Improving Financial Inclusionof Smallholder Farmers

Conference Report

October 15th-16th, 2015, Milan, Italy

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Opening the International Conference on “Improving Financial Inclusion of Smallholder Farmers”, I would like, first of all, to express my deepest gratitude to the speakers and moderators who, with a spirit of friendship, accepted to share their expertise and skills. Special thanks to Professor Claudio González-Vega who, with his vast experience, kindly accepted the responsibility of showing the direction of these two days of work during his opening speech.

I would also like to thank all eminent personalities present here today and express my special gratitude to Cristina Tajani, Councillor of the Municipality of Milan, representing the mayor. This is also the opportunity to thank Giuseppe Guzzetti who, with his experience and sensibility for social activities, followed during the-se years Fondazione Giordano Dell’Amore with attention and sympathy. These thanks are extended directly to our founder and co-founders: Fondazione Cariplo, chaired by Mr. Guzzetti, Fondazione CRT and Compagnia di San Paolo for their support, advice and motivation.

My last thanks go to our sponsors, and, among them, to Intesa Sanpaolo who, as in the previous editions, supported the burden of the Award.

But, why this conference? Basically, there are two motivations which have guided us.

The first one is related to our own mission: help, support and stimulate the growth of institutions which, at different levels and in different ways, deal with microfinance and inclusive finance. We do this in various ways, especially by offering educational opportunities of meeting and exchanging between various institu-tions such as the ones gathered here during these two days of work and reflection. The Award linked to this conference also has the same purpose: share best practices and offer to the operators the opportunity to compare successful and tested models.

There is also a second motivation: to keep alive the memory of Professor Giordano Dell’Amore, after whom our Foundation is named. Disappeared 34 years ago, he was at the same time a great economist and a renowned banker. His main characteristic, marked by a deep technical competence, was to consider finance -and hence the bank- as a social inclusion instrument and a driver of development (not dedicated to profit as observed with the financial crisis). Evolving in a culture of social inclusion not only in Italy but also abroad, Professor Giordano Dell’Amore was convinced that the autonomy of young democracies needed strong and competent financial structures. Hence he created FINAFRICA to offer professional trainings for banking and financial operators from newly independent African countries; and he encouraged his colla-borators to create solid financial structures in those countries, based on the model of savings banks. The theme of this conference as well as the two days of work and reflections point in the same direction, that is, the spirit that guided Professor Giordano Dell’Amore.

Why this conference?

Federico Manzoni, President, Fondazione Giordano Dell’Amore

Improving Financial Inclusion of Smallholder Farmers

Opening keynote speech

Financial inclusion of smallholder farmers: state-of-the-art and challenges

Plenary

Round table with the finalists of the Microfinance Best Practices International Award 2015

Workshops

Improving effectiveness of technical assistance programmes for the benefit of smallholder farmersRemittances: are right tools for smallholder farmers? Community inventory credit (or warrantage). Which alliance between farmer’s organizations and microfinance institutions? The case of Burkina FasoMaking savings products work for smallholder farmers Investing in women farmers to transform the agricultural systemAgriculture-specific loan products targeted to smallholder farmers

Plenary

Partnerships as a tool to improve financial inclusion of smallholder farmers

Award Ceremony

Giordano Dell’Amore Microfinance Best Practices International Award

Keynote speech

Understanding the actual financial behaviour of smallholders: insights from the Financial Diaries

Workshops

Digital financial services: reality and promises Scaling-up index insurance for smallholder farmers: potentialities and challenges Exploring opportunities to introduce or expand value chain finance

Plenary

Prospects for the future of smallholder farmers’ financial inclusion

Closing Remarks

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The importance of smallholder farmersin global agriculture2015 is the target year for achieving the Millennium Devel-opment Goals (MDGs), the eight global development objec-tives agreed on by countries worldwide and all the world’s leading development institutions. The first of these MDGs is a commitment to eradicate extreme poverty and hunger: to achieve this, agricultural development is critical as more than two billion people worldwide, among the poorest, depend on agriculture. According to the United Nations1, while the proportion of un-dernourished people in developing regions decreased from 23.2 per cent in 1990–1992 to 14.9 per cent in 2010–2012, there are still 870 million people—one in eight worldwide—suffering from hunger. With such a number of undernourished people and a growing global population, it is expected that the demand for food will continue to increase. At the same time, food price spikes in recent years have intensified global concerns about current levels of agricultural production. These trends have increased the general interest on agricultural de-velopment, and in particular on smallholder farmers, which

play a key role in increasing food supply in poor countries, more than large farms, and increasingly supply large compa-nies and corporations with inputs for their products. Smallholders generally constitute the vast majority of farm-ers in most countries, and they account for 60% of global agriculture, provide up to 80% of food in developing coun-tries, manage vast areas of land (farming some 80 per cent of farmland in Sub-Saharan Africa and Asia) and represent the largest share of the developing world‘s undernourished2. De-spite their socioeconomic importance, a study commissioned by the Bill & Melinda Gates Foundation, showed that out of the 2.6 billion people living on less than $2 a day, about 600 million people are smallholder farmers.

Description of smallholder farmersFor the purpose of this Award, «smallholder [farmers] pro-duce food and non-food products on a small scale with limited external inputs, cultivating field and tree crops as well as livestock, fish and other aquatic organisms»3. The concept includes those who cultivate small farms primarily dependent on household labour and rainfed; but also breed-

Improving Financial Inclusionof Smallholder Farmers

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ers, fishermen, pastoralists, agro-foresters and artisanal fisher folks. Farmers belonging to this category can be marginalized in comparison with other farmers according to different fea-tures such as land size and/or land quality, capital and assets, access to technology and information systems, use of exter-nal inputs or number of (employed) workers.In addition, there is a great variety within smallholder farm-ers. The majority of them can be considered subsistence farmers who produce mostly for household consumption; their access to land, inputs and information is very limited and they usually enter informal, local markets as buyers of food and sellers of labour, with high vulnerability to chang-es in income and other shocks. Another significant group is composed by those smallholders who can access somewhat more land and, although with limited access to inputs and information, they are connected to loose value chains through which they can sell some surpluses in informal local or regional markets. A small portion of smallholders include relatively larger producers connected to more structured value chains where they can access better inputs, informa-tion and secure markets and prices.

Constraints faced by smallholder farmersDespite the initiatives and the investments carried out to improve their situation, smallholder farmers still have to deal with several constraints. Some of them are often beyond the control of smallholder farmers: poor rural in-frastructures (roads and communication); uncertain legal environment (e.g. modern and traditional rules on land);

very thin or deficient markets for services and agricultural inputs and outputs (marketing of agricultural products); as well as inadequate extension services, water manage-ment, and Research and Development (R&D) support. These external constraints worsen the typical hurdles small-holder farmers face, such as limited access to markets for their products, limited power to negotiate prices and low productiv-ity. In particular, smallholder farming practices’ productivity is constrained by a lack of access to optimal inputs and adequate technologies, owing to, among other factors, limited or no access to finance. That is due to a variety of reasons, often interrelated: smallholders typically lack financial literacy; poorly defined property rights often prevent the use of cultivated land as collateral; the cost of credit in developing countries is high, especially if we are dealing with long-term credit, more suitable for capital investments. Facilitate access to capital and other financial products plays an important role in the overall strategy to improve the produc-tivity of smallholders, their livelihood and food security while promoting improved agricultural yields. In addition, other finan-cial services such as insurance and saving products may reduce the risk of external shocks, smooth cyclical cash flows of farm-ers and help them manage their farm as a viable business.

MFIs and smallholder farmersWhile microfinance institutions (MFIs) were successful in devel-oping techniques to provide financial services to low-income cli-ents without traditional collateral, rural areas and smallholder farmers are still underserved by the microfinance industry.

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Applying proven microfinance lending techniques directly to smallholder farmers has turned out to be difficult; therefore lending to smallholder farmers requires MFIs to move away from or adapt the very criteria that have proven successful in mitigating credit risk to low-income populations, which as such carry with it the perception of higher risks. In addition, MFIs are exposed to further risks and costs inher-ent to agricultural finance, such as:

� Production & yield risks. Extreme weather events, such as severe droughts or heavy floods, can destroy an entire yield and thereby a whole year’s work. But also minor wea-ther events such as irregular rains (either late rains or rains during harvest time) as well as pests and other plant disea-ses can severely affect yields. Climate change tends to exa-cerbate the negative effects of these events.

� Market & price risks. Agricultural prices, and therefore smallholders’ incomes, fluctuate heavily and are hardly pre-dictable, as they are the result of the actual (national and worldwide) supply at the time of harvest, which in turn depen-ds on local and global weather and market variations. A lack of storage possibilities, e.g. warehouses, adds to the problem, because smallholders often have to sell their crop at a low price during the harvest season and cannot wait until prices rise again. This leads to two major problems for MFIs. Firstly, agricultural production often leads to low yields, which increa-ses the default risk. Secondly, there is a relatively long period between the decision to plant a crop or start a livestock busi-ness and the actual realisation of farm output.

� Risk related to loan product design. Inadequate loan product design (e.g. loan amount, repayment schedule,

etc.) can create additional credit risk. The scarcity of long-term financing for investing in fixed assets and cash crops with long gestation periods is an often-cited factor inhi-biting greater productivity and profitability in smallholder agriculture. Yet, short-term working capital loans dominate the portfolios. Financial institutions often require land or other fixed assets as collateral for agricultural loans, thus excluding a large percentage of agricultural producers from access to finance.

� Covariant risks. Financial service providers face liquidity management and concentration challenges due to the fact that farmers in the same area generally borrow at the same time and often engage in the same activities, and are there-fore exposed to the same risks.

� Political and social risks. Political instability, weak pro-perty rights and legal systems, higher incidence of poverty among smallholders, low education and financial literacy le-vels, greater difficulties in dealing with illness, accidents and other lifecycle risks.

Moreover, delivering financial products and services to small-holder farmers is more difficult and characterised by higher transaction costs than providing finance to clients who live in urban and peri-urban areas. Indeed, many smallholder farmers live in rural areas characterised by relatively low population density, which increases the time providers must spend to reach these clients and also contributes to addi-tional operating risks, such as those associated with loan of-ficers transporting cash over long distances or infrastructure constraints such as poor road conditions and lack of reliable electricity and connectivity. Human resources requirements

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are also a constraint for direct-to-farmer finance providers. As providers expand into rural areas, they often find it dif-ficult to recruit appropriately skilled staff, particularly at mid-management levels, given the relatively low education levels of many rural populations. When a provider’s staff lack the necessary combination of both finance and agricultural exper-tise, it is more difficult for the provider to develop appropriate products and make informed lending decisions.

Financial inclusion of smallholder farmersAs reported above, challenges to improve financial inclusion of smallholder farmers are numerous and well documented, and to overcome them, an MFI requires careful planning, prepara-tion, and adaptation of systems and resources. It clearly goes beyond introducing just another product: it requires high-level management commitment, setting realistic growth targets, and being ready to adjust terms and practices. Moreover, it is es-sential to recognize that smallholders have various financial needs giving rise to a wide range of required financial services, including credit, insurance, savings, and payments.Financial providers apply various good practices to overcome the challenges mentioned above:

� Offering agriculture-specific financial products: seasonal loans; asset-based financing to access more expensive pro-ductive assets such as livestock, irrigation systems, and

vehicles; agriculture-focused commitment savings products. � Developing tools to better manage agricultural and livestock risks, such as insurance (including both index-based crop and weather insurance and, in the case of asset-based financing, asset insuran-ce) and warrantage systems.

