Upload
kenneth-gibson
View
216
Download
2
Embed Size (px)
Citation preview
MicroSaveMarket-led solutions for financial services
MicroSaveMarket-led solutions for financial services
Sources of funding and support systems for Agricultural Value Chain Finance – lessons from Asia
Anup Singh
1
MicroSaveMarket-led solutions for financial services
Financial exclusion in Agriculture in Asia is a prevalent problem
% of households without access to financial services
>80%
60-80%
40-60%
20-40%
<20%
Source: World Bank data, 2007 and AFI
2
600 million adult people in Asia – (one-tenth of the world’s and one-sixth of Asian population – do not have access to quality, affordable, secure, formal financial services such as savings, credit and insurance.
90% excluded are on agriculture as their primary source of income.
Financial exclusion means high costs for poor producers in AVC, as they have to depend on informal financial services.
Leads to social exclusion, particularly in rural areas.
MicroSaveMarket-led solutions for financial services
Value chain finance presents a unique opportunity
3
Minimises costs thus enhances efficiency Mitigates risks Improved product quality and
delivery Reduces information asymmetry Trust-based
Enables core business strategy development Product and process innovations Value accretion due to net value added Continual enhancements along the VC Increased access to markets and information
Financial inclusion
Export competitiveness
Areas Benefits
MicroSaveMarket-led solutions for financial services
Sources of funding for agriculture in Asia are diverse in nature
4
Value chain element
Sources of financing ( increasing degree of formalisation)
Banks Co-ops MFIsInformal financiers
Value chain actors
Family and
friendSelf financed
Producers
Input Supplier
Small and marginal producers
Large farm owners
Agricultural enterprises
Agents/Aggregators Processors
Wholesalers Retailers Exporters
INDIRECT OR OUTSIDE THE CHAIN FINANCE
DIRECT OR WITHIN CHAIN FINANCE
SELF-FINANCELegend
Never used
Rarely used
Some times used
Frequently used
Mostly used
MicroSaveMarket-led solutions for financial services
Direct versus indirect finance
5
Low costs, low risk Tailor made financing Improved chain efficiencyBetter yields via improved
inputs
Lesser value realisationNo cash benefitsDependency on the lendersNo long-term loans Lack of transparency in the
arrangement.
Medium to long term financing
Tailor made repaymentTransparent, market-basedLess monopolistic More efficient Access to range of services
High cost of lending to the producers
Time consuming Requires collateral
Less access to informationEnforcement issues
Pros ConsD
irec
t F
inan
ceIn
dir
ect
Fin
ance
References were drawn from Calvin Miller’s work on Agricultural Value chain financing
MicroSaveMarket-led solutions for financial services
Financing instruments prevalent in Asia
6
Attribute Aggregator financing
Input supplier financing
Lead firm financing
Warehouse receipt financing
Inter-relationship Trust based Trust based Buy back
agreementWarehouse receipts
Benefits Easy, tailor made financing
Loan misutilisation is checked
Value added services
Increased yield
Disadvantages Seasonal, loansLimited bargaining power
Limited financing Less price benefits
Limited bargaining power
Poor implementation Connivance of warehouses
References were drawn from Calvin Miller’s work on Agricultural Value chain financing
MicroSaveMarket-led solutions for financial services
Suitability of approaches and conditions for operations
Input needs and extension services: Generic or specific Product type: Unorganised local staple, organised local staple,
captive global buyer product or exportable cash crop Aggregation point: Not at all aggregated, at local traders and
markets or at cooperatives/associations Value chain power: Government regulated, buyer or supplier power Number of producers: Small numbers located in wide dispersion,
large aggregated producers Market characteristics: Limited formal markets, organised local
markets or export markets Crop characteristics: Price incentives for quality, perishable post
harvest, durable post harvest, no price incentives for quality Financial attractiveness: Credit worthiness and profitability based Risks associated: Supply, production, market, price and human risks Financing gap: Formal and informal finance, range of services
needed
7
MicroSaveMarket-led solutions for financial services
Examples from Asia
8
Attributes Cut flowers, Bangladesh Cocoa, Indonesia
Input needs and extension services Specific Specific – government
intervention
Product type Exportable perishable crop Exportable cash crop
Aggregation point Aggregators and exporters Local collectors
Value chain power Aggregator and exporter power Aggregator power
Number of producers Small numbers Large number of smallholders
Market characteristics Export markets Export markets
Crop characteristics Perishable post-harvest
Price incentives for quality and perishable product
Financial attractiveness High Producers lack physical guarantee
References were drawn from Dalberg’s Agri-financing analysis
MicroSaveMarket-led solutions for financial services
Risk management – what works in Asia?
