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Agricultural Banking Stanbic Bank Uganda. “ Experiences in developing agricultural financial loans – the role of market information ” September 2011. Outline. Overview of Stanbic Bank (U) Ltd - PowerPoint PPT Presentation
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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
5
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
RwandaBurundi
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 ✔ ✔
Private and confidential
Section 2:Changing landscape in the agriculture sector: creates opportunity for Africa
7
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
Private and confidential
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
11
Current product offeringStanbic Bank in partnership with AGRA and Kilimo Trust set
up the Agri-Business Loan Scheme (Small holder Financing)
The Government Agric FacilityVehicle and Asset FinancingWare house receipt financingDanida aBi GuaranteeCommercial 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
15
Aggregate portfolio performance• Financed more than 70 projects• Total number of smallholder farmers benefiting from the scheme
is about 5,000
16
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
18
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-financingAgricultural produce pricing
–Farm gate prices
–Wholesale prices
–Export / main off taker pricesQuantities and QualityPrice and quantity movements over timeExpected costs involvedSeasonality of crops and regional differencesStorage and processing capacities availability and
locationAvailability of markets and major market playersEase 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, [email protected]
Thank you