� Providing technical assistance: training or market access support (directly or outsourcing); assistance for a more effi-cient farming, storage, distribution and marketing technology and techniques.

� Interacting with smallholders through groups to decrease the costs of reaching smallholders and lower the default risk.

Apart from these practices, today more than ever new glob-ally recognised strategies to improve financial inclusion of smallholder farmers relate to the financing of value chains and distribution channels at lower costs.Explore opportunities to introduce or expand value chain fi-nance. Value chain finance could be used both to serve the smallholder farmers already connected to value chains (“miss-ing middle farmers”) and to reach larger groups of smaller farmers more efficiently by, for example, integrating them into value chains or by lending to them through a larger buyer.Explore lower-cost delivery channels. Agent and ATM net-works, mobile phone banking and debit cards can all be used to reduce the costs of lending to rural and agricultural clients, while making it easier for clients to access financial services.

1 United Nations (2013), The Millennium Development Goals Report 2013, United Nations, New York.2 IFAD (2012), Adaptation for Smallholder Agriculture Programme (ASAP) - Programme Description, IFAD, Rome.3 IFAD/UNEP (2013), Smallholders, food security, and the environment, IFAD, Rome, p. 10.

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Financial inclusion of smallholder farmers: state-of-the-art and challenges

Speaker: Claudio González-Vega, Professor Emeritus, the Ohio State University and Chairman of the Board of Trustees, BBVA Microfinance Foundation

During his keynote speech, Professor González-Vega analysed the main characteristics of financial inclusion of smallholder farmers, the challenges faced by the actors involved (NGOs, Foundations, International Organisations, Private Organisa-tions, etc.), and the main difficulties they have to overcome to improve the economic and financial conditions in rural areas.

He started acknowledging that financial inclusion shows a number of gaps when we look at rural areas and the provi-sion of financial services for agriculture activities: unequal access (breath), exclusion of the poor (depth), narrow range of services (variety), products do not match demand and cir-cumstances (quality), non-optimal interest rates plus high transaction costs (cost), and fragile institutional sustainabil-ity (permanence).

Professor González-Vega underlined that we have gained a lot in terms of financial inclusion through microfinance but it is not sufficient and we need to move forward towards access to efficient institutional finance services that matter for key socio-economic policy objectives (food security, pov-erty alleviation, and environmental protection) eliminating/reducing/avoiding a number of traps faced by smallholder farmers among which poverty-hunger and environmental

degradation traps. Lack of access to efficient institutional finance services contributes to poverty and hunger which, at the same time, reduce the ability to access financial ser-vices (double trap!). The same kind of “double trap” exists between access to financial services and environmental degradation. Putting all together, Professor González-Vega emphasised that financial services are connected in a weave of multiple and inter-related traps and unless they are deliv-ered in an efficient manner to the smallholder farmers, this marginal population will not succeed.

The key point of Professor González-Vega’s speech was to de-scribe how financial services could move farmers to modern value chains. In order to do this, they have to overcome some barriers to investments: limited own resources to acquire indi-visible capital input, inter-temporal challenges, economies of scale versus small property and various forms of risk (related to natural environment, market, institutional environment, in-novation, and idiosyncratic events). Even if finance can help to overcome such barriers, it still is faced with certain barriers and especially two types of barriers which are very acute in the rural area of developing countries: distance (geographical, social, cultural, etc.) and covariance.

Geographical distance, expressed in terms of time (how long does it take to get somewhere), directly affects transaction costs for all the market participants (borrowers, depositors and financial institutions) and financial progress might bring a reduction of such high transaction costs. Based on a study conducted by the Ohio State University in Costa Rica, Profes-sor González-Vega underlined that interest rates matter very little for smallholder farmers compared to transaction costs which are like a tax and they are incredibly regressive with the increment of the loan amount. “So if you are concerned about the smallholders, then your mission in life is to reduce transaction costs” said Professor González-Vega. Distance also generates problems of information: it proves to be dif-ficult to get correct information and the cost to verify it is too

Opening Keynote Speech

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high. On this point it is important to remind that not all the farmers are the same (different location, potential, resources, and technology) and especially not all smallholder farmers are poor for the same reasons: some do not have opportunities or resources to take advantages of those opportunities, some are isolated (lack of access to information, market, public ser-vices, etc.) and exposed to different forms of risk. Moreover, not only are they different at a given moment but most impor-tantly, the circumstances of their poverty is dynamic and it changes over time. It becomes fundamental to create efficient services able to tackle their specific problems. According to Professor González-Vega, product differentiation is essen-tial to institutional finance, as financial providers should take into account the context where they operate when developing their products and implementing their policies.

Covariance is another strong issue and it represents the greatest threat because when there is a catastrophic event all smallholders suffer at the same time (systemic risk). And this is why informal finance is not that helpful and you need financial intermediation from outside in order to address this covariance issue.

There is a fundamental conflict over resolving these issues of distance (and information) and systemic risk because re-ducing the distance makes the institution much more vulner-able to systemic risk. One possible solution would be to take advantage of the proximity by bringing agents close to the clients but this requires adequate internal control and coordi-nation systems at headquarter level. Another solution would be value chains, with screening and monitoring delegated to the actors of the chain. And innovating institutions could help smallholder farmers to enter into agricultural value chains.

These innovating institutions have some common character-istics:

1) they understand the importance and the quality of value chains in terms of product development, solution of informa-tion problems, creation of compatible incentives, risk mitiga-tion, and transaction management;

2) they develop an integrated vision combining the provision of financial services, technical assistance (tool for risk mitiga-tion), and market linkage also through partnerships between different institutions;

3) they combine the highly professionalised information sys-tem components of their delivery methodology for financial services with sustaining a personalised relationship with the client.

In conclusion, Professor González-Vega, while underscoring the difficulties, is optimistic that institutional finance can help smallholder farmers to overcome the problem of financial in-clusion and create a better and more competitive system.

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Plenary

Round table with the finalists of the Microfinance Best Practices International Award 2015

Moderator: Philippe Guichandut, Head of Development and Technical Assistance, Grameen Crédit Agricole Microfinance FoundationSpeakers: Grégoire Danel-Fedou, CEO, Advans CI (Côte d’Ivoire) Tanya Hotchkiss, Head of the Office of Strategic Management, Cantilan Bank Inc. (Philippines)Anwar Fahmi Mohammad Hussein, Managing Director, Palestine for Credit and Development – FATEN (Palestine)

This session aimed at highlighting the experiences of three microfinance institutions: Advans Côte d’Ivoire, Cantilan Bank, and Palestine for Credit and Development. These institutions have been selected as the finalists of the “Giorda-no Dell’Amore Microfinance Best Practices International Award 2015” for their innovative and transferable approach to enhance smallholder farmers’ financial inclusion.

Tanya Hotchkiss described Philippines’ agricultural sector and pointed out how it employs 34% of the total labour force and contributes to 11% of the GDP. The main concern in this region is that only three out of ten Filipino households save in banks and only 4% of those who have loans borrow from banks. Can-tilan strategy is focused on providing a more efficient financial access to smallholder farmers and linking them to larger mar-kets. To achieve this, Cantilan designed the Agri Value Chain loan product that allows farmers to save better (low mini-mum amount and higher net yields), borrow better (reduced borrowing costs, loan attuned to crop cycle and based on crop production cost, bit above all the repayment due only after harvest and sales), reduce their risks (crop and life micro-

insurance but above all the product reduce the need for infor-mal credit), and become more productive. Specifically, the increase in productivity, which leads smallholders to a higher net income, is achieved mainly by delivering them technical assistance for a better planning and management of the farm-ing activities, and by attuning the product to the crop cycle which allow them to afford better input.

Anwar Fahmi Mohammad Hussein pointed out that Palestine has a low labour force participation (46,3% overall labour force participation rate but only 16% female participation rate) and a very high unemployment rate (28,5%) especially in the case of women (46,5%). Palestine microfinance sector faces different constraints starting of course from the occu-pation, segregation and movement restriction between vil-lages and cities. Other important constraints are the absence of a sound regulation, the undeveloped payment system and mobile banking as 3G and 4G telecom technologies which are not allowed, the impossibility to take savings and the high cost of funds. The microfinance institution has devel-oped a strategy based on permaculture which is connected to

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organic food, agro-ecology, herbal farming, and hydroponic for refugees’ camps to avoid land constraints. In particular, FATEN supports smallholder farmers with appropriate loan products, training and technical assistance in order to help them produce organic food and, above all, promote and sell it. Moreover, FATEN has developed various funds for its clients’ education, health, savings, and training, for example through scholarships or health insurance products. The insti-tution also places some of its revenues in social responsi-bility projects (health, social, educational and environmental aspects) and the Solidarity Fund to address the limitations of the insurance products.

Grégoire Danel-Fedou described the context of the cocoa sec-tor in Côte d’Ivoire which in 2014 produced 40% of the world production and where the majority of the population is em-ployed, even if small cocoa farmers are the poorest and more likely to be financially excluded. For these reasons, the institu-tion focused on this segment in order to increase their yields through the provision of better inputs and training on farm-ing techniques. The innovative strategy of the microfinance institution is to adopt a value chain approach and establish partnerships with actors who already know the producers, such as cooperatives, traders and input suppliers. In this way, Advans CI could face the main risks linked to cocoa financ-ing: high information and transaction costs, high risks of pests and diseases (which can lead to 80% of crop losses), lack of collateral (risk sharing mechanism) and the crop seasonality. Advans CI identifies eligible cooperatives which select eli-gible members. It disburses funds directly to input suppliers who deliver inputs to cooperatives, train producers and install demonstration plots while the institution trains the coop-eratives on how to manage the loan. Once cooperatives sell cocoa to traders, the latter deduct loan repayment from the deliveries and repay Advans CI on behalf of the cooperative. As a result, small cocoa farmers increase their yields by 50%.

The three panellists were asked to identify the innovative aspects of their projects on how to finance smallholder farm-ers. As regards Cantilan Bank, the innovation concerns the

redesign of financial products, which now targets total different markets (no more individual farmers but farmer associations) and previews direct linkage with markets and guaranteed prices. The delivery of institutional technical as-sistance has improved farmers ability to repay the loan and their planning and managing capacities. On the other side, innovative delivery models (mobile banking) did not produce the expected results. On its part, Palestine for Credit and Development-FATEN has innovated through its attention for ecology and permaculture, being the first institution in Palestine to focus on this topic. The institution creates awareness among farmers and people about the importance of organic food, which is not competitive and marketable. Other innovative issues are represented such as the diversifi-cation of the farming products to improve the land quality and reduce possible plant diseases. Moreover, FATEN decided to apply Islamic finance principles (Murabaha - sale on profit) thus giving more incentive to farmers. Finally, the innovation of the project of Advans Côte d’Ivoire focuses on the new target population and the loan product itself (especially compared to other Advans CI products) but above all, on the ability to establish effective partnerships where each part-ner provides inputs and contributes to the value chain. The in-terest point is that these roles have been modified each year, based on field observations about who is the most relevant actor to take on responsibility for such action.

