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Overview on Ethiopia

Financing coffee farmers in Ethiopia: challenges and opportunities Bastin, A. - Matteucci, N . Lux Development (Luxembourg) – Marche Polytechnic University (Italy) FAO Conference on Rural Finance Research 19-21 March 2007. Overview on Ethiopia.

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Overview on Ethiopia

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  1. Financing coffee farmers in Ethiopia: challenges and opportunitiesBastin, A. - Matteucci, N.Lux Development (Luxembourg) – Marche Polytechnic University (Italy)FAO Conference on Rural Finance Research 19-21 March 2007

  2. Overview on Ethiopia • Ethiopia: one of the poorest countries: ranks 170 out of 177, UN-HDR (2006) • Recent GDP & GDP/N recovery (mid-90’) • Volatile & unbalanced export • Coffee on total export: from 63% (1995) to 37% (2004), mainly due to price shocks since 1999 • Coffee crisis: huge impact on a small-scale agriculture; low access to rural communities • Many farmers, traders, cooperatives bankrupted • The pervasive (nation-wide) impact of the crisis

  3. Big agricultural potential in a poverty trap . • Agricultural potential; 84% of population is rural • Lack of infrastructure: transport, TLC, health, etc. • Natural calamities (drought) in some areas, recent conflicts • Poor agricultural practices and lack of surplus, difficult to mobilize • High quality, organic coffee VS poor value chain • No traditional finance for the poor • Which role for a “sustainable” Microfinance ? (Morduch,1999) • Which credit, saving and risk management instruments ? (Dercon, 2002)

  4. A survey to fill the informative gap • No detailed evidence on financial services for Ethiopian coffee farmers • Only 1 million the outreach of MFI (end of 2004), out of 70 mill. - 84% rural • Our survey on Jimma Zone, coffee-oriented (Oromia, largest Regional State); Summer 2005 • Interview of 120 coffee farmers(random sampling) • Complemented by focus group discussions • Further interviews with financial providers, etc. .

  5. Jimma Zone in Ethiopia

  6. Background Statistics

  7. Main risks perceived • Coffee price volatility: 85% • Coffee Disease: 55% • Lack of access to loans: 47% Risk Management instruments: • Activity diversification (other crop, animal fattening): 45% • Coffee differentiation (organic) : 42% ……… • Commercial credit: 14% Risk management VS risk coping strategy, cf. Dercon, 2002

  8. Access to FS (loans) (64% of sample)

  9. Duration and cost of loans by source

  10. Use of Loans • Consumption(food, clothing, education, house construction): 53% • Other productions(trading, animal fattening, other crops)32% • Coffee Inputs: 14% Remember: MFI loans in the sample are only for production

  11. Main problem with loans • Inappropriate terms (grace period, duration, etc.): 37% • No problem: 29% • Small amount: 20% • High interest rate: 14%

  12. FS demand and financial GAP

  13. Most useful (potential) FS product • Saving products: 64 % • Loans: 25 % • Saving and loans: 10 % • However, SP mostly unavailable in rural areas (saving “in kind”) • SP as a partial substitute for risk management products (insurance) (F) • SP could extend the outreach of MFI (I)

  14. Conclusions • Huge loan gap. Moreover, 1/3 credit is informal: costly and subsistence-oriented • MFIs: 1° provider (1/3 sample). It offers the best conditions. Limited outreach. • MFI loans as enablers of risk management strategies !!! • Further evidence needed on “financial” cooperatives • Clear demand for saving products

  15. Policy recommendations • Product Innovations from MFI required: 1) Better tailored production loans (possibly also consumption loans) 2) Saving products for rural communities 3) Increase the outreach of MFI • Training in finance for operators in rural communities (also for cooperatives) • Rural Banks?

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