAG mutuelle

• GIE, members of APROVAG obtain credit from CNCAS for purchase of pumps + irrigation equipment

• APROVAG has introduced files with 2 commercial banks for the following, with support of the clients/wholesalers :– Refrigerated truck– Cold storage facility

• Wholesalers/ semi-wholesalers access commercial ST credit and pay cash

• Retailers obtain MFI credit

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Conclusions (1)

• Diversified range of partners (broader than the MFI sector)

• Interdependence between the different stages

• Important role for private sector chain actors (direct financing, collateral and moral guarantee, go-between)

• Issue of indirect targeting

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Conclusions (2)

Short term credit:

• Access to short term production credit for farmers = often available from MFI (especially if CFOs act as go-between)

• Access to short term credit for the CFO – SACD activities is only partly secured by MFIs ; commercial banks are also intervening, but need good track record + business plans + guarantee or collateral

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Conclusions

Medium Term Credit

• Difficulties to access financing for medium term investments (processing equipment, construction,...)– Amounts too big amounts for MFIs– Amounts too small for institutional investors

e.g. BIO– Projets are too poorly designed to interest

commercial banks (business plans, collateral, management capacities,...)

– Not in the core mandate of social investors such as Incofin, Alterfin

• Financing + guarantees are available for Fair trade (with guarantee from importer), almost not available for local trade

• Situation is particularly difficult in Africa

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VE ‘s Policy

Facilitating Access to Finance for Sustainable Agricultural Chain

Development

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The Principles

• Link between rural finance and sustainable agricultural chain development – mutually re-enforcing

• Search for new partnerships and opportunities for financing – pioneering, experimenting

• Rural finance administration is a specialization. VE will only facilitate access to credit or create linkages

• Gender mainstreaming – beware of weak position of women, how credit/SACD may re-enforce

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The Objectives of VE

• Organized family farmers have access to appropriate financial services

• Are consequently strongly positioned in sustainable agricultural value chains.

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The Strategies (7)

• Capacity development of OFFs• Promote the strengthening of capital

endowment of OFFs.• Optimize existing financing mechanisms

within the chain development.• Stimulate partnerships with FIs (MFIs,

banks)• Develop risk mitigation mechanisms for

financial operations within the SACD.• Promote and advocate for the scaling up • Lobby & advocate on issues related to

rural finance and SACD

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Mode of Intervention Grant Vs Loans

3 Modes of intervention:

• Grants• Grant +Loans• Loans

+ Grey Zone

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Thank you for your attention !