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Workshop

Improving effectiveness of technical assistanceprogrammes for the benefit of smallholder farmers

Moderator: Norah Becerra, Head of Sustainable Rural Finance centre, Frankfurt School of Finance & Management Speakers: Dominique Morel, Agriculture expert, Belgian Development Agency-BTCLaurent Biot, Head of Programmes-South, SOS FaimBetty Wampfler, Professor of Agricultural and Development Economics, Montpellier SupAgroAnwar Fahmi Mohammad Hussein, Managing Director, Palestine for Credit and Development – FATEN (Palestine)

Norah Becerra opened the workshop by reminding the objec-tive: analyse the importance and the challenges of technical assistance to improve farmer’s agronomic management, finan-cial skills and their market opportunities.

Laurent Biot focused particularly on the importance of Farm-ers’ Associations (FA) as key players for reaching sustainable improvement of rural people’s living conditions, taking into consideration their socio, cultural and economic roles. Re-garding in particular the agricultural technical assistance (TA) offer, FAs can play a dual role since they can advocate to gov-ernments to provide greater and better technical assistance to farmers, locally, nationally and even at regional and interna-tional levels (e.g. ROPPA in West Africa which is advocating to on government to channel an important part of TA through FAs); FAs can also provide direct TA through government funds, donor funds or members’ contributions. Laurent Biot then presented two examples from Peru and Bolivia, where cooperatives and financial institutions work together for a sustainable management of farms, providing technical assis-tance and financial services for renewal of coffee, quinoa and cocoa farms. The results achieved by these two initiatives, as well as others, show the importance of strengthening Farmers’ Associations through TA programmes and that it is a long term process considering also the need to build alliances between FAs and MFIs. Finally Laurent Biot highlighted the importance of subsidies for TA, especially in the launch phases, and the importance of exchange of man-agement skills between farmers or cooperatives.

Betty Wampfler directed attention to the role that techni-cal assistance plays to support young farmers, who form a fundamental social category as they are the heirs of deeply-rooted family farming, which crucially contributes to food

production, income and employment. In order to prevent young people to distance themselves from agriculture and also in order to overcome the very low institutional support they receive, it is necessary to adopt a systemic approach for integrating young farmers: training, services (exten-sion, information, innovation, etc.), markets, social and pro-fessional integration, land and finance are the key factors that must be taken into account when talking about sus-tainable youth farming. Today, some governments, funders,

stakeholders, farmer organisations, and universities become aware of this challenge and begin to be involved in this kind of process. As an example, Betty Wampfler presented the partnership with AFOP, the Cameroonian national programme which provides training, counselling and intermediation with different service providers (e.g. MFIs) in order to meet the various challenges faced by young farmers.

Anwar Fahmi Mohammad Hussein highlighted the importance of conducting assessments and diagnostics to define the

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customers’ needs and hence the appropriate techni-cal assistance in terms of typology of services and chan-nels. FATEN provides financial and administrative consulting, feasibility studies and financial analysis of the project before granting the loan, and continues to provide technical services and support even after, including the distribution of materials and the provision of specific technical advice. FATEN delivers different trainings for smallholder farmers on different topics such as permaculture, herbal farming, agro-ecology, etc. The MFI also conducts awareness raising campaigns for example to promote health awareness and community health protec-tion; to enhance administrative and financial capacities for borrowers (financial literacy) and especially for entrepreneurs of SMEs to build and strength their capacities in certain areas

such as management, accounting, marketing, and to encour-age borrowers to start small savings in order to reach financial inclusion. To create the necessary awareness, the MFI uses different kind of approaches, that go from the use of social media, websites, local TVs and radios, newsletters and con-ferences, to a more practical way of interact with the clients through a door-to-door approach.

Dominique Morel presented the FFS initiative (Farmer Field School) implemented by BTC in Rwanda, which includes ag-ricultural and technical vocational trainings. The FFS initia-tive is a participatory experimentation and extension system. Key farmers are selected and trained in season long training in ToT field plot to become facilitators in order to fa-cilitate the “learning by doing” in of farmer groups (around 25 farmers) by supervising season long experiments in the FFS field plot. Beyond the positive results in terms of increased productivity and incomes, the initiative shows also some unexpected results and impacts in terms of increased the group dynamics (savings, health insurance, market linkages, new talks, etc.), the individual self-confidence and empower-ment (especially for women) and the facilitators’ knowledge. Nowadays the local-scale project has been integrated into the national strategy extension system and this entailed that the institutional setup has been redesigned decentralizing the execution to provinces, districts, and villages, and new models have been introduced in order to increase the impact. Dominique Morel pointed out three main challenges regard-ing the sustainability of the model speaking about ecological, financial and institutional sustainability.

To the question put by the moderator to know if govern-ments should be involved in technical assistance, speak-ers agreed and said that they can play an important role in terms of policy, definition of the rules, coordination but that they cannot implement technical assistance programmes. On how to motivate farmers to attend the trainings, speakers agreed on the importance to avoid to pay partici-pants for attending and to motivate them on the opportu-nities offered by the trainings, especially with data from previous experiences.

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Workshop

Remittances: are right tools for smallholder farmers?

Moderator: Francesca Agnello, Head of the Microfinance and Social Business Unit, Fondazione ACRA-CCSSpeakers: Frédéric Ponsot, Remittances and Financial Inclusion Specialist, Financial Facility for Remittances, Policy and Technical Advisory Division, IFADJean Pouit, Executive Director, MyTransfer Luxembourg SAPaula Rodriguez Rueda, Financial Inclusion and Entrepreneurship Consultant, Fundación CapitalMalkhaz Dzadzua, CEO, JSC MFO Crystal (Georgia)

Francesca Agnello opened the workshop by giving an over-view on remittances: they tripled between 2001 and 2012, reaching USD530 billion that is four times the value of Official Development Assistance. Based on her experience, she underlined that the main challenge is to deal with private flows as development assets and she pointed out two strategies: suggesting investment choic-es to remittance receivers and transforming cash-to-cash transaction into cash-to-account transaction.

Frédéric Ponsot highlighted the importance of remittances for rural households but their leverage potential depends on the local “ecosystem” including economic opportunities, financial and non-financial services providers, and on the characteristics of households (economically active or de-pending on remittances), as well as frequency and amounts received. Analysing the migrants’ remittances cycle (the lack of income-generating activities create migration and hence remittances mostly used for non-productive expens-es), it appears that it will continue to create an increasing

dependency unless it is broken. To this purpose, IFAD’s idea is to leverage local opportunities by improving economy re-silience and opportunities at local level for rural households in order to increase savings, assets building, investments, and jobs. Remittances have a positive impact on poverty as they help covering basic needs; on vulnerability by helping to cope with unstable/seasonal incomes and unforeseen expenses/risks; on wealth by helping people buy inputs and assets; and on financial inclusion by increasing disposable income and saving/repayment capacities, and by generating repeated interactions with regulated financial institutions. To maximize the impact of remittances, IFAD developed three areas of intervention, namely access (strengthen the rural remittance payment infrastructures), use (promote effective use of a diversity of financial services), and in-vestment in local opportunities (promote investment of migrants and households savings).

Paula Rodriguez Rueda presented the Assets & Connections project implemented in Colombia, Peru and Bolivia to miti-gate the negative effects of the financial crisis on the flow of remittances and to generate some kind of behaviour changes to reduce high dependency on remittances. In particular, the project aiming at strengthening the sav-ings culture and the entailment of remittances recipients to the formal financial sector; promoting the productive investment of rural remittances through entrepreneurship; and facilitating connections of migrants with their native rural regions. In terms of activities, the project helped rural households to open savings accounts, increased financial capacities through innovative instruments such as tablets, and introduced incentives for savings such as matching funding, random prizes, or microinsurance. On the other side, to promote productive investments, the project provid-

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ed advisory services in business’ plans implementation and seed capital up to 70% for technical assistance and work-ing capital. Paula Rodriguez Rueda underlined the project achievements (836 rural women opened and used savings accounts, 69 business plans supported among which 84% were presented by producers’ associations) despite the great challenges faced such as the recipients’ highly res-ervation about their remittances and how they were saved, or their preference to use remittances agencies in-stead of banks which are more secure and less expensive.

Jean Pouit reported that the average global cost of trans-mitting remittances is 7.68% with big difference depend-ing on the channel used: banks remain the most expensive channel with 10.96% while for the Money Transfer Opera-tors (MTOs) the cost is 6.59%. Regarding banks, Jean Pouit indicated that they are relying on SWIFT and correspondent banks but there are a number of initiatives to attract mi-grants such as free remittances to Mexico offered by Bank of America or bibancarisation (migrant holds two bank ac-counts: one in the North and one in the South). Regarding MTOs, he just remarked that MoneyGram and Western Un-ion are the two largest and that, for example, they control 2/3 of the points of sales throughout Africa. MFIs are be-coming key players but right now, they ae mostly work-ing as subagents of the large MTOs. As new entrants and new business models reach smallholder farmers, Jean Pouit put forward Afrimarket and Haiti Transfert and the “cash to goods” model (money sent can only be spent to purchase goods in local shops), or the London based started company such as Worldremit, Transferwise, and AZIMO, and in particular the Mobile Network Operators (MNOs) which have really achieved a breakthrough mainly in Africa by providing eWallet services. Jean Pouit concluded by talk-ing about the “crypto currencies revolution”, i.e. the money transfer based on Bitcoin which, thanks to a mobile application, allows buying, transferring and selling bitcoins in a fraction of a second.

Malkhaz Dzadzua started describing the general context of remittances in Georgia. They represent an important source of FX inflows: 8.8% of the GDP compared to 7.7% for the Di-rect Foreign Investment. Remittances have been multiplied by six over the past ten years up to $1.4 billion as a sign of poor employment prospects and socio-economic difficulties in the country, pushing local workers to overseas employ-ment. But compared to other neighbour countries, Georgia is more independent from remittances (the share of remit-tances in the GDP of Armenia, Moldovia, Kyrgyzstan, and Ta-jikistan ranges from 19% to 42%) and has more diversified remitting countries with Russia accounting for half of total remittances followed by Greece, Italy and USA. Regarding specifically at MFIs’ clients and based on an internal survey, they receive on average USD400 on a monthly basis. They use remittances mainly for social needs such as housing, living conditions, foods, health care, education (60%), debt repayment to money lenders (20%), and consumption (15%).

Only 3% of the clients use remittances for income-generat-ing activities and 2% for savings. These data resume very well the main negative factors of remittances in terms of decreasing agro-producing level and motivation to run small farms, increasing dependency level to external assistance as well as possible internal con-flicts between family members.

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Workshop

Community inventory credit (or warrantage).Which alliance between farmers’ organizations and microfinance institutions? The case of Burkina Faso.

