Private and confidential

Agricultural BankingStanbic Bank Uganda

“Experiences in developing agricultural financial loans – the role of market information ”September 2011.

2Outline

1. Overview of Stanbic Bank (U) Ltd

2. Changing agriculture sector landscape and the improving market information : creates opportunity for Africa

3. Standard Bank Agricultural Banking

4. The smallholder farmers and Agribusiness funding scheme

5. Success Factors and Key constraints

6. Key message

Private and confidential

Section 1

Overview of Stanbic Bank

4Stanbic Bank : African Roots with Global Reach

African Footprint Key regional officesBackground

• 17 African countries• Over 1,000 Branches & 7,500 ATMs across these geographic regions

•Established in 1862•Listed on the JSE•Largest trader of African

currencies in the world

• Offices in key regional financial centre's including London, Moscow, New York, Hong Kong, Sao Paulo and Dubai

•Stanbic Bank (U) Ltd– largest branch network• 97 branches; over 60%upcountry•Extensive expertise and strong track record of operating in emerging markets, mainly in Africa. • The largest African bank by geographic spread, assets, earnings and market capitalization• Winner of the Development Finance Initiative of the year. Agribusiness Investment Award 2010. Africa Investor

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5Out Africa footprint

* Trading as Stanbic Bank

AlgeriaEgyptLibya

Congo

Central African Republic

ChadNiger

Benin

Togo

Burkina Faso

MaliMauritania

Nigeria

Western Sahara

Senegal

Ivory Coast Ghana

Cameroon

Gabon

Gambia

Guinea Bissau

Guinea

Sierra Leone

Liberia Equatorial Guinea

Democratic Republic of Congo (DRC)

Sudan

Ethiopia

Kenya

Tanzania

Uganda

Rwanda

Burundi

Madagascar

Botswana

South Africa

Namibia

Zambia

Angola

Mauritius

Mozambique

Lesotho

Malawi

SomaliaDjibouti

Eritrea

Seychelles

Swaziland

Morocco

Cape Verde

Tunisia

Zimbabwe

Country Branches Corporate Banking

Retail Banking

South Africa 664 ✔ ✔ Botswana* 10 ✔ ✔Swaziland 11 ✔ ✔Namibia 44 ✔ ✔Zimbabwe* 18 ✔ ✔ Zambia* 12 ✔ ✔ Malawi 19 ✔ ✔ Mozambique

34 ✔ ✔

Ghana* 21 ✔ ✔ Nigeria* 96 ✔ ✔ Kenya* 16 ✔ ✔ Lesotho 15 ✔ ✔ Uganda* 98 ✔ ✔ DRC* 2 ✔ ✔Angola* 1 ✔ *Tanzania* 11 ✔ ✔Mauritius 1 ✔ ✔

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Section 2:Changing landscape in the agriculture sector: creates opportunity for Africa

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The role of Market information in banking product development and offering

Market Information Plays a leading role in the Banks product development and offering;

–Prices of agricultural Commodities at Key points in the value chain

–Reliable Historical data gives an indication of future price movements and demand

–Data on movement of prices and demand in agricultural commodities forms a strong basis in product development and offering

8Changing landscape in the global agriculture sector

Africa has the potential to increase production and productivity to meet growing demand food demand

Establish functional and more lucrative supply chains

Agric commodity export opportunities for Africa

Import substitution that will arise from increasingly competitive African agribusinesses.

Global consumption of food & livestock to increase significantly by 2019 (by about 50% for developing countries)

Food prices increases (mainly due to increase in energy price)

Global food inflation increased sharply from 2007-10 (mainly for low and low-middle-income countries)

Africa realizing significant annual growth: > 5% GDP growth

Agricultural yields stagnated in spite of average per capita production increase

Some key trends

Opportunities

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Section 3Agricultural Banking – Integrated value chain finance approach and product offering

* Note, derivatives still restricted to SA (Safex) and some African imports and exports

Banking the Agricultural Value Chain: Needs and Products

Value Chain Activities & Needs

Need timely production finance for inputs to ensure yields

MTL to expand the businesses Price hedges to mitigate price volatility

risk Crop insurance to mitigate risks

Need finance to purchase crops (quality and quantity) at optimum time

Need risk mitigation instruments for margin payments and support for carry trades

Need finance for expansion and a acquisition targets

Fert and seed co’s aim to increase penetration by facilitating input finance

Need to manage raw materials cost, and price volatility for buyers

Capex for plant , equipment and infra

Input Finance Crop Advance (prepayment

for crop) VAF

Finance instruments Risk* and Other Products

To secure control over raw material Liquidity to buy at optimal time Hedging of revenues where processed

commodity tradeable Need finance for expansion and

acquisition targets

Need liquidity to buy at optimal time, but want to reduce w. capital and credit risk

Need finance expansion and acquisition targets

Commodity finance– Repurchase Agreements– Receivables Finance– Warehouse receipt financeLeverage and acquisition finance

