NS I I MA 1

Overview on financing opportunities for agriculture and agro-processing.

April 4, 2012

April 4, 2012

NS I I MA 2

Current situation

• Facts obtained from the value chain stakeholders: focus group meetings consultations with individual key stakeholders

• ISSUES• Financial institutions: Few commercial banks are

involved in Agricultural financing, Poor advertisement of the agricultural loan products.

• Group dynamics: High disintegration of farmer groups, Lack of internal democracy of groups, Poor record keeping of groups, Failure of farmer groups to form legal associations

April 4, 2012

NS I I MA 3

Current situation

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April 4, 2012

• Servicing of loans: Irregular agricultural loan servicing, Risks and uncertainty, Agriculture is perceived as a high risky venture, Few insurance companies involved in crop insurance.

• Agriculture remains unpopular with commercial banks it requires close monitoring.

• Some financing schemes favour grains such as oil seeds, maize, rice, etc. and avoid fruits because of their short shelf life.

NS I I MA 4

Current situation

• Recent reports: Agriprofocus Finance Fair (Fortportal) ; . – “banks confirmed that their knowledge about accessibility and

appropriateness of their current product range for the smallholder agricultural sector was unknown. With the gained insights, they would re-assess current conditions to customize product conditions and increase accessibility”.

– “the event also brought to the fore that farmers still have a lot to learn about how banks work”.

– “After the Fair, farmers and farmer groups confirmed their increased knowledge of the financial services and stated at the same time that they felt empowered and more confident in applying for services, including those of commercial banks”• Finance fair report: source http://apf-uganda.ning.com

April 4, 2012

NS I I MA 5

Financial services

• Uganda’s Centenary Bank, • In partnership with the World Bank’s Agriculture

Finance Support Facility (AgriFin) is managing agriculture finance program to benefit smallholder farmers, and Small and Medium Enterprises (SMEs) in key agricultural value chains.

• The bank has 6 or more agricultural products supported by various partners.

•

April 4, 2012

NS I I MA 6

Centenary BankType of financing Micro business loans, commercial/SME/corporate loans,

Financing thresholds Minimum Shs 100,000 - open

purpose of agri-finance finance agricultural related activities: production, marketing and processing

Eligibility criteria Small commercial oriented farmers, collateral, account with the bank

Loan period Maximum 12 months (production) 24 months marketing

Grace period Dependent on the activities and cashflow

Pricing 22% , 0.85% (Chartis) application fees Shs 15,000

Insurance 0.85%

Collateral requirements Value 150% of the loan amount

Documents required documents of ownership of collateral

Repayment schedule Monthly, dependant on the cashflows of the project

April 4, 2012

NS I I MA 7

Title: Pride Agricultural Loan

Financing thresholds Min Shs. 200,000 and max Shs. 30m

Target group Rural and peri-urban clients involved in primary agriculture

Kind of agri-product finances

Production of marketable products

Loan purpose Purchase seeds, pesticides, fertilizers, and other inputs

Eligibility criteria Ugandans above 18 yrs, engaged in profitable farming of crops and livestock for at least the previous one year

Loan period and Grace period

4 to 24 months, Grace period is based on the gestation period of the agricultural enterprise

Pricing 21 monthly of declining rate. Loan applicable fee 3% on the loan amount

Collateral requirements The borrower should secure the loan with a formal collateral

Documents required Completed loan application form, credit history, personal identification; signed loan agreement

Repayment schedule Tailored to the cash-flow pattern of the borrower and the investment for which the loan is sought

April 4, 2012

NS I I MA 8

Stanbic Bank: agri-business Loan Scheme

Type of financing Agricultural loans, Agribusiness loan schemespurpose of agri-finance Small holder farmers must be

organised into groups by offtaker or buyer

Loans to support agribusiness and modernization of agriculture

Target group Small holder farmers organised into farmer groups

farmers

Kind of agri-product finances

Maize sunflower rice beans soyabean

See below

Loan purpose Agriculture improvement Loans for machinery and equipment, capital and agricultural inputs

Eligibility criteria Lending is through intermediaries who provide famers with agricultural inputs

Farmers have to be viable financially, economically technically and with appropriate management, market potential and environmental consideration

April 4, 2012

NS I I MA 9

Stanbic Bank: agri-business Loan SchemeSmall holder farmers Loans to support agribusiness

Loan period Up to 6 yrs Up to 8 yrs

Grace period Max 3 yrs

Pricing Lending rate 3 -5% basing on risks

Interest is 10% fees .05% of the loan amount

Insurance For structures and equipment

Process Formal application, site visit Application , intensive selection process

Documents required Land title, audited books for 2 yrs, bank statements for 6 months

Legal documentation, registration and others

Repayment modalities/schedule

Monthly installments

April 4, 2012

NS I I MA 10

DFCU Bank Leasing (https://www.dfcugroup.com) What is leasing: A medium-term finance option for acquiring business equipment, vehicles, plant and machinery. • Dfcu Bank/SME promoter purchase the equipment. The SME

uses the asset for a specified period of time, in return for specified rental payments at an agreed interest rate.