Moderator: Ilaria Caramia, Project Manager, Fondazioni for Africa Burkina FasoSpeakers: Daniel Marchal, Warrantage expertMatteo Cortese, Economic and Rural Finance Sector Manager, CISVFélicité Kambou, Director, COPSA-C (Burkina Faso)Hamadoun Sonde, Head of Loan Division, Faîtière des Caisses Populaires du Burkina-FCBP (Burkina Faso)

This workshop was developed in collaboration with Fondazioni for Africa Burkina Faso, an initiative promoted by 28 bank foundations associated to ACRI (Association of Foundations and Savings Banks) aimed at supporting the right to food and food security in Burkina Faso. Financial inclusion through war-rantage is one of the project levers to achieve such goal.

Daniel Marchal pointed out that warrantage, an adaptation to farming of the so called warehouse receipts finance, can meet many of the issues raised by agriculture finance which is important in order to increase productivity and to face the food needs of an increasing world population.

Farmers are trapped in a vicious circle of impoverishment. Low productivity forces them to sell off their crop at low prices, which results in low revenues and in difficulties in buying inputs. During the harvest period (prosperity) households have to face several costs (e.g. school and health fees, social events). Moreover, they have to pay back the usurious credits they had to take out during the sowing season (vulnerability) to buy food, seeds and inputs, and to pay labour costs. Finally, they face severe social pressure from family and friends. All these factors force them into selling off their harvest.

Warrantage is a mechanism that allows them to break out of this circle. During the harvest period, farmers, grouped into cooperatives, stock their crop in an accredited warehouse. The banker makes the inventory (quality/quantity) and then the warehouse is locked; the financial institution has one key and the farmers’ organisation the second one: both keys are needed to open it. The bank grants credit for 70-80% of the value of the stock. While part of the credit is used to face expenditures, the rest can be invested in income generating

activities (e.g. pig farming, peanut oil production), which in turn reduces the farmer’s vulnerability. At the beginning of the sowing season (3-5 months later), farmers reimburse the credit and get back their crop: they then have food and seeds for themselves and they can sell the rest at a much higher price than if they had sold it immediately. This means that farmers have enough money to buy better inputs (improved seeds and fertilizers), which will, in return, improve the fu-ture yields.

Warrantage secures its presence in the rural areas by increas-ing the loan volume and revenues of the financial institution.

An example of successful warrantage comes from Burkina Faso. It is offered in the form of a group credit (in order to strengthen cohesion and mutual accountability) at an interest rate of 10%. Farmers are granted a loan of 70% of the value of the stocked crop (corn, mil, rice, sorgo, peanuts and niebé).

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This project involves three actors:

� Producers’ organisation: COPSA-C (Coopérative de Presta-tion de Services Agricoles Coobsa), created in 2009 and with 3,000 members (40% of women), aims at providing adapted farming services to its members, thus improving members’ economic condition and food security, strength-ening producers’ structuring and organisation. The results show a doubling of production during the last harvest com-pared to 2009, with 8,700 stored bags, 30 warehouses, 1,378 beneficiaries and an income of about 50 million FCFA.

� Financial Institution: RCPB (Réseau des Caisses Populaires du Burkina) aims at improving the life conditions of its mem-bers, through the offer of adapted and accessible financial services and products. RCPB covers the whole country (2/3 are rural areas) and 70% of its clients are farmers for whom the traditional loan conditions are not suitable, especially be-cause they are not able to provide any material or financial guarantee. RCPB now offers the warrantage product through-out its network and has developed ad-hoc instruments and procedures. However, they are also experimenting with a number of other financial tools (e.g. leasing and agricultural insurance) to increase smallholder farmers’ access to finance.

� Technical partner: CISV (Italian NGO), who plays an inter-mediation role between the producers’ organisation and the MFI while providing training.

As underlined by Félicité Kambou, the warrantage is very profitable for producers because it reduces crops selling-off, finances other income generating activities during the out-of-season, promotes savings habits, reduces debts and enables to buy inputs and remunerate workers for the next harvest. On the other side, Hamadoun Sondé explained that for an MFI the warrantage improves access to credit for farmers, increases the institutional portfolio and revenues, improves repayment rates and provides a more reliable and feasible guarantee adapted to agricultural producers.

The speakers agreed that collaboration between the vari-ous actors is essential in order to share knowledge, to con-figure the product, for lobbying purposes, etc. Confidence is clearly key for an effective collaboration between producers’ organisations and financial institutions. Producers’ organisa-tions must have negotiating power and must demonstrate that

they are credible (e.g. through regular reimbursements). Com-munication and transparency are essential for the bank to carry out an adequate risk evaluation. Confidence in farmers’ ability to reimburse, solvability and knowledge of/confidence in the partners are also crucial for the bank.

Warrantage also has some limitations, for example related to the construction and maintenance of the warehouse, the monthly visit to the warehouse, the distance between the warehouse and the financial institution, price volatility (for example because of the political context or government in-terventions), lack of appropriate insurance products and the safe movement of cash. In conclusion, as mentioned by Mat-teo Cortese, it is necessary to improve the product in order to make it more inclusive and to deal with market disruptions (e.g. purchases at subsidized prices from the state, which ar-tificially increases the market price at harvest time) or prevent a second sell-off at the time of destocking.

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Workshop

Making savings products work for smallholder farmers

Moderator: Laura Viganò, Professor of Economics of Financial Intermediaries, University of BergamoSpeakers: Daryl Collins, Managing Director, Bankable Frontier Associates and co-author of Portfolios of the PoorThomas Shaw, Senior Technical Advisor Microfinance, Catholic Relief ServicesMaude Massu, Financial Inclusion Specialist Consultant, IDOMiguel Alberto Achury Jiménez, Deputy Director of Planning and Institutional Development, Bancamía (Colombia)

The offer of financial products for savings purposes plays an important role in rural areas, according to the perspective of both financial intermediaries and customers. For the latter, savings products develop financial discipline, enable them to cumulate funds which may lead to the establishment of production projects, and are often more useful than credit products. In all cases, savings products often represent the first step towards financial inclusion.

Savings products also represent a source of information for lenders, sometimes the only source of information for as-sessing the behaviour of potential borrowers. For a financial institution, to be able to rely on savings also means feeling responsible vis-à-vis the community and therefore having a motivation to keep credit risk under control. The panel ana-lysed savings products according to different perspectives.

Depositors have different attitudes towards savings and sav-ings instruments are just as varied. Based on the financial data collected in different sectors throughout the world, particular-ly in Africa, Daryl Collins presented the advantages and disad-vantages of informal savings, such as domestic savings (with cash money hidden in different rooms of the house for differ-ent purposes), money guards or savings groups (informal or more formal ones). The latter are omnipresent in Africa where the credit supply is less important, leading thus to increased reliance on savings. However, their use also by smallholders is often limited to consumption or house expenses as these sav-ings are limited and rigid concerning withdrawal possibilities. The offer of savings products by formal banks may be better. Banks can offer the possibility to save small amounts in a very formal way but the challenge they face is cost-effectiveness. This is why only very special banks with specific social ob-jectives, can succeed, as they are more patient in achieving

their targets. A final observation emerging from the financial reports concerns the recorded need of farmers to mone-tize their crops (harvest management). Farmers often save in kind which allows them to assure regular consumption of food. However, cash is always necessary and there is a need to support farmers in monetizing their crops.

Thomas Shaw underlined that savings are strategic not only for the reasons explained above but also because they rep-resent an entry point to implement other spontaneous or induced initiatives and actions with farmers and households. Catholic Relief Services (CRS), in fact, insists on the idea that not only people should be encouraged to save but that they also have knowledge and skills that can be used to make better decisions both on business and household issues. In this perspective, CRS offers a package called SMART Skills (Skills for Marketing and Rural Trans-formation) which operates according to a business develop-ment perspective, with a focus on natural resources man-agement and innovation. Promote community savings-based

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groups is the first step. These groups must be self-selected and autonomous as well as transparent. They have to or-ganise regular meetings and promote regular savings that provides access to loans and implement an emergency fund. Along with this, independent Private Service Providers (PSP), paid on a lump sum basis, provide financial, marketing and business trainings. The starting point is represented by sav-ings but the range of services offered is planned to cover the

increasingly complex demand, based on the phases small-holders go through: from emergency, to recovery, through to investment, development and growth.

In the case of IDO, savings also become one activity amongst others; all equally important for smallholder farm-ers. In particular, considering that both access to financial services and to water is a challenge (of the 2 billion people financially excluded, it tends to be the same who have no access to sanitation) and that the latter is often more dif-ficult because of the lack of money, IDO combines financial and sanitation education. This approach implies the in-volvement of savings and loans associations and foresees a dual awareness about savings, business diversification and health and sanitation, showing the financial consequences of lack of hygiene. Maude Massu underlined that a sense of collective management responsibility is a key suc-cess factor (sharing of maintenance costs). With regard to practical actions, IDO focuses on the design of suitable financial products and the provision of technical support on how the water systems should be maintained. Women’s em-

powerment is one of the major expected results, alongside those concerning development and health.

Bancamìa operates in Colombia with over 750,000 customers, 45% of them located in rural areas and 20% of them being smallholder farmers. The bank analysed the characteristics of its clientele, showing that, given its volatile and intermit-tent income, it needs an ad hoc approach. A wholesale fi-nancing model offering a complete set of financial and non-financial services and payment flexibility are some of the key success factors. In particular, on the savings mobilisation side, Miguel Alberto Achury Jiménez presented the gradual programme where newcomers start with simpler products (programmed savings in order to buy inputs, assets or create funds to reach a specific target) and progressively get access to more sophisticated ones, together with a wider array of other financial and non-financial services. The meas-ures of success in terms of impact (38% of customers who finalise the savings gradual programme get out of poverty) and production units’ growth are encouraging.

With the described diversification of products, smallholders may be better off if they can count on a diverse set of finan-cial services. In fact, during the evaluation process, they be-come aware of the different types of savings products, related costs and availability, and learn how to take into account the advantages and disadvantages. Collaboration between dif-ferent suppliers to effectively serve clients is also necessary because, ultimately, it concerns community development.

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Workshop

Investing in women farmers to transform the agricultural system

Moderator: Marcella Corsi, Professor of Economics, Sapienza – University of RomeSpeakers: Beatrice Gerli, Gender and Targeting Specialist, IFADVéronique Faber, Executive Director, Microinsurance NetworkLoïc De Cannière, CEO, Incofin Investment ManagementNejira Nalić, Director, MI-BOSPO (Bosnia and Herzegovina) and Board member, Women’s World Banking

There are many female smallholder, in particular in developing countries. They are active but may not be able to reach rea-sonable income levels, often as a result of the discrimination they endure both from their family and the society. Financial inclusion is relevant as it helps them develop their activity and strengthen their social function.

