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The missing middle

The missing middle. Concept Note Finance Fair Gerrit Holtland Agri Hub coordinator. The ambition. The Growth and Transformation Plan requires: 12% increase in annual level of agri- business investment. 10% annual increase of rural households linked to financial service providers.

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The missing middle

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  1. The missing middle Concept Note Finance Fair Gerrit Holtland Agri Hub coordinator

  2. The ambition The Growth and Transformation Plan requires: • 12% increase in annual level of agri- business investment. • 10% annual increase of rural households linked to financial service providers.

  3. The key question: How to finance the investments in agricultural production, processing and marketing needed to combat food insecurity and to foster a broad based agricultural growth ?

  4. Constraints in rural finance • Limited access to financial services in rural areas • High transaction costs due to small loans, lumpy cash flow, high co­variance, clients live dispersed and poor roads • Skills gap in the banking sector; especially a lack of knowledge of the agribusiness sector • Low product quality in savings, loans, insurance and payment services. • Hg inflation and limited liquidity of banks • High collateral requirements and inability to use land as collateral (so illiquid and perishable collateral) • Lack of a dedicated regulatory framework for cooperatives.

  5. Types of loans • Small loans: up to 50.000 ETB • For inputs like quality seeds, fertiliser, land preparation small trade at village level • Usually routine activities • Can be covered micro-credit or with equb or via relatives, business connections • Medium seize loans 100.000 – 1 million ETB. Many coops ! • Small equipment (processing, tractors), stores • Not routine at local level, so a business plan is needed; collateral and own investment limited • Making business plan is expensive. Who can make it ? • Large loans: 5-10 million ETB • Small factories/ dairy farm or poultry unit • Not routine so BP is needed; substantial own capital of entrepreneur

  6. Who serves the missing middle • Banks • How to increase the outreach ? • What kind of loans can they offer ? • What are the collateral requirements ? • How to make BPs in an efficient way? • MFIs & SACCOs • How to increase the loan seize ? • Can value chain finance be used? How ? • Business Development Services: • How to make BDS sustainable ? • Rating agencies • How does it work? And who will pays for it ? • Third parties: GO and NGO • How to support without disturbing the market ?

  7. The way forward: trial and error • The missing middle is plagued with paradoxes and dilemma’s. • Many parties are invite to present their services and views • We need to explore options as we realise that there is no single solution. • There is no silver bullet; there is just a lot of work to be done by many different stakeholders. • Let us share our doubts and difficulties alongside our successes, we can start to serve the missing middle.

  8. Thanks for your attention For more information, please visit our website: www.apf-ethiopia.ning.com

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