9
Key risks Risk Mitigation
Market/price risk
Crop/Weather risk
Collateral risk
Production risk
Human risk
Market measures
Market based pricing, hedging and buffer stock
Future, swaps, options and forward contracts
Innovative finance
Warehouse receipt financingIndex based weather insuranceCrop insuranceFarmers and family insuranceCash flow based lendingCommitment savings
InputDrought resistant varietiesInput, supplies and equipment financing
Irrigation financing
Information Market information services
MicroSaveMarket-led solutions for financial services
Key lessons learnt with implications on Africa (1/2)
10
Government role is paramount as facilitators: Government should play a role of facilitator by relaxing the policy norms; subsidising institutions and infrastructure; encouraging financial services providers to support the agricultural sector; effective land and collateral registers; increasing access to information and improving operation of courts, and the cost-effective and timely enforcement of creditors rights.
Integrate finance suppliers into the value chains: Although direct financing is flexible, it runs the risk of producers’ exploitation. Hence, governments can support lending by banks and FIs through credit enhancement programmes and risk cover through guarantees.
Affordable, flexible and accessible finance products: Lack of appropriate financing product limits the value chain players to derive the full potential of the value chains. Thus, the focus should be on design of affordable, flexible and accessible financing products.
1
2
3
References were drawn from FAO’s work on agri-value chain financing
MicroSaveMarket-led solutions for financial services
Key lessons learnt with implications on Africa (2/2)
11
Structured technical assistance and capacity building programmes : Club credit product with a technical assistance and capacity building programme to minimise risk (Example: ‘Land Bank’ and ‘One Nation Bank’ in Philippines).
Market linkages for both forward and backward needs of the value chain: Formal financiers should recognise the entire value chain of any commodity as one interdependent unit.
Enhancing information systems: Information systems and access to information are beneficial to producers in multiple ways
4
5
6
Enhanced cooperation at the producers’ level : Cooperative farming allows small scale farmers to pool their resource and invest in better quality inputs and collectively owned equipments.
7
References were drawn from FAO’s work on agri-value chain financing
MicroSaveMarket-led solutions for financial services
Scaling up AVCF in Africa - role of formal financial institutions
12
Finance upstream actors Lead firms financing
Finance producersInnovate
For producers in unorganised and organised local staple, formal financiers can finance indirectly through trade finance either to upstream actor.
Financing lead firms results in effective growth of value chain as the markets are secured, fair pricing and non-predatory model.
Formal institutions can build on the existing value chains by innovating new products and financial services to meet other financing needs
For unorganised value chains with dispersed producers and few points of aggregation, the demand for finance by the producers can be met by reaching the producers directly.
References were drawn from Dalberg Advisors work on agri-value chain financing
MicroSaveMarket-led solutions for financial services
Mobile money as a catalyst for finance and information in Africa
13
Importance Is Africa ready for Mobile Money?
Low cost of transactionHigh security of the
transactionsSolving the “last mile”
problemSeamless integration of
buyers and sellersReduced leakagesEnhanced immediacy
and increased frequency of the transactions
Improved economicsAccountability
Concentration of buyersProducers baseFrequency of payments Input finance mechanism usedLarge subscriber baseHigh number of mobile money
agents (which is expanding even further)
Wide network reach of MNOsSustainable volumesExpanding ecosystemSuccess of M-Pesa and replicators Socio-demographics of the farmer
base
References were drawn from Ignacio Mas’s work on mobile banking and role in agri-value chain financing
MicroSaveMarket-led solutions for financial services
MicroSave Offices
Delhi Lucknow
HyderabadManila
JakartaKampala Nairobi
14
Thank you for your attention
MicroSave (India - Head Office)B-52, Mandir Marg, Kapoorthala Crossing, Mahanagar Extension, Lucknow-226006, UP, India.Tel: +91-522-2335734Fax: [email protected]
MicroSave (India - Delhi Office)396, DDA Flats,Sector 22, Dwarka,New Delhi-110045, India.Tel: +91-011-45108373
MicroSave (India - Hyderabad Office)23, Sai Enclave, Road No. 12, Banjara Hills, Hyderabad-500034, Andhra Pradesh, India. Tel: +91-40-23386140
MicroSave (Kenya Office)Shelter Afrique House,Mamlaka Road,P.O. Box 76436, Yaya 00508,Nairobi, Kenya.Tel: +254-20-2724801/2724806Fax: +254-20-2720133Mobile: [email protected]
MicroSave (Uganda Office)Regency Apartments30 Lugogo By-PassP.O. Box 25803Kampala, UgandaTel. +256 312 260 225Mobile. +256 776 36 [email protected]
MicroSave (Manila Office)Unit 402, Manila Luxury Condominium,Pearl Drive corner Gold Loop,Ortigas Center, Pasig City,Metro Manila, Philippines.Tel: +(632) 477-5740Mobile: [email protected],