The workshop started with a video from Women’s World Bank-ing: “Serving Rural Women in Latin America” referring to the project implemented by the international network with three financial institution members in Latin America, to develop loan products that fit rural women’s needs and work in agri-

cultural households. As mentioned by the manager of an MFI: “Based on the research study conducted along with WWB, we truly understood that we were not offering an appropriate portfolio to rural women because as all the other institutions, we generally offer them the same portfolio we are offering to urban customers and that is a big mistake”. Inspired by the

video, Nejira Nalić stressed that the visibility of women’s contribution is not as well recognised by the society and the families (the husband and children see women’s contribution as an extra, as “something they sell”, without recognising that it is fundamental to the family survival). Infrastructures are also very important in order to allow financial institutions to serve rural women located in remotely areas in a cost effec-tive way and help women in rural areas overcome the geo-graphical and cultural difficulties they face in accessing tra-ditional banks. This may explain a very specific characteristic of their demand for financial services: women do not always appreciate digital finance, because they want to move out of the house, socialise and physically go to the market. The third key point to enable rural women access financial services is access to training, information and markets. Women want to improve their businesses and learn more about how and where sell their products. In this way, links with market are essential to achieve their goal. The Associations system would be useful in this respect but, unfortunately, from the experience of MI-BOSPO in Bosnia Herzegovina, female co-operatives are few, because of the lack of confidence in coun-tries that have to face everyday war and underdevelopment, and to some extent, because of corruption. Provide women with forms of targeted assistance, not only in the financial field but also in other related areas, emphasises the need of a multi-stakeholders commitment to support their effort to shape their future and improve their visibility.

Beatrice Gerli talked about the measures taken by IFAD. She highlighted some of the challenges women face in achiev-ing their empowerment within the family as well as in their business. For example, lack of access and control of incomes, low educational levels, legal barriers and discrimination and difficulty reaching larger markets. All these challenges could

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be met by investing in women, as this allows improving the family situation: better education for children, food security, better nutrition and household wellbeing. Investing in women also implies empowerment of women’s economic, social and political engagement. One of the most effective means to op-erate is to promote access to financial services: loans (small loans for productive purposes, frequent repayments, flexible conditions), savings and group-based finance. At a higher level, actions to foster female smallholder empowerment include financial literacy promotion, increased awareness of

the different national and international stakeholders which may then lead to changes in the regulation and reduction of discriminatory legal provisions.

Loïc De Cannière presented its company that works in the field of rural and agricultural impact investing, and its activities in support of rural and agricultural financial services focusing on women. Three examples (Guatemala, Tajikistan and Uganda) provided the opportunity to present the different ways of act-ing of the institutions, with the common characteristics that

women began to work in the agricultural sector after being left alone by men engaged in wars or civil conflicts, or simply gone away from their village. A gender-specific approach in countries with a similar background, with high con-centration of women in the agricultural sector, is really important. The specific conditions developed to fine-tune fi-nancial products to women’s preferences are explained for the case of Uganda. As a final note, the speaker stressed that, in that country, the limited range of gender-specific services for women contrasts with the number of women in the microfi-nance field, which depends on the attractiveness of female higher stability compared to men. The qualities of women should make it possible to better understand this market seg-ment and invest in developing new products targeting them.

Véronique Faber talked about the role of microinsurance, de-signed for low-income and vulnerable groups, such as women. Women are often more vulnerable as they play different roles in the society and are more subject to health risks; they are the ones who take care of household’s risk management strat-egies (through savings or asset sales, for example). Insurance is often unavailable to them or too expensive although some progresses have been made and now over 280 million women are insured; sometimes, the insurance product is bundled with other services. Two examples were presented: a health insur-ance product offered in Jordan and an Indian scheme cover-ing several risks including natural disasters. Insured women show improvement in the use of assets and financial services and better access to loans. Despite the positive outcomes, there are still some challenges regarding the offer of insurance services for women, such as the need to disag-gregate data, follow a specific gender-based risk assessment and develop a gender-based wider range of products. Also in the insurance field, an integrated approach along the value chain would be beneficial.

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Workshop

Agriculture-specific loan products targeted to smallholder farmers

Moderator: Emmanuel Moyart, Senior Microfinance Consultant, DAI EuropeSpeakers: Michaël de Groot, Investment Manager, Rabo Rural FundLaura Foschi, Director of Research and Development, ADABetty Wampfler, Professor of Agricultural and Development Economics, Montpellier SupAgroGrégoire Danel-Fedou, CEO, Advans CI (Côte d’Ivoire)

Michaël de Groot highlighted that inadequate access to credit for poor farmers negatively affects their agricultural productivity and income. Developing agriculture-specific loans is essential because the global population is expected to reach 9 billion and - as resources are limited - the big challenge of our days is to increase productivity to feed them all. The food to feed all these people will be mainly produced in Africa (e.g. Ethiopia, Ghana), Latin America and the Black Sea area. Institutions of different nature are therefore try-ing to tackle these issues, by developing financial services for farmers. Rabobank’s proposition is to go “throughout the supply chain”: they believe that, to mitigate the spe-cific risks presented by this particular sector, every single actor/link of the supply chain has to be taken into consid-eration and financed. Technology (e.g. weather reports via smartphone) and training (both financial and technical) can mitigate the risk for financial institution, as they allow farm-ers to take better decisions. As it is difficult to provide in-dividual loans to small farmers (e.g. high transaction costs, illiteracy), aggregators such as cooperatives and SMEs are needed. Loans for working capital can be provided through such aggregators, while repayment is done by the exporters: this is the so-called trade finance model. The Rabo Rural Fund provides technical assistance in different value chain projects, including a warehouse receipt financ-ing one in Nicaragua around cocoa, and a crowdfunding one in the US/Canada in which funds to renovate coffee planta-tions are raised among regular customers of coffee shops and local roasters.

Another example of agriculture-specific loan products aimed at smallholder farmers is provided by Advans CI (Côte d’Ivoire), in their input financing project for cocoa. Grégoire Danel-Fedou explained that this project foresees coopera-

tion with cooperatives that are certified and have at least five prominent staff at cooperative level. Initially selected by traders, these cooperatives are now chosen directly by Ad-vans CI. The cash flow of cocoa farmers is fixed through focus groups, discussion and individual interviews. The business case of each farmer is taken into consideration to calculate his/her repayment capacity. Advans CI approach is progres-sive: the value chain, the type of product and the pric-ing are adjusted every year. For the moment, they offer a

standard package of fertiliser per hectare. In the future, other aspects such as the age of the plantation will be taken into consideration to find better, individual solutions. Loans are granted during the application period of fertilisers and repay-ment starts after a six-month grace period. Advans CI adopts a very conventional approach, asking for the repayment at harvest time (that is, with revenues produced by the financed input). Some observers criticise this approach due to its rigid-ity but it is considered as the only one possible because there

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is no banking infrastructure in the area and so repayments need to be done through the cooperative in a consolidated way, all at the same time.

Laura Foschi presented the microleasing product implemen-tation project which ADA is experimenting in the South-Western region of Burkina Faso. In 2013, they started a partnership with RCPB aimed at improving the quality of the farming equipment of RCPB’s members. Based on a mar-

ket research to analyse farmers’ demand for equipment, RCPB finally decided to provide tractors and electric pumps through two microleasing projects, launched in 2014: the MFI pays the equipment to the supplier (20% when order-ing, 80% at delivery to farmer). The farmer pays an advance (10%) and uses the equipment against rental payments. He also contributes to insurance, maintenance, and reparation. At the end of the contract, the farmer can buy the equip-ment. Moreover, RCPB signs a contract with an insurance company. An innovative aspect is that no additional guar-antee is required and the equipment itself represents the only guarantee. Appropriate maintenance of the equipment and farmers’ training are essential to avoid damage or overuse, which can heavily affect its value. ADA’s “lessons learnt” from this pilot project are: leasing is a very flex-ible financial product; it requires a technology which is different from that of loans; it can look expensive to the farmer but, in the long term, it can turn out to be cheaper than traditional loans; it is important to know the legal framework; training and marketing are important, so is the selection of the supplier of the equipment. Political shocks

have slowed down the project. Other problems encountered are the high level of turnover within the MFI and the fact that there is not enough demand due to RCPB’s insufficient promotion efforts.

Agriculture is mainly based on family farming so the main challenge nowadays is how to modernise it to make it more productive, professional and with a high economic, social and environmental value. And the main question is what kind of adapted financial services are necessary to support this agricultural transformation considering that smallholder farmers have a wide range of financial needs as they carry out different types of activities (both farm-ing and non-farming) and have an amount of family needs to satisfy (health, education, consumption, social events). As the vertical approach of the value chain financing can only meet some of these financial needs, Betty Wampfler suggested to combine it with a broader ap-proach to face the complexity of the households, “ag-ricultural livelihood finance”. She presented the case of CECAM from Madagascar, a large rural financial institu-tion offering a wide range of loans, as an example that it is possible for microfinance to deliver a range of agriculture livelihood products in a sustainable way and that the pos-sibility of combining different credit products has a positive impact on farmers’ households. However, such an approach can also lead to a higher level of risk (juggling practices, indebtedness) for the households and for MFIs. Moreover, for MFI, this kind of approach needs a high level of (new) skills and tools.

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Plenary

Partnerships as a tool to improve financial inclusion of smallholder farmers

Moderator: Laura Viganò, Professor of Economics of Financial Intermediaries, University of BergamoSpeakers: Laura Foschi, Director of Research and Development, ADARenée Chao-Beroff, General Manager, PAMIGAPranav Prashad, Technical Officer, Impact Insurance Facility, ILOBorann Kea, CEO, AMK Microfinance Institution Plc (Cambodia)

Introducing the topic, Laura Viganò underlined the different levels of partnership and the potential actors: macro-level (e.g. government and international organisations), meso-level (e.g. local banks, insurance companies, field offices of international organisations, universities and training centres), and micro-level (e.g. MFIs, BDS providers, NGOs, farmers). The partnerships can be horizontal or vertical accordingly if the actors involved belong or not to the same level. Another important dimension is represented by the intensity of the partnership. With such premises, Laura Viganò asked to the speakers to explain the role of their institution in the already existing partnerships and how to create a successful one.

Laura Foschi presented ADA activities on rural and agricul-tural finance, and the existing partnerships. In particular, ADA provides technical and financial assistance to the RED-CAMIF network through the capacity building programme to expand financial inclusion in eight countries with a balance between rural development and environmental issues. ADA also supports a local MFI to improve the supply of agricul-tural financial services as in the case of RCPB in Burkina Faso where the partnership aims at implementing a microleasing product for farmers. Other examples of good partnerships are the one with the four main African Microfinance Networks (AFMIN, AFRACA, AMT, MAIN) that organised the African Microfinance Week 2015 and the one with FAO that provides agriculture and rural finance trainings.

Renée Chao-Beroff pointed out that PAMIGA is entering into a very complex ecosystem improving access to produc-tive water (small irrigation) and renewable energy which is not just as simple and straightforward as providing working capital for microentrepreneurs. In such a complex system, the institution has to make sure that all the actors along the

value chain are strengthened individually and also work well together in a complementary way, and that the added value is equitable spread along the value chain so it will be sus-tainable. However, to make the all ecosystem work, it needs to work with technology solution providers and distributors, which means that, in terms of technical assistance, it has to work towards building trustful relationships between very different sectors that do not know and do not trust each oth-er. It is important to find complementarities in order they can work together. This means entering in a very challenging but also impactful area of building partnerships able to bridge the microfinance clients and MFIs with the rest of the real world which is the world of production and economy, and this ultimately leads to greater inclusion.

