Warrantage in Niger:Adaptations for a developing country

Emilio HernandezAgricultural Finance OfficerFAO/AGS20 September 2012

Source: WFP, 2009

• GDP per capita is USD 800

• 43.6% of population below USD1.25/day

• Exports go to Nigeria (68.3%); USA (12.2%) and Ghana (9.8)

• Paved roads coverage 3,912 Km

• 39% of GDP is agriculture, with sorghum and millet as staples

• Government-owned fertilizer monopoly

Introduction:

Some country facts

Warrantage systems:

The local adaptation

Source: Adapted from LeCoutois and Olofsson, 2010

1. All of the 132 MFIs in the country offer warrantage products

2. In 2009 it represented roughly 8% of their portfolio value

3. Repayment rates are above 97%4. In 2004 there were 104,741 clients; rural

penetration rate of warrantage estimated at 5.3% (up from 3% in 2001)

Warrantage systems:

Some recent facts

Source: The MIX, 2012 and LeCoutois and Olofsson, 2010

Why does warrantage work in Niger?

1) Predictable timing of price peaks

Source: Afrique Verte International, 2010 and the author

Why does warrantage work in Niger?

2) Constant demand outlet to Nigeria

• 68% of exports go to Nigeria, most of them consisting of millet, sorghum and onion surpluses

• Nigeria as a net importer of cereal and having higher purchasing power absorbs any surplus Niger is able to produce

Why does warrantage work in Niger?

3) Functional federations and coops

The constant demand for cereal imports from neighboring Nigeria has created stable business opportunities for farmers in Niger

Through their organizations, farmers have worked steadily to benefit from these opportunities by building storage facilities and making joint loan requests backed by cereal stocks

Understanding cereal markets enable MFIs to accept stocks as collateral, given their ability to liquidate it in case of default

Why does warrantage work in Niger?

4) MFIs know the value of stocks

The character-based assessment of creditworthiness, enables MFIs to lend to producer organizations under a weak contract enforcement framework

How do agricultural households use warrantage credit?

It’s all about smoothing cash flows

Households use loans to finance trading and marginally for vegetable production. Very rarely is the loan used to purchase agricultural inputs for the main staples These short-term activities enable the

generation of cash while cereal prices improve and revenues are used to pay the loan

From 2001-2010, a sample of 34 POs shows cereal price differentials were superior to principal, interest and fees in 71% of the cases

Conclusions and policy implications

The combination of stable agribusiness opportunities, strong farmer organizations and lenders familiar with agricultural markets that makes warrantage work in the country

The core business condition is not easy to replicate by governments and development agencies in other contexts

It is key that interventions recognize this condition to support warrantage initiatives led by local farmers, traders and lenders

Thank you!