value chain finance vreideselanden gerda heyde 091202
TRANSCRIPT
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Vredeseilanden
Facilitating Access to Finance for Sustainable
Agricultural Chain Development
Workgroup Social Economy ATOL
December 2, 2009
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Content
a) Value Chain Financing- Financing needs- Different actors - Modes of interventions
b) VE’s policy- Principles + Objectives of VE’s policy- Strategies: 7 axes- Grants Vs Credit- Conclusions
Case: APROVAG - Senegal
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Value Chain - Bananes APROVAG
GIE de producteurs
Consommateurs
APROVAG
3 grossistes
- Dakar, Touba, Kaolack
Demi-grossistes
Détaillants
Intermédiaires
CoxeursTransformatrices
urbaines
Transformatrices
rurales
Financing NeedsChain Phase Activity Type of credit
Input provisionPurchase of inputsEquipment
Short term (< 1yr) revolving fundMedium term
Production Growing/ maintenanceShort term (<1yr) revolving fund
Gathering and storage
Cash purchasesInfrastructure
Short term (1yr) revolving fundMedium and long term
Processing
Infrastructure
Medium and long term Equipment
Processing costs Short term (1yr) revolving fund
Marketing/trading Working capital Short term (1yr) revolving fund
Export Export costs Short term (1yr) revolving fund
Retailing
Working capital Short term (1yr) revolving fund
Investments MT and LT loans
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• Interdependency of the different stages – see terms of payment at different stages
• Several short term financing needs• Medium and long term financing
needs for investments
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Two type of actors finance the chain:
• Finance institutions- Microfinance institutions- Commercial banks- Agri-development agencies- Specialised investment funds
- Private sector chain operators = embedded finance
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Rural finance history
• 60s & 70s – agricultural financing parastatals
• 80s & 90s – SAPs and collapse• Funds Re-directed to micro-
finance institutions
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Microfinance
• Increasingly reaching poorer populations
• Including a broader range of services – loans, insurance, remittances,…
• Gradually moving from donor funding to private capital
BUT : • Quasi only small amounts + short
term !!!• Hardly available for agriculture (6%)
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Commercial banks
• Increased liquidity• Renewed interest of the political world for
agriculture• Donor interest to involve commercial banks in
agrifinancing (e.g. USAID, Action-Aid,..)
BUT
reluctance to finance agricultural production due to:- High transaction costs- Seasonality- Vagaries of weather- Pests & disease,…
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Value Chain Financing
• A bridge between financial and product/market orientation
- Considers all chain actors and their services, constraints, opportunities, demand etc.
- Considers Financial Institutions(FIs) and the range of products, constraints & opportunities
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VCF – financial sector actors
Chain Phase Type of credit Chain actor Credit Provider
Input provision
ST(< 1yr) revolving fund
Farmers MFIs , SACCOsMiddlemen, Money lenders
ProductionST (<1yr) revolving fund Farmers
MFIs, SACCOs,MiddlemenMoney lenders
Gathering and storage
ST (1yr) revolving fund
Farmers' organisations
SACCOsLocal FI Higher level FIs e.o. through warrantage
Processing
MT and LT FO
Local FI (Few International FI)
Local FI (Few International FI)
ST(1yr) RV Local FI
Marketing/trading ST(1yr) RV FO Local FI, SACCOs
Export ST(1yr) RV FO Local FI, International FI
Retailing
ST (1yr) RV FO Local FI
MT and LT loans FO Local FI
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VCF - Embedded finance - private
Chain PhaseType of credit Chain actor Credit Provider
Input provision
Short term (< 1yr) RV
Farmers + FOSME + larger companies
SME + larger companiesTraders’ credit
Production ST(<1yr) RV Farmers Contract farming
Gathering and storage
ST(<1yr) RV
Group of interest; Farmers' organisations *
Warehouse certificates /Warrantage
Processing
Medium and Long
term FOSME + larger companies
Local FIFew Intern. FICommercial banksLeasing
ST(<1yr) RV Local FI
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VC + private sectorChain Phase
Type of credit Chain actor Credit Provider
Marketing/trading ST(1yr) RV
FO + SME + larger companies
Trader credit – via commercial bank financing
Export ST(1yr) RV
FOSME + larger companies
Trader credit – via Commercial bank financing
Retailing
ST(1yr) RV
FOSME + larger companies
Local FICommercial banks
MT and LT loans
FOSME + larger companies
Local FICommercial banks
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Case of APROVAG
• Farmers obtain loans from the APROVAG mutuelle
• GIE, members of APROVAG obtain credit from CNCAS for purchase of pumps + irrigation equipment
• APROVAG has introduced files with 2 commercial banks for the following, with support of the clients/wholesalers :– Refrigerated truck– Cold storage facility
• Wholesalers/ semi-wholesalers access commercial ST credit and pay cash
• Retailers obtain MFI credit
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Conclusions (1)
• Diversified range of partners (broader than the MFI sector)
• Interdependence between the different stages
• Important role for private sector chain actors (direct financing, collateral and moral guarantee, go-between)
• Issue of indirect targeting
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Conclusions (2)
Short term credit:
• Access to short term production credit for farmers = often available from MFI (especially if CFOs act as go-between)
• Access to short term credit for the CFO – SACD activities is only partly secured by MFIs ; commercial banks are also intervening, but need good track record + business plans + guarantee or collateral
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Conclusions
Medium Term Credit
• Difficulties to access financing for medium term investments (processing equipment, construction,...)– Amounts too big amounts for MFIs– Amounts too small for institutional investors
e.g. BIO– Projets are too poorly designed to interest
commercial banks (business plans, collateral, management capacities,...)
– Not in the core mandate of social investors such as Incofin, Alterfin
• Financing + guarantees are available for Fair trade (with guarantee from importer), almost not available for local trade
• Situation is particularly difficult in Africa
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VE ‘s Policy
Facilitating Access to Finance for Sustainable Agricultural Chain
Development
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The Principles
• Link between rural finance and sustainable agricultural chain development – mutually re-enforcing
• Search for new partnerships and opportunities for financing – pioneering, experimenting
• Rural finance administration is a specialization. VE will only facilitate access to credit or create linkages
• Gender mainstreaming – beware of weak position of women, how credit/SACD may re-enforce
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The Objectives of VE
• Organized family farmers have access to appropriate financial services
• Are consequently strongly positioned in sustainable agricultural value chains.
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The Strategies (7)
• Capacity development of OFFs• Promote the strengthening of capital
endowment of OFFs.• Optimize existing financing mechanisms
within the chain development.• Stimulate partnerships with FIs (MFIs,
banks)• Develop risk mitigation mechanisms for
financial operations within the SACD.• Promote and advocate for the scaling up • Lobby & advocate on issues related to
rural finance and SACD
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Mode of Intervention Grant Vs Loans
3 Modes of intervention:
• Grants• Grant +Loans• Loans
+ Grey Zone
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Thank you for your attention !