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Making Risk-Sharing Models Work with Farmers, Agribusiness and Financial Institutions

FAO Ford Foundation IFAD International Conference on Rural Finance Research: Moving Results into Policies and Practice. Making Risk-Sharing Models Work with Farmers, Agribusiness and Financial Institutions.

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Making Risk-Sharing Models Work with Farmers, Agribusiness and Financial Institutions

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  1. FAO Ford Foundation IFADInternational Conference on Rural Finance Research:Moving Results into Policies and Practice Making Risk-Sharing Models Work with Farmers, Agribusiness and Financial Institutions Theme 2, Session III: Institutions for Expanding Outreach of Financial Products and Services in Rural AreasPresentation by Bettina Wittlinger, ACCION InternationalMarch 20, 2007

  2. Presentation Outline • Research Objective and Methodology • Risk-sharing Models • Replication • Key Achievements and Findings • Future Research Areas

  3. Research Objective and Methodology

  4. Practitioner-led Research Methodology Competitive, Thematic Small Grants Program Implementation + Learning Process-oriented Industry-focused Individual Organizational Learning Multi-organizational Learning Industry Learning

  5. Research Stages

  6. Research Objective To develop and pilot-test risk-sharing models between farmers, agribusinesses and financial institutions to increase farmers’ access to markets and financial and non-financial services. Indian farmers migrating from villages after the monsoon in search of job opportunities.

  7. Risk-Sharing Models

  8. Risk-Sharing Models at a Glance

  9. Model 1: Credit Franchisee I D E I MARKET FACILITATOR Facilitator to ICICI Facilitates Dealers in becoming credit franchisee Bank Scales-Up Rural Credit Outreach DEALERS Credit is Leveraged by ICICI FARMERS Receive credit from Dealer to purchase drip irrigation

  10. 1 EID PARRY SUGARCANE FACTORY 2 BANKS 6 DEALERS 3 4 FARMERS 5 Model 2: Buy Back Arrangements as Guarantee I D E I Farmers register land with sugarcane Factory Farmers present letter from Factory to Bank and bank lends to Farmer through Dealer. Factory pays farmers after deducting loan installments due to banks Farmer sells sugarcane to Factory Dealers supply drip equipment to Farmers on receipt of money from Bank

  11. Models 1 and 2:Challenges & Lessons learned I D E I • Defining realistic goals • Investing in demonstration plots • Keeping your principles & negotiating hard • Structuring a win-win scenario • Defining clear roles • Designing the loan product & operations • Negotiating incentive schemes

  12. CAJA NOR PERU Network Manager Farmers MFI - CNP Input suppliers Buyers/Processors Model 3: Risk-Sharing Trust-Fund TRUST FUND

  13. Model 3: Composition of Trust Fund CAJA NOR PERU

  14. Model 3:Challenges & Lessons learned CAJA NOR PERU • Developing role of network manager • Providing sufficient, quality technical assistance • Selecting the Value Chain • Dealing with external factors • Generating commitment from agribusinesses

  15. Model 4: Buyer Contracts as Guarantee

  16. Model 4 – Buyer Contracts as Guarantee Silo Rural Branch – El Comercio Farmer

  17. Model 4: Results Portfolio at risk - less than 3%

  18. Replication

  19. Attributes for potential silos Extensive experience in the region Relationship with farmers and agribusinesses Good references from agribusinesses Financially viable and stable Commitment to small farmers & El Comercio Value Chain Selection How similar is the value chain to the soy value chain? Does El Comercio staff members have existing knowledge about the region? Replication – Experience from Model 4 EL Comercio replicated the soy – silo risk-sharing model with tobacco, cotton and sesame Attributes for small farmers • Diversification of income (required in weaker value chains) • Farming experience

  20. Key Achievements and and Findings

  21. Risk-sharing models – Key Achievements

  22. Risk-sharing Models: Key Findings 1. Analysis & Mapping of Value chains is critical to form risk-sharing models 2. Developing the profile each potential partner is crucial 3. Gaining commitment from all stakeholders & structuring operational details requires time & investment 4. Dynamic & organized value chains offer more possibilities, but are not required 5. Market facilitators can be catalysts for linking farmers to formal financial institutions 6. Pilot-testing should be done before replication

  23. Areas for Further Research • Developing a value chain analysis tool for financial institutions • Validating a decision making matrix for financial institutions and market facilitators • Measuring of impact on financial institutions and farmers • Further examining the role of market facilitators • Further studying risk-sharing arrangements in weaker value chains

  24. Thank you CAJA NOR PERU I D E I

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