Warrantage in Niger: Adaptations for a developing country

1. Warrantage in Niger:Adaptations for a developing country Emilio Hernandez Agricultural Finance Officer FAO/AGS 20 September 2012

2. Introduction:Some country facts • GDP per capita is USD 800 • 43.6% of population below USD1.25/day • Exports go to Nigeria (68.3%); USA (12.2%) and Ghana (9.8) • Paved roads coverage 3,912 Km • 39% of GDP is agriculture, with sorghum and millet as staples • Government-owned fertilizer monopoly Source: WFP, 2009

3. Warrantage systems:The local adaptation Source: Adapted from LeCoutois and Olofsson, 2010

4. Warrantage systems:Some recent facts All of the 132 MFIs in the country offer warrantage products In 2009 it represented roughly 8% of their portfolio value Repayment rates are above 97% In 2004 there were 104,741 clients; rural penetration rate of warrantage estimated at 5.3% (up from 3% in 2001) Source: The MIX, 2012 and LeCoutois and Olofsson, 2010

5. Why does warrantage work in Niger?1) Predictable timing of price peaks Source: Afrique Verte International, 2010 and the author

6. Why does warrantage work in Niger?2) Constant demand outlet to Nigeria • 68% of exports go to Nigeria, most of them consisting of millet, sorghum and onion surpluses • Nigeria as a net importer of cereal and having higher purchasing power absorbs any surplus Niger is able to produce

7. Why does warrantage work in Niger?3) Functional federations and coops • The constant demand for cereal imports from neighboring Nigeria has created stable business opportunities for farmers in Niger • Through their organizations, farmers have worked steadily to benefit from these opportunities by building storage facilities and making joint loan requests backed by cereal stocks

8. Why does warrantage work in Niger?4) MFIs know the value of stocks • Understanding cereal markets enable MFIs to accept stocks as collateral, given their ability to liquidate it in case of default • The character-based assessment of creditworthiness, enables MFIs to lend to producer organizations under a weak contract enforcement framework

9. How do agricultural households use warrantage credit?It’s all about smoothing cash flows • Households use loans to finance trading and marginally for vegetable production. Very rarely is the loan used to purchase agricultural inputs for the main staples • These short-term activities enable the generation of cash while cereal prices improve and revenues are used to pay the loan • From 2001-2010, a sample of 34 POs shows cereal price differentials were superior to principal, interest and fees in 71% of the cases

10. Conclusions and policy implications • The combination of stable agribusiness opportunities, strong farmer organizations and lenders familiar with agricultural markets that makes warrantage work in the country • The core business condition is not easy to replicate by governments and development agencies in other contexts • It is key that interventions recognize this condition to support warrantage initiatives led by local farmers, traders and lenders

11. Thank you!