Borann Kea shared the experience of the microinsurance product developed by AMK. In order to meet the clients’ needs identified by the surveys regarding financial products other than credit and deposit, the MFI decided to introduce health and crop insurance products. As the regulation does

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not allow MFIs to offer microinsurance products, AMK had to develop a partnership with a licensed microinsurance com-pany. Not having expertise in the sector, the institution had to look for the right partner in terms of knowledge, expertise, and alignment with AMK’s mission and approach. As men-tioned by Borann Kea, this required a lot of effort from both parties to make the partnership work. In the last few years they introduced the Health and Accident insurance products and nowadays they are testing the Weather index-based in-surance products.

Pranav Prashad explained the importance of partnerships from a customers’ point of view as successful partnerships improve the situation of customers. He referred to differ-ent levels of partnerships such as the one between insur-ance companies and MFIs which could be viable distribution or product developing channels to foster microinsurance; or the one between agri distributors and agri input providers and the insurance company on how they could provide bet-ter mechanisms and tools for farmers to work on (e.g. for-mer Kilimo Salama project in Kenya now transformed into ACRE-Africa). Thanks to technology, mobile phone operators are important partners that can enable the entire insurance

movement to progress forward, not only in terms of payment of premiums, but also in terms of creation and supply of value added services through mobile phones, thus improving forecasts and valuable consulting services for smallholder farmers. At macro level, Pranav underlined the importance of partnerships between governments and the private sec-tor to improve financial inclusion and, above all, to develop and deliver better services for customers (e.g. health insur-ance schemes in India or crop insurance schemes in India and Mexico).

In terms of lessons learned from examples of best and worst partnerships, time is an important factor as things do not always go as planned at the begging because sometimes it is necessary to restart and reconsider the whole partnership, in particular when emergencies are concerned (civil wars, natu-ral disasters etc.). In those circumstances it is very important to have resilient and reliable partnerships that require partners to be flexible and o trust each other in order to ad-just positions and start fresh when things go wrong. In other words, a good partnership is a learning-by-doing process and the various actors must complement one another. Comple-mentarity is a key factor for success because each partner knows and understands specific aspects of the problem and the corresponding solution: e.g. an MFI involved in loans in the field of clean energy does not know the right solutions for each one of the different segments so it needs to partner with a technical provider. Another important factor for a suc-cessful partnership is the need for partners to “speak the same language” and share the objectives. In this sense, it is important to focus on the long term and not just on the “purely commercial” short term, making for example some kind of joint investment so that every partner has joint re-sponsibility and ownership on the initiative.

In conclusion, the interests of all partners must be met by the partnership even if through different ways.

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The “Giordano Dell’Amore Microfinance Best Practices International Award”, promoted by the Giordano Dell’Amore Foundation, has three main objectives:

� To increase the awareness of the public about the importance of microfinance as a tool to foster economic initiative promoted by people excluded from the traditional financial system;

� To encourage the exchange of experiences and the sharing of thoughts and in-depth analyses within the microfinance community in order to raise the level of professionalism of the actors involved and to favour a growth path that reflects innovation, sustainability and the social impact of microfinance interventions;

� To highlight and spread microfinance best practices that combine innovation and sustainability, while re-warding the ability to systematise the main features of the intervention model so as to allow its replication in different contexts.

Thirty-five institutions concerned with financial inclusion of smallholder farmers in twenty-eight countries ap-plied for the 2015 edition of the Award. Eleven of them operate in Africa, fourteen in Asia and ten in Latin America.

A Selection Committee, composed of national and international experts in the field of microfinance and finan-cial inclusion, and with the support of the Award Secretariat, agreed on three finalists:

� Advans Côte d’Ivoire, from Côte d’Ivoire, with the project: “Agricultural customised input loans for co-coa smallholder farmers”, which was selected for its innovative risk-sharing approach aimed at integrating smallholder farmers into the cocoa value chain through the involvement of different stakeholders and the use of a wide range of financial services;

� Cantilan Bank, Inc., from the Philippines, with the project “Pag-uma and Value Chain Financing”, which was selected for its gender-sensitive approach to financial inclusion and agricultural value chain financing for smallholder farmers through savings-based funding and a blend of individual and group lending ele-ments; and,

� Palestine for Credit and Development – FATEN, from Palestine, with the project “Permaculture for Sustainable Living to Small Farmers”, which was selected for its integrated environmental management model that uses low-cost and technology approaches to support sustainable organic farming among young Palestinian smallholder farmers in a socially and environmentally difficult context.

Award Ceremony

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Maria Cristina Negro, General Secretary of the Giordano Dell’Amore Foundation, called one by one the finalist institutions on the stage to receive the certificate from Federico Manzoni, President of the Founda-tion, and Roberto Leonardi, General Secretary of Fondazion FITS! in representation of Intesa Sanpaolo, sponsor of the Award.

Federico Manzoni announced the winner of the “Giordano Dell’Amore Microfinance Best Practices Interna-tional Award”: Cantilan Bank, Inc., from the Philippines which was awarded €50,000 to be reinvested for the development and implementation of new projects or to cover the fixed costs of existing services. Tanya Hotchkiss received the Award and dedicated it to all the smallholder farmers in the area of operations of the bank and to everyone in the Cantilan Bank family hoping this will be inspiring to provide better services which can really have a positive and long lasting impact to the life of these farmers.

Tanya Hotchkiss, from Cantilan Bank, receiving the Award Certificate

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Understanding the actual financial behaviour of smallholders: insights from the Financial Diaries

Speaker: Daryl Collins, Managing Director, Bankable Frontier Associates and co-author of Portfolios of the Poor

Daryl Collins started the session explaining that the reason behind the Financial Diaries is to have a holistic picture of the financial lives of smallholder households in order to develop financial tools and provide practices that more effectively re-spond to the needs and preferences of this important client group. To truly understand the lives of smallholder farmers and how finance fits within this framework, the Financial Di-aries have looked beyond the financial instruments and also focused on income and consumption, physical assets, actions not achieved (i.e. you need to go to the doctor but you do not go), activities undertaken outside the context of agriculture (smallholders are not just farmers) and their resulting income, and how financial tools have helped smallholders, or not. To capture this complexity of people’s lives, the Financial Diaries follow a mixed-research methodology: a small sample but thoroughly analysed in both quantitative and qualitative terms. More specifically, the Diaries are interested in three coun-tries (Mozambique, Pakistan and Tanzania), with nearly 90 households visited in each one of them every other week for a year (June 2014 - June 2015) by field researchers who col-lected detailed information (it was not asked to households to keep their own diaries). They tracked all financial transactions (formal and informal), crops, consumption, sales, losses, live-stock assets and production, as well as cash-flow and income

statements. Looking at the data, the three countries really represent different types of smallholder farmers: subsistence farmers, very poor and with little financial tools in Mozambique and the opposite situation in Pakistan where farmers are more sophisticated users as they use irrigation, fertilizers, improved seeds, value chains, and are already monetized and selling a good part of their crops. Tanzanian farmers are somewhere in the middle between Mozambique and Pakistan.

In terms of preliminary findings, the analysis of the average value of crops harvested, consumed, sold or lost in Pakistan shows the typical seasonality in the financial lives of farmers and the challenge of monetizing crops harvest and saving for the next one. But farmers are also involved in other ac-tivities apart from farming so the question is to know to what extent these help to smooth agricultural income which looks like a very volatile pattern. To answer that question, the Diaries analysed the household income from ag-ricultural (crops and animal production) and non-agricultural activities (small businesses, casual work, maybe sometimes a regular job, and remittances) showing a prevalence of non-agricultural incomes both in terms of number and proportion of total household cash incomes. This is especially true in the case of Mozambique and Tanzania where only 7% and 29% of incomes come from farming. But what does happen if we also include the consumption pattern? The percentage of agricul-tural incomes increase to around 50% proving, in particular in the case of Mozambique, that it is really subsistence farming. On the other side, what is amazing is that taking into account consumption, the proportion of incomes from agricultural activities is still around 50% which raises the issue of how smallholders are really bound to agricultural cycles. Present-ing the case of Amin in Tanzania, Daryl Collins showed that non-agricultural activities have small effects in miti-gating agriculture cycles because they are linked directly to the cyclesas in the case of seasonal employment where most of the incomes obtained by working in the farms of other people, or indirectly (incomes from small business cannot re-ally replace the revenues from the sale of agricultural prod-

Keynote Speech

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ucts as people have money when selling). But as revenues from non-agricultural activities tend to be very low and spread over the year, and therefore relatively steady, they help farm-ers to manage the volatility of farm incomes.

Trying to understand why finance is really necessary for small farmers, Daryl Collins presented the case of Pakistan, charac-terised by peaks of income and smooth spending, which shows that even if farmers do not suffer from hunger and are able to afford inputs for their crops, they do not always have the money when they need it, for example to pay for school fees or medication. Thus, finance should help them when strapped for cash. The three examples presented show differ-ent types of financial tools such as money under the mattress, credit from family/friends/neighbours, arthy relationship, etc:

� In Mozambique, households have a very small portfolio and therefore crop management becomes a financial tool: pre-serve the harvest for periods of famine (harvest management).

� In Tanzania, households have a moderate portfolio but they focus mainly on asset instruments, including using crops as a savings tool.

� In Pakistan, households have a larger portfolio but they rely mainly on arthi systems for the farming needs and on friends and family for the non-farming ones.

Another way to analyse these three models is the degree and speed of monetisation of harvests, ranging from non-monetisation in Mozambique (farmers consume immediately or over time), to instant one in Pakistan (sale of the production immediately after the harvest - no possibility of waiting for a better price). Tanzania has an intermediate situation with farmers who have many activities as a kind of local ATM (more a behaviour towards expenditure), which reduces the ability to save enough to invest in the farm.

Daryl Collins closed her presentation by indicating that to serve people in rural areas, traditional channels (branches and agents) are not profitable from the MFIs’ perspective so it is necessary to have alternative distribution channels, a sort of online bank, and the cheapest would be to have some sort of mobile money. But how can we digitalise these households? As in the agriculture sector many transactions are conducted in kind, one of the main challenges for digitalising them is that households have to ac-cept a double evolution: moving from transactions in kind to cash transactions and then to digital transactions. And in the case of harvest management based on “saving” the crop over time, this may be problematic. Monetising such savings would be very important but how to begging doing that without first providing financial services such as savings and credit?

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Workshop

Digital financial services: reality and promises.

Moderator: Jean Pouit, Executive Director, MyTransfer Luxembourg SA Speakers: Thomas Shaw, Senior Technical Advisor Microfinance, Catholic Relief ServicesPhilippe Breul, Founder and Partner, PHB DevelopmentLukas Wellen, Financial Inclusion Senior Consultant, EncludeBorann Kea, CEO, AMK Microfinance Institution Plc (Cambodia)

Borann Kea explained that, as in Cambodia 80% of low in-come people live in rural areas, an MFI must look at different channels and their different costs in order to reach small-holder farmers. And mobile banking represents a good strat-egy and alternative to the traditional system even consider-ing the main challenges faced for its implementation. AMK started the use of mobile banking as part of its new operat-ing strategy designed to mobilise savings from the unbanked population in rural areas through a network of agents close to the clients in rural villages. And it then expanded to other services such as money transfer and payment. The main challenges concern the recruitment of agents and liquidity, technology constraints, amount of the transactions to make them economically viable in rural areas, culture change to-ward savings and use of formal channels, and of course, cli-ents’ understanding of new technologies. As of September 2015, AMK had 40,132 mobile savings accounts and had recorded 596,549 money transfer operations. But as men-tioned by Borann Kea, smallholder farmers and the rural population are less active than urban people because of their cash flow, the use of in-kind transactions and savings’ habits.

