OWURAKU SAKYI-DAWSON (PhD)DEPT. OF AGRICULTURAL EXTENSION
UNIVERSITY OF GHANA, LEGON
Africa Regional Workshop on Promoting Access to Rural Finance for Enhanced Agricultural Productivity, 16th July 2013. Accra International
Conference Centre
Introduction
• Focus• … innovative options for bridging
agricultural and rural finance demand and supply gaps in Africa
• - Strategies• - Mechanisms• - Complementary technologies• - Policy issues
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Supply gaps: Low supply to agric and rural areas
Credit Supply Indicator Developing Countries
All Africa Rural Africa
High income OECD and non-OECD
Population with access to financial services
20% 4%
Population with access to formal credit
1%
% Bankable households
12% 91%
SME lending volumes as percentage of GDP
4% 20%
% of rural population with access to formal financial services
10%
Nigeria Adult population ever banked
26% 14%
Microfinance access by households in WAEMU
20%
Agriculture households with access to microfinance in WAEMU
7%
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Other agric and rural finance supply gaps in Africa
Supply gap? High and diverse demand exist – value chain
lens High unmet “demand in middle part” of value
chains▪ E.g. small producers, traders, processors
▪ Impact – counter developmental?
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Reasons for supply demand gaps
– Supply side challenges e.g.
– Demand side challenges
– Constraints at the country, legal policy, and management levels
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Some principles in the complementary approach
Build long-term capacity of both -financial services providers
& -value chain actorsProvide incentives to the
entities participatingFacilitate access to wide range
of services
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International market
Medium/ large-scale buyers and exporters
Local Traders
Farmers Association
Smallholder farmersRetailers/Kiosks
Input Supply Companies
(Seeds, Fertilizers)
Commercial
Banks
Commercial
Banks
Domestic market
MFIs, Credit Unions, Coops
MFIs, Credit Unions, Coops
MFIs or Commercial Banks
MFIs or Commercial Banks
Commercial Banks
Commercial Banks
Current finance flow (size of arrow indicates volume)
Potential finance flow
COMPLEMENTARY APPROACH: POLICY FRAMEWORK
Source: USAID, 2005 7
BUILD ON EXISTING VC & FINANCIAL RELATIONSHIPS
Local processors, wholesalers
Commercial banks equity
funds
Local traders, producer
associations
Industrial processors, exporters
Small producers, micro-enterprises
Commercial banks and companies
Banks, microfinance institutions, companies,
unions
Microfinance institutions, savings and
credit co-ops, companies, associations
Short term loans, savings, group loans
Medium-term loans, leasing
Short and medium-term loans, leasing
Long-term loans, guarantees, equity
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Strategies for facilitating finance for value chain development Craft a new value chain(s) –
– Financial and technical capacity building• Cooperation between producers, buyer, financial agent • Provide producers with access to financial services needed
for their business Expand an existing chain liquidity
– Lead firm strategy• Strong lead firms in the chain used as vectors to reach non-
bankable suppliers • The lead firm is the collateral for providing finance to the
suppliers Unleashing investment capital into an existing
value chain– Micro-leasing – through associations
– Temporary equity financing 9
Innovative mechanisms for effective agricultural and rural finance 1• Warehouse receipts– A receipt is given to the farmer after their
produce is sent to certified participating warehouse e.g. Ghana Grains Council
– The receipt serves as a collateral for loans• Contract farming / out-grower
schemes– Buyers offer “cash or in kind” as a form of
credit for purchasing of produce– E.g. Maize farming (informal) pineapple (formal)
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Innovative mechanisms for effective agricultural and rural finance 2
• Re-purchase agreements (Repo finance)– Bank purchases the products from the
seller and also signs a contract to sell it back to the previous seller later in the future
• Private equity– The financier (by a bank or an investor)
purchases shares from a value chain company / actor
– The actor thus has capital to invest in activities
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Innovative mechanisms for effective agricultural and rural finance 3• Leasing– The actor e.g. the farmer is provided with
equipment for few years on a contract basis– The lease is paid off by the farmer in
installments– The leasing company may either reposes or
sell the equipment to the farmer at the end of the lease period
– Process is less risky than provision of loans to farmers
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Innovative mechanisms for effective agricultural and rural finance 4
Factoring An invoice is received by a farmer after
delivering produce to a buyer The invoice is sold to a third party
(Factoring house) The factoring house pays the farmer
deducting a fee, and sends the invoice to the buyer for payment
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Complementary supportive technologies 1• Use of ICT to bundling
development services with agricultural finance:
• E.g. DrumNet • Key actors within the supply chain are
identified eg. Banks, buyers, and input dealers– Smallholder farmers are linked to the
key actors– Inclusion of ICT in the process
enhances its effectiveness and efficiency
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Complementary supportive technologies 2• The Kenyan example of M-PESA
(Mobile Money)– This system was developed through
Vodafone with financial assistance from DFID
– Lunched in March 2007– Registered customers are able to send
money home without the need of a bank account
– Customers purchase electronic money using cash
– Mobile phones are used in performing financial transactions
– The electronic money can also be converted into cash, through its sale to agents
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Mobile money in Africa 3
Africa has been the hotbed for Mobile Money:15 of the top 20 countries in the world wrt mobile money usage
An estimated 80% of adults still unbanked, combined with new developments in commercial payments and a youth market with strong loyalty to mobile channels
The potential for growth is enormous16
Esoko mobile technology platform for value chain information exchange 4 Uses SMS messaging aimed improving
transparency of markets and the operational efficiency of organizations
Collects and provides content such as prices, bids and offers, weather, and agricultural tips to which users can subscribe.
Farmers negotiate better prices, choose markets, timing of sales, participate in outgrower schemes through Esoko profiling and reputational history. 17
Complementary supportive technologies 5
Biometric Technology in rural credit markets: Malawi, Kenya, Tanzania Common biometrics (fingerprints, face,
iris, retina, speech, and handwritten signatures) used▪ This prevents identity theft
Smallholder farmers can apply for loans using this biometrics
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Innovative risk management in rural and agriculture finance
Financing Strategies + Innovative Financing Mechanisms + Supportive Mechanisms and Technologies =Innovative risk management Bringing the business into the picture
Using soft collateral in place of hard collateral
Looking at the potential of the business case rather than using past financial records
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Critical stakeholders in reducing supply demand gap in rural finance
Governments
Banks and other financial agents
Private non-financial Companies
Donors
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The role of government in the strategy
Appropriate legal framework wrt financing strategies, mechanisms and technologies
Other roles of government• Minimal government intervention in the area
of setting interest rates
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Role of banks and other financial agents in the strategy
Extending credit to other / small actors
Aiding in setting-up of warehouse receipt lending system
Developing links between small farmers, buyers, and suppliers
Working with smallholder farmer associations
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Role of private companies in the strategy
Ensure that quality standards are maintained by setting up the warehouses and operating them professionally
Using the mechanisms
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Role of donors in the strategy• Partnering with community-based financial
organizations (CBFOs)
• Working with farmers not well integrated in the product market
• Using subsidies to support the building capacities of the lenders in areas of training and technical assistance e.g. MiDA in Ghana)
• Supporting lenders based on transparent criteria
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Conclusions:
Strategy for effective agricultural and rural finance is founded on the realization that it is absolutely necessary to integrate small and medium scale farmers and other actors into mainstream financial systems for African Development
Believe in existence of and workability of a strategy for linking smallholder farmers to financial markets
But cannot be done as business as usual 25
THANK YOU
CONTRIBUTIONS? COMMENTS ? ADDITIONS? QUESTIONS
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