Physical brokering Commodity price hedges, for

own benefit and to facilitate financing

Crop and weather Insurance

Physical brokering Commodity price hedges Currency and ex rate hedges,

FX Research

Commodity finance– Repurchase Agreements

Receivables finance Leverage and acquisition

finance

Physical brokering Commodity price hedges Currency and ex rate hedges,

FX M&A Advisory Research

Repurchase Agreements Warehouse financing Project finance Vehicle and Asset Finance

(VAF)

Physical brokering Price hedges (fertiliser, fuel?) Currency and ex rate hedges,

FX Research

Commodity finance Leverage and acquisition

finance VAF

[Physical brokering] Commodity price hedges Currency and ex rate hedges,

FX M&A Advisory Research

Input and Logistics

Suppliers

Farmers (small and commercial)

Commodity Traders

Primary Processors

Food & Beverage Companies

Wholesales andRetailers

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Current product offering

Stanbic Bank in partnership with AGRA and Kilimo Trust set up the

Agri-Business Loan Scheme (Small holder Financing)

The Government Agric Facility

Vehicle and Asset Financing

Ware house receipt financing

Danida aBi Guarantee

Commercial Agriculture

“Flexible and Innovative Agric Financing”

12Overview of the Agribusiness Scheme

The scheme is a three year program and will disburse up to $100 million targeting 750,000 smallholder farmers and agribusinesses in 4 African countries: Uganda, Tanzania, Mozambique and Ghana

Risk partners provide partial risk cover (1st loss guarantee and 50% risk participation)

The scheme relies on value chain finance to leverage on the interlocking arrangements among the value chain actors

The scheme leverage on partnerships to take the advantage of mechanization, TA support and precision agriculture to improve production efficiencies

The scheme financial instruments include:

– Input finance and agricultural production loans,

–Commodity finance,

–Agricultural machinery/equipment finance

13Our partners are:

• KILIMO Trust,

• The Alliance for a Green Revolution in Africa (AGRA)

•OPEC Fund for International Development (OFID)

• Risk participation:

• 1st loss guarantee and

• 50%/50% risk sharing

The Small holder farmer funding model:

Risk sharing Partners Bank

Co-ops

Smallholder Farmers

RSG

Off-taking agreement

Off-taker

Technical Assistance Provider

Contract and monitor TA providers

Agric input / equipment providers

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Aggregate portfolio performance

• Financed more than 70 projects

• Total number of smallholder farmers benefiting from the scheme is about 5,000

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Country Specific financing

•Agricultural Production Crops

•Agricultural production Livestock &poultry

•Marketing including commodity trade

•Processing and light industries

Private and confidential

Section 5

Success factors and key constraints

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Some success factors

• Specialized Agricultural Banking: products and expertise

• Structured finance approach:

• Structured finance approach

• Self-liquidating and cash flow based finance

• Leverage on partnerships: lead firms, NGOs, etc

• Legally binding contracts. e.g. tripartite agreements, TA provision agreement and joint liability guarantee

• Increasing production efficiencies:

• Agronomy services and crop husbandry

• GIS mapping and soil testing

• Agricultural production manual & guidelines

• Mechanization: partnership with John Deere for the provision of agricultural equipment.

• Upgrading the value chains. Example, enabling farmers access to market through partnership with WFP and large domestic, regional and international agribusiness

Cross selling opportunity: 55,000 smallholder farmers accessing finance through this scheme. How to bank them?

19Some key constraints

• Maximizing the value chain finance concept in a context where:

• Inexistent/ underdeveloped value chains (mainly food crops)

• Loans are generally high volumes but relative small values

• Weak CBOs (producer groups, associations and co-operatives)

• Climate change: heavy reliance on rain fed agriculture

• Unorganised supply and demand

• High post harvest losses

• Erratic production due to weather shocks and seasonality

• High transaction costs resulting from information asymmetry and poor information flow. (adverse selection and moral hazard)

• Weak systems for contract enforcement (legally binding contracts)

• Lack of legislation and/or regulations suitable to agriculture financial intermediation (e.g. commodity finance supporting instruments)

20MIS requirements for appropriate Agric-financing

Agricultural produce pricing

–Farm gate prices

–Wholesale prices

–Export / main off taker prices

Quantities and Quality

Price and quantity movements over time

Expected costs involved

Seasonality of crops and regional differences

Storage and processing capacities availability and location

Availability of markets and major market players

Ease of delivery to markets

Private and confidential

Section 5

Key message

22Key messages for conducive policy

• Addressing market failures: information asymmetry

• Appropriate policies and regulations

• Avoid market distorting policies. e.g. government funding schemes, marketing and price control, etc

• Strengthen CBOs (producer groups, associations and co-operatives) to enable access to farmers

• Build climate change resilience and adaptation: e.g. investment in small and medium scale irrigation systems,

• Investing in public goods and infrastructures• Adopting policies and strategies to re-risk agriculture sector: e.g. risk

sharing and price hedging • Harnessing legal systems for contract enforcement • Harnessing legislation and/or regulations suitable to agriculture financial

intermediation (e.g. commodity finance supporting instruments)

Contact Details

Richard WangweHead, Agriculture Stanbic Bank (U) Ltd, 0417154210wangwer@stanbic.com

Thank you