Philippe Breul stated that the most important lesson learned is that digital finance is not only technology but is really about business development and that, there-fore, it must include project management, strategy, legisla-tion and regulation, marketing, human resources, distribu-tion channels, as well as back office and operations. In other words, digital finance service (DFS) needs a social business development approach. Philippe Breul presented two cases: one on loan repayment (Rwanda) and another one on sav-ings collection (DRC). In the first case, there were agents us-ing mobile phone to cash in and to transfer electronic money

to the client’s wallet account who can send this electronic money to the MFI to repay the loan. The system worked well in urban areas but not in rural areas due to limitations in terms of technical literacy, coverage and quality of services, as well as the availability of agents and liquidity manage-ment. And the solutions found to overcome such limitations were the following: direct debit, dual SIM or channels, link mobile money transfers with agents. The second example refers to the savings collection by agents through biometric devices. As in the previous case, this one also proved to be very effective in urban areas but has still limitations in rural areas where people is not so used to save, at least in formal ways. The solutions proposed focus more on taking time to learn on both sides (MFIs’ to adapt the service to the clients’ needs and clients’ to understand the benefits) and on internal transformation (organisation, training, objectives, incentives) within MFIs which in most cases have a credit culture and move to a savings’ one is not easy.

Thomas Shaw started highlighting the potential benefits of digital finance services for smallholder farmers: bet-

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ter services and reception of payments more convenient, use of mobile phones and/or agents, more frequent savings’ de-posits, requiring smaller amounts, easier loans’ repayment, with no additional transport costs, reduce security risk for deposits or cash withdraw; receive automatic reminders and alerts on the phones, thus reducing late payments. Howev-er, looking at the reality, the most critical precondition for successful uptake of all of these potential benefits is trust: agents may not have sufficient liquidity when needed; it may require a higher level of literacy than most farmers have and that makes them uncomfortable; or it may require significant training, in particular concerning financial education. Other challenges encountered by smallholder farmers when talking about digital financial services are: mobile networks may still be far from farmers; weak mobile networks making access difficult; it requires access to mobile phone and/or owner-ship of unique SIM cards; behavioural changes required to adopt the new technologies; unequal access to technologies for women, who are often excluded. Thomas Shaw presented the example of using DFS to deliver health microinsurance products in Benin and the challenges faced for the implemen-

tation in terms of limited coverage (access to towers or sig-nal level); absence of mobile money agents near healthcare centres; and need of financial education concerning mobile money and microinsurance as simply promoting the products is not sufficient for people to really understand.

Lukas Wellen stressed the success of digital financial services thinking, for example, about the incredible growth of mobile payment transactions in value over past years and in the fu-ture. However, it is very difficult to reach rural populations: for example in Kenya, one of the most advanced country as mobile money is concerned, one third of young women in rural area are excluded. And of course, technology would be the so-lution considering the advantages as thanks to mobile money transactions are quicker, cheaper and more secure. But re-search indicates that for poor rural unempowered clients technology is not the solution; trust and understanding are more important. To this purpose, the simplest and most obvious solution would be to listen to the clients and a good example is represented by the “Voice of the Client” project which collects data related to client protection principles (CPPs) using mobile technologies – interactive voice respons-es (IVR), call centre, and face-to-face interviews recorded through the use of smart mobile devices. Apart from listening, Lukas Wellen highlighted the importance of understanding clients, their expectations, needs, priorities and behaviours. As an example, he presented a case in Kenya where a large digital financial services provider wondered why clients would not respond to sms and the reality was that basically they would not trust sms or they would not read and write, in which case the solution was to send voice sms instead of text sms. Therefore, technology is good but it is the last step.

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Workshop

Scaling-up index insurance for smallholderfarmers: potentialities and challenges

Moderator: Véronique Faber, Executive Director, Microinsurance NetworkSpeakers: Pranav Prashad, Technical Officer, Impact Insurance Facility, ILOEmily Coleman, Project Officer, IFADPhilippe Guichandut, Head of Development and Technical Assistance, Grameen Crédit Agricole Microfinance FoundationMiguel Alberto Achury Jiménez, Deputy Director of Planning and Institutional Development, Bancamía (Colombia)

Emily Coleman started explaining the main strengths of index-based insurance. First of all, it improves access to insurance for smallholder farmers, because it reduces ad-ministrative costs, simplifies the claim and compensation processes and it can be bundled with other products and distributed through aggregators. Moreover it is more objec-tive and transparent to eliminate most of the asymmetric information problems as compensation is disbursed based on predetermined indexes for loss of assets and investments resulting from weather or catastrophic events, without re-quiring the traditional services of insurance claim asses-sors. Among the strengths, Emily Coleman also underlined that it protects against covariant risks and can be used at different levels (micro, meso and macro). Despite all these promises, index-based insurance is facing challenges and weaknesses which, in most cases, make it difficult to develop projects after the pilot phase. Among these chal-lenges, one finds the mismatch between the actual loss and the compensation (basic risk), the high requirement in terms of work and costs mainly at the beginning to tailor the prod-ucts to the location and crop, the need to promote aware-ness and understanding between partners and clients, and the limited quantity and quality of on-the-ground weather and yield data. To overcome specifically the latter, IFAD and WFP are developing and testing index-based insurance prod-ucts using different types of satellite data.

Pranav Prashad focused on the potential of bundling ag-riculture index-based insurance with financial (e.g. credit and savings) and non-financial services (e.g. farm inputs) to increase demand. Of course, as there are two products, pricing is a key issue while deciding how much and what to bundle. For this reason, assess the value proposition for each key stakeholder in the bundling process is critical.

More specifically, in the agri-food sector, a successful bun-dling should allow to increase customer loyalty and avoid side-selling; for end users it should increase net income and wealth; and for financial institutions, it should improve risk metrics. Pranav Prashad pointed out the importance of aggregators such as MFIs, input suppliers or agribusiness which allow selling and covering the entire portfolio against risks instead of going from farmer to farmer. This helps to reduce the costs but it needs adequate customers’ aware-ness and understanding. In terms of scaling index-based insurance, probably the best example is represented by the Indian NAIS and WBCIS mandatory schemes bundled with agriculture loans for listed crops which scaled up to over 25 million. Other interesting examples are bundling insurance products with other insurance products (e.g. Sanasa in Sri Lanka bundles weather based index insurance with personal accident and hospitalisation coverage) or with other services provided to insured farmers such as weather forecasts and agriculture advisory services.

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Philippe Guichandut approached the argument from a different point of view questioning if MFIs are really the logical distribu-tion channel for agri-microinsurance; are they appropriate for rural development, and are they right partners for smallholder farmers? Based on the Foundation’s experience with MFIs and agri-microinsurance, the answer is not always positive espe-cially because few MFIs are really focused on agricultural fi-nance, even if they are working in rural areas or because they

face difficulties to get the right fund at the right time which is essential to finance agricultural activities. In terms of partner-ships, they do not know each other, do not know well all the stakeholders of the agricultural/insurance sector (lack of value chain approach), and there is a fear of getting lost by doing dif-ferent things at the same time. Regarding in particular the agro-microinsurance product itself, MFIs have difficulties in seeing how a flexibly-priced product such as index-based insurance can be integrated into credit products without disrupting prod-uct calculation operations and processes, in understanding the added value of insurance for the MFI itself and the farmers, or in comprehending how the agricultural microinsurance works, how the indices are calculated, and how is the index-based ap-proach. Due to these and other constraints, MFIs are not playing a strong role and this requires a deeper analysis on how they can be helped to do more.

Miguel Alberto Achury Jiménez underlined that insurance is an integral part of a comprehensive risk management port-

folio so this is a true business based on an inclusive view of the client. The microinsurance product must be linked to real activities and to real benefits for the client, which means that it has to be made tangible for them. With this focus in mind, Bancamía offers four types of micro-insurance products: loan insurance, life insurance, funeral insurance and property insurance which is based on trust in the sense that it does not require any inspection to assess if the farmer suffered losses. So the key point is to take time and interest in knowing the clients. To this end, Bancamía collects quantitative and qualitative information on a daily basis and keeps and analyses it twice a year trying to define patterns of client behaviour. Another key factor is to recog-nise that moral risk is not as strong as in urban areas and most smallholder farmers are facing new kind of risks such as climate risks. Therefore, understanding these risks and sharing the information collected with the insurance compa-nies is a very important input for those to decide and define affordable premium cost that clients are able to pay. On the other side, the bank’s role is to try to take clients to a field where they feel comfortable about microinsurance products.

In conclusion, index-based insurance is a new and remark-able approach but is still more a top-down approach so it is necessary to increase the involvement of farmers. On the other side, index-based insurance is supposed to address only systemic risks and not idiosyncratic ones, leaving small-holder farmers unsatisfied and unprotected. The third point that emerged is that digital finance and especially the use of mobile technology could be useful to support the develop-ment of index-based insurance products.

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Workshop

Exploring opportunities to introduceor expand value chain finance

Moderator: Michaël de Groot, Investment Manager, Rabo Rural FundSpeakers: Renée Chao-Beroff, General Manager, PAMIGAFabio Malanchini, Founder and Partner, Impact Finance ManagementNorah Becerra, Head of Sustainable Rural Finance centre, Frankfurt School of Finance & ManagementTanya Hotchkiss, Head of the Office of Strategic Management, Cantilan Bank Inc. (Philippines)

Norah Becerra opened the session illustrating the approach of Frankfurt School of Finance & Management for sustain-able rural finance which is based on three pillars, namely better markets, better farming, and better finance. Within these areas, the institution supports, among others, the design and implementation of modern value chains able to help Financial Institutions (FIs) to reduce costs and risks of agricultural lending and to increase access to finance for small farmers. Agriculture value chain financing (AVCF) is considered a promising approach to agri-lending but is still being more used by input providers and collectors (inter-nal VCF) rather than FIs (external VCF). Norah Becerra gave few examples of value chain schemes introduced with the support of the institution. In Tajikistan it helped improve the cotton value chain: technical assistance providers were introduced and farmers agreed to pay for their services; pro-cessors/exporters agreed to give the corporate guarantee or the off-take contract to allow farmers to better access loans; farmers were able to get money at the time of selling the cotton. In the case of the wheat value chain in Turkey, it was difficult to bring agri-processors into the value chain so a credit card was developed for farmers, only allowing to purchase inputs and usable in certain Point of Sales (PoS). As these examples show, no “one size fits it all” solution but solutions need to be localized based on commodities, types of farms, types of value chains, legal environment. Value chain schemes should follow a win-win ap-proach for all stakeholders.

