Overview on financing opportunities for agriculture and agro-processing.

1. Overview on financing opportunities for agriculture and agro-processing. April 4, 2012

2. Current situation Facts obtained from the value chain stakeholders: focus group meetings consultations with individual key stakeholders ISSUES Financial institutions: Few commercial banks are involved in Agricultural financing, Poor advertisement of the agricultural loan products. Group dynamics: High disintegration of farmer groups, Lack of internal democracy of groups, Poor record keeping of groups, Failure of farmer groups to form legal associations

3. Current situation • Servicing of loans: Irregular agricultural loan servicing, Risks and uncertainty, Agriculture is perceived as a high risky venture, Few insurance companies involved in crop insurance. • Agriculture remains unpopular with commercial banks it requires close monitoring. • Some financing schemes favour grains such as oil seeds, maize, rice, etc. and avoid fruits because of their short shelf life. .

4. Current situation • Recent reports: Agriprofocus Finance Fair (Fortportal) ; . • “banks confirmed that their knowledge about accessibility and appropriateness of their current product range for the smallholder agricultural sector was unknown. With the gained insights, they would re-assess current conditions to customize product conditions and increase accessibility”. • “the event also brought to the fore that farmers still have a lot to learn about how banks work”. • “After the Fair, farmers and farmer groups confirmed their increased knowledge of the financial services and stated at the same time that they felt empowered and more confident in applying for services, including those of commercial banks” • Finance fair report: source http://apf-uganda.ning.com

5. Financial services • Uganda’s Centenary Bank, • In partnership with the World Bank’s Agriculture Finance Support Facility (AgriFin) is managing agriculture finance program to benefit smallholder farmers, and  Small and Medium Enterprises (SMEs) in key agricultural value chains. • The bank has 6 or more agricultural products supported by various partners.

6. Centenary Bank

7. Title: Pride Agricultural Loan

8. Stanbic Bank: agri-business Loan Scheme

9. Stanbic Bank: agri-business Loan Scheme

10. DFCU Bank Leasing (https://www.dfcugroup.com)  What is leasing: A medium-term finance option for acquiring business equipment, vehicles, plant and machinery. Dfcu Bank/SME promoter purchase the equipment. The SME uses the asset for a specified period of time, in return for specified rental payments at an agreed interest rate. At the end of the period, the ownership of the equipment is transferred into your business name or depreciated and sold to a third party. The range of leases is between UGX 100M and UGX 2Bn. Transactions outside that range can be considered under special circumstances. Repayments are structured to match the SME cash-flow.

11. DFCU Bank Leasing Security: The collateral for a lease is the leased asset itself. For new assets, DFCU finances 60% of the equipment cost and you contribute the remaining 40%. Only in certain cases where the leased equipment is not adequate to cover the cost of the loan may we ask for additional security. Rental determination: The rental amounts are determined by the cost of the equipment, interest rate charged and Value Added Tax (VAT). Rental payments: The client starts making rental payments a month after receiving the leased equipment in their business operations.

12. DFCU Bank Leasing • Basic requirements: • Minimum upfront payment of 30-40% of the total value of the equipment or asset • Filled in Lease application form • Pro-forma invoice addressed to dfcuBank • 6 months’ bank statements • Passport size photos of at least (2) key directors of the company

13. DFCU Bank Leasing • Basic requirements: • Business Tax Identification Number (TIN) • Certified Particulars of Directors (Form 7) • 12 months cash-flow projections • Certified copy of the Memorandum and Articles of Association • Registered resolution to borrow • Certified copy of the Certificate of Incorporation • Audited /Management accounts for the last 2 years

14. Pearl Capital Partners (Uganda) A specialised African agricultural investment fund manager. Several others operating in East(ern) Africa Objectives: to catalyse the growth of small and medium agribusinesses in East Africa. To enable the SMEs to expand/diversify, adopt improved technologies, bring about improved rural job creation, development and food security. Already, $25 million has been invested into the African Agricultural Capital Fund (AACF)

15. Pearl Capital Partners (Uganda) invests US$250,000 - 2 million in growing agricultural small and/or medium-sized businesses in East Africa, typically using a combination of equity, quasi-equity, equity-related and debt investments; has target return expectations of 12% to 15% per annum on funds invested. targets SME’s which operating under farmer group framework – meeting its social impact criteria.

16. Pearl Capital Partners (Uganda) • PCP considers companies that meet the following criteria: • Businesses that operate in the agri business value chain in East Africa and that have the potential to generate positive financial and social returns; • Capable management team with solid reputations, extensive knowledge and financial commitment; • Sound strategy and business model; • High growth potential; • Transparency and ability to adhere to high standards of corporate governance and financial reporting; • Compliance with the Fund’s investment ethics and environmental standards;

17. Pearl Capital Partners (Uganda) • What PCP offers:PCP becomes business partner to the investee SME, being represented on the SME by a director throughout the life of its investment.Practical support to the SME: • Providing flexible investment structures; • Support in providing sound internal systems and control; • Developing business strategy and action plans; • Establishing appropriate Corporate Governance structures. • The SME also benefit from access to a technical assistance facility, through which it is able to access independent business development and technical support services.

18. Pearl Capital Partners (Uganda) • Investment portfolio – Uganda • Bee Natural Uganda a honey business located in Arua. • BiyinzikaEnterprises poultry business located in the Seetaarea, Mukono. • NASECO seed company operating in Uganda and located in Hoimadistrict. • Farm Inputs Care Centre Uganda (FICA) seed businesses in Uganda, • Centre for Agricultural Inputs International Ltd (CAII)The business is based in Iganga,

19. European Union equity fund European Union through the EIB to establish an equity fund. It will contribute Euro 15 million towards the fund while the government of Uganda and financial sectors like banks, NSSF and Insurance companies, are expected to make a contribution in order to come up with a total fund of Euro 30 – 40 million and 40 million. To be used to contribute equity to agricultural SMEs that are have contractual buyer-supplier arrangements with farmers.

20. European Union equity fund The equity thresholds will be $250,000 – 2m and duration of the fund extended to an SME will be a maximum of five years. Will invest in cooperatives with proven ability to grow, business oriented and good governance, and must contribute to capitalization. In addition to the equity fund, the SME will benefit in capacity building in management skills, preparation of bankable loan applications and business plans. The fund is being formulated, It will involve recruiting a Fund Manager, expected to become operational by mid next year.

21. Discussion • Discussions: focussing on practical MSP actions (what should MSP do?) to lobby for improved access to financial services.