Embedding finance in the sesame value chain – Humera

APF- Value chain W/shop 24th June 2010

Current Situation

Setit Union

Shewit CooperativeFana Cooperative

certified Organic Sesame12 other Cooperatives

2600 Households 6400 Households

Selet Hulling PLC

Current Situation – Pre-finance

•Setit Union•90,000 Ha’s

Input finance required- Birr 290 million

•Commercial Bank Ethiopia

o(Tigray Regional State Government

collateral)

•Commercial Bank Ethiopia

o(Tigray Regional State Government

collateral)

6 million

•Selet Hulling PLCo(Own collateral)

1,5 million

Shewit & Fana Other coop’s

Farmer pre -finance requirements

Average land holding – 10 hectaresInput requirements – Birr 3200 per HaTotal requirement – Birr 32,000 per farmer

Fana & Shewit receive on average – Birr 58/HaOther coop’s receive on average – Birr 94/Ha

Pre-finance from banking sector – 3%

Where does other finance come from?

Personal savings – unknown, but very littleLoan Traders – Large proportion +- 80%

Finance costInterest rate from bank – 8,5% per annumInterest rate Selet Hulling – 0%Interest rate Loan traders – up to 40% per month (negotiable)

Farmer pays the cost – reduced income

Way forward

How to increase the bank finance?Increased government collateral - CBE - unlikelyBuyers input more finance – Personal collateral - limitedPre-purchase contracts - Private sector – contract farming – sesame as collateral

Pre- purchase contracts

Europe

Ethiopia

International bank

International bank

Setit UnionSetit Union

International buyerInternational buyer

Local bankLocal bank

Pre purchase contract

Collateral

Collateral

Trust

Sesame sales

Sesame sales

Loan

Payment

Payment

Thank you

What does the triangle look like?

What is the benefit and risks for farmers?

Access to financeExport through connectivityCash for inputsIncrease in productivityHigh price as a result of certificationThe demand for humera variety is growing

Risk

• Farmers default• Crop failure• Crop insurance payments• Low price (depending on the nature of the

contract)

Is there potential for upscaling?

• Yes. Only two unions are covered in this scheme and there are 12 others .( in humera)

• It can be upscaled to other export agricultural commodities

What are the role of NGOs,BDS providers, govt organizations etc?

• Government: research• NGOS like cordaid: finance & BDS service • SNV: BDS service , support local research

institutes • WUR : Research on local seed varieties • F & S : BDS service