Fabio Malanchini explained that Impact Finance Manage-ment is an asset manager based in Switzerland and focus-ing on the impact investment sector with the objective of generating impact at the Base of the Pyramid (BoP). The institution manages an open-end fund, which invests mainly

in value chains with a big focus on agribusiness. Specifi-cally, it invests in different kind of organisations (SMEs, cooperatives of producers, NGOs/associations, and micro-finance institutions only if they are functional to the value chain the institution is working with) and in all the levels of the value chain: production, collection, processing distribu-tion. This entails the necessity to support the organi-sations with different financing products according to their needs (working capital and fixed assets) and to be patient and establish long term relations. Fabio Malanchini gave the example of the hazelnuts value chain in Georgia. The sector, characterised by small producers

with on average 1.2 ha each, presents different problems such as low productivity, limited quality, not effective prac-tices of production, processing and storage, and discounted price on international markets. To overcome these barriers and strengthening the value chain a microfinance institu-tion was supported to finance producers for the pre-harvest phases, the provision of technical assistance services, and the setup by the same company of a high quality plant to

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process hazelnuts and give farmers the possibility to use deposit systems (“consignation”).

Renée Chao-Beroff pointed out that is not easy to scale up value chain financing (VCF) because well structured VC are few, do not involve many small farmers, and are typically led by multinational agri-food companies not interested to work with other players; while loosely structured VC are characterised by multiple, scattered and very small buyers and processors making it difficult to strength one of them to play the expected role in value chain financing. How-ever, she underlined the existence of opportunities to contribute to the building of inclusive value chains or empower small farmers to integrate well-structured value chains, namely technology and risks mitigation. The former refers mainly to digital finance as an opportu-nity to strength VC because it is possible to provide more flexible financial and no-financial services by using, in par-

ticular, mobile technology. The latter is about the possibility to mitigate climate risks by improving access to productive water or renewable energy with positive effects in terms of productivity storage, processing and job creation. Nev-ertheless, the most important opportunity is moving from seasonal loans to investment loans entailing a true impact in changing smallholders’ mindset and behaviour and help-ing them switch from subsistence farming to agricultural entrepreneurship. A good example on how to seize the op-portunities mentioned to develop more sustainable long

term VC financing mechanisms in rural areas is represented by PAMIGA pilot experience with UIMCEC in Senegal where they helped the MFI access productive water for horticul-ture producers, introduce digital finance and hybrid energy for MSMEs, and promote an Agricultural Finance Center as a Business Unit in UIMCEC targeting AVC.

Tanya Hotchkiss started presenting the agriculture sector in the Philippines which accounts for 34% of the total la-bour force and is characterised by low productivity, high incidence of poverty, and high average age. And to face these challenges Cantilan developed the Agri Value Chain product that can help farmers save better, borrow better, reduce their risks, and become more produc-tive. Tanya Hotchkiss pointed out that, by switching to of-fer directly the financial product to Farmers’ Associations (FA), which are manly composed of men, they found out that men spend the entire amount for farming while it is not the same for women who represented 80% of their clientele until 2010. And this changed the dynamics within the FA as these are the ones recommending who is eligible for a loan and for that, farmers must have paid all the associa-tion fees. Regarding digital finance, Cantilan farmers prefer ATM cards to mobile phone banking mainly because they prefer something tangible even if more inconvenient. Tan-ya Hotchkiss presented two case-studies where Cantilan worked to expand VCF: rice farmers and cassava farmers. In the former case, the switch in the type of approach entailed changes in farmers’ acceptance of the bank and especially in their behaviour towards more entrepreneurial aspects. The latter was not a successful example as the association failed the accreditation process of buyer and also failed to buy the products of their farmers because of the failed deal.

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Plenary

Prospects for the future of smallholder farmers’ financial inclusion

Moderator: Giampietro Pizzo, President, Italian Microfinance Network-RITMISpeakers: Emmanuel Moyart, Senior Microfinance Consultant, DAI EuropeClaudio González-Vega, Professor Emeritus, The Ohio State University and Chairman of the Board of Trustees, BBVA Microfinance FoundationLoïc De Cannière, CEO, Incofin Investment ManagementTanya Hotchkiss, Head of the Office of Strategic Management, Cantilan Bank Inc. (Philippines)

Emmanuel Moyart presented the ACP/EU Microfinance programme he coordinated over the life of the project, and the findings from the study “Microfinance for Smallholder Farmers” conducted in order to understand how to provide sustainable support to smallholder farmers. The findings are based on programme experiences in Ghana, Kenya and Jamaica, and discussions with local stakeholders and EU Delegations. To make sure that value chain becomes sus-tainable and self-managed, there is need for long term coordination of a variety of actors which means that occasional collaboration is not enough (neither short-term support such as the one provided on project basis); suitable tools and facilitation should be available on a permanent basis; TA should be provided all the time and not only at the beginning of the project; and MFIs should be able to manage all the financial flows (credit, savings, insurance, etc.). The second critical point is that we need to be more demand-driven and this entails long term processes, not necessary with many funds, which runs counter to the typical donor

approach (short term and large disbursements). In order to combine large amounts support and a schedule that enables the overall system to operate, it is necessary to reduce sys-temic risk through training and suitable products, to map and coordinate the various actors through the value chain financ-ing, and develop and provide permanent and diversified ac-cess to finance through blended funds.

Loïc De Cannière presented agRIF, the new Incofin IM ru-ral and agricultural fund. Launched in 2015, it has been de-signed on the basis of an in-depth analysis of existing funds within the institution (RIF I, RIF II, FAF) according to which rural MFIs often lack sophistication in the provision of ap-propriate financial services to smallholders while SMEs and commercial banks are often better equipped, and producer organisations are key players to reach out to smallholder farmers organised into agricultural value chains (often ex-cluded from the banking system) but they have also a number of limitations (e.i. governance) and many smallholder farm-ers are excluded from value chains. Taking all these conclu-

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sions into account, the institution has created this new fund which uses a multiple distribution channels approach by focusing on a broader range of financing channels to bet-ter reach (small) farmers and active players in the agri-food value chain. In particular, agRIF broadens its scope to all fi-nancial institutions involved in agri-food financing (regulated and unregulated MFIs, banks serving rural clients or offering agricultural products, and other financial institutions serving agri-clients such as leasing companies), SMEs active in the agricultural value chain, and producer organisations.

Based on the difficulties encountered in the cassava value chain, Tanya Hotchkiss stressed the importance of partner-ships as a key factor to improve financial inclusion of small farmers. She also stressed the importance for an institution to learn from its “mistakes” to understand their own role and that of other stakeholders, and thus be able to better coordi-nate themselves. Speaking generally, Tanya Hotchkiss briefly highlighted macro challenges facing the Philippines: lack of a national long-term development policy for agriculture, failure to respond to farmers’ needs in terms of infrastructure, which increases physical and social exclusion, and vulnerability to climate change that, of course, mainly affect farmers. Ob-viously, MFIs have limited control over how to manage such challenges which is not the case for the micro level ones. And partnerships are really important. For example, to overcome the institutional weaknesses it is crucial to partner with other organisations which can help the MFI to scale up in terms of capacity building and have technical assistance to enable the MFI offer assistance to the farmers as well. Digital finance technology may also be useful to improve financial inclusion to smallholder farmers, but the Cantilan experience seems to underline that it might be premature for farmers who prefer less sophisticated technology products. Other important fac-tors are financial education and how to encourage farmers to save more in informal institutions.

Professor Claudio González-Vega highlighted three main con-cepts thinking about the future: rapid change as everything is changing fast and the rural area even faster; complexity of smallholders with a multitude of activities in their port-

folio; and uncertainty which means among others that we cannot longer use the past to forecast the future. He then underlined that systemic risk will be much more important in the future than in the past and hence microfinance, which historically focused on idiosyncratic risks, needs to find ways of dealing with them (index-based insurance is an interesting step forward but it is encountering obstacles and difficulties). Regarding financial services, to encourage production and increase productivity voluntary deposits are more impor-tant than credit because they empower as choices are made by depositors, create impact and value, stimulate innovation and contribute positively to schooling. Professor Claudio González-Vega pointed out that in the future, the financial in-stitutions that will succeed will be those that have compara-tive advantages in soft dimensions, i.e. the institutions that have the ability to create and maintain relationships with customers, institutions that can develop stable partnerships to negotiate and anticipate conflicts, institutions that are the best in knowledge management, institutions that have a governance allowing them to use these soft elements rather than the hard dimension of innovation (digital finance). The Professor concluded by saying that, in the future, the great-est threat is that digitalisation will become a substitute for personal interactions, for relationships resulting from human interaction and for confidence which has been and still re-mains the greatest contribution of microfinance.

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Daryl Collins started her closing remarks by observing that, when we focus on the segment of smallholder farmers, most of the topics we are dealing with in the financial inclusion field get somehow larger and more intense, both in terms of challenges and possible opportunities.

She started mentioning Professor Claudio González-Vega’s opening keynote speech sentence: “What is missing is the most difficult but has the most payoff”, by referring to the three main challenges and, more precisely, remoteness, infor-mation, covariance risk.

In terms of remoteness and after looking at the lives of smallholder farmers, Daryl Collins emphasized how this is much more difficult, much more volatile, how they have to jug-gle many things and how, therefore, they need funding much more. From the perspective of financial services providers, it is much more difficult to reach them because all costs are higher. The key question is how to reach smallholder farmers and what concrete tools could be used. So this is not an area

where you could find the best trade-off between cost and fea-sibility and it is very difficult to implement.

Regarding information, one of the main points highlighted during the two days’ discussions is that, by implementing digital financial services, the payoff for farmers would be incredibly high, especially for those in the most remote ar-eas. The more difficult it is to serve the client, the larger the payoff will be. Daryl Collins also underlined the importance of the information about the client and the segmentation in order to really try to understand their lives. She remarked that most of the issues discussed in the field of financial inclusion are intensified in this particular smallholder segment and “this community (experts, participants at this conference) is way ahead of the game”.

Moving on the third challenge mentioned by Professor Clau-dio González-Vega (covariance risk), Daryl Collins high-lighted the interest to focus on the idea of partnerships. All the sessions mentioned how difficult it is to maintain partnerships and the amount of work required.

Hence to improve financial inclusion of smallholder farmers we do not have to look for a single solution: it will be either mobile money, a particular type of financial institution or a particular type of product.

Daryl Collins concluded by stating that it is important to un-derstand that it is impossible to work on issues related to the fight against poverty through finance without including the aspects of information and technical assistance. And to propose such an offering, it is necessary to develop a larger community and better and stronger partnerships.

Speaker: Daryl Collins, Managing Director, Bankable Frontier Associates and co-author of Portfolios of the Poor

Closing Remarks

Fondazione Giordano Dell’Amore is pleased to have organised the International Conference “Improving Financial Inclusion of Smallholder Farmers”, combined with the Award Ceremony of the Giordano Dell’Amore Microfinance Best Practices International Award 2015.

This International Conference and the related Award are an integral part of one of the Foundation’s ob-jectives: generate and disseminate ideas, best practices and operational models in the field of financial inclusion in Italy and worldwide.

With three plenary sessions and nine workshops, the International Conference was an important moment of reflection and discussion with international experts on the development of microfinance solutions to improve financial inclusion of smallholder farmers.

This publication provides a summary of the discussions and points of view that emerged during the con-ference and we, at the Foundation, warmly hope that it will be a useful document to learn how the sector is trying to respond to such a challenge.