• At the end of the period, the ownership of the equipment is transferred into your business name or depreciated and sold to a third party.

• The range of leases is between UGX 100M and UGX 2Bn. Transactions outside that range can be considered under special circumstances.

• Repayments are structured to match the SME cash-flow.

April 4, 2012

NS I I MA 11

DFCU Bank Leasing

• Security: The collateral for a lease is the leased asset itself. For new assets, DFCU finances 60% of the equipment cost and you contribute the remaining 40%. Only in certain cases where the leased equipment is not adequate to cover the cost of the loan may we ask for additional security.

• Rental determination: The rental amounts are determined by the cost of the equipment, interest rate charged and Value Added Tax (VAT).

• Rental payments: The client starts making rental payments a month after receiving the leased equipment in their business operations.

April 4, 2012

NS I I MA 12

DFCU Bank Leasing

• Basic requirements:

– Minimum upfront payment of 30-40% of the total value of

the equipment or asset

– Filled in Lease application form

– Pro-forma invoice addressed to dfcu Bank

– 6 months’ bank statements

– Passport size photos of at least (2) key directors of the

company

April 4, 2012

NS I I MA 13

DFCU Bank Leasing

• Basic requirements: – Business Tax Identification Number (TIN)– Certified Particulars of Directors (Form 7)– 12 months cash-flow projections– Certified copy of the Memorandum and Articles of

Association– Registered resolution to borrow– Certified copy of the Certificate of Incorporation– Audited /Management accounts for the last 2 years

April 4, 2012

NS I I MA 14

Pearl Capital Partners (Uganda)• A specialised African agricultural investment

fund manager.• Several others operating in East(ern) Africa• Objectives: to catalyse the growth of small and

medium agribusinesses in East Africa. To enable the SMEs to expand/diversify, adopt improved technologies, bring about improved rural job creation, development and food security.

• Already, $25 million has been invested into the African Agricultural Capital Fund (AACF)

April 4, 2012

NS I I MA 15

Pearl Capital Partners (Uganda)

• invests US$250,000 - 2 million in growing agricultural small and/or medium-sized businesses in East Africa, typically using a combination of equity, quasi-equity, equity-related and debt investments;

• has target return expectations of 12% to 15% per annum on funds invested.

• targets SME’s which operating under farmer group framework – meeting its social impact criteria.

April 4, 2012

NS I I MA 16

Pearl Capital Partners (Uganda)

• PCP considers companies that meet the following criteria:– Businesses that operate in the agri business value chain in East

Africa and that have the potential to generate positive financial and social returns;

– Capable management team with solid reputations, extensive knowledge and financial commitment;

– Sound strategy and business model; – High growth potential;– Transparency and ability to adhere to high standards of

corporate governance and financial reporting;– Compliance with the Fund’s investment ethics and

environmental standards;

April 4, 2012

NS I I MA 17

Pearl Capital Partners (Uganda)• What PCP offers:

PCP becomes business partner to the investee SME, being represented on the SME by a director throughout the life of its investment.Practical support to the SME: – Providing flexible investment structures;– Support in providing sound internal systems and control;– Developing business strategy and action plans;– Establishing appropriate Corporate Governance structures.

• The SME also benefit from access to a technical assistance facility, through which it is able to access independent business development and technical support services.

April 4, 2012

NS I I MA 18

Pearl Capital Partners (Uganda)

• Investment portfolio – Uganda– Bee Natural Uganda a honey business located in Arua.– Biyinzika Enterprises poultry business located in the

Seeta area, Mukono. – NASECO seed company operating in Uganda and

located in Hoima district. – Farm Inputs Care Centre Uganda (FICA) seed

businesses in Uganda, – Centre for Agricultural Inputs International Ltd (CAII)

The business is based in Iganga,

April 4, 2012

NS I I MA 19

European Union equity fund

• European Union through the EIB to establish an equity fund. It will contribute Euro 15 million towards the fund while the government of Uganda and financial sectors like banks, NSSF and Insurance companies, are expected to make a contribution in order to come up with a total fund of Euro 30 – 40 million and 40 million.

• To be used to contribute equity to agricultural SMEs that are have contractual buyer-supplier arrangements with farmers.

April 4, 2012

NS I I MA 20

European Union equity fund

• The equity thresholds will be $250,000 – 2m and duration of the fund extended to an SME will be a maximum of five years.

• Will invest in cooperatives with proven ability to grow, business oriented and good governance, and must contribute to capitalization.

• In addition to the equity fund, the SME will benefit in capacity building in management skills, preparation of bankable loan applications and business plans.

• The fund is being formulated, It will involve recruiting a Fund Manager, expected to become operational by mid next year.

April 4, 2012

NS I I MA 21

Discussion

• Discussions: focussing on practical MSP actions (what should MSP do?) to lobby for improved access to financial services.

April 4, 2012