Recent advances agricultural finance: supply and strategies

1. Recent advances agricultural finance: supply and strategies The French Microfinance Network Cécile Lapenu (Cerise/RFM)

2. Our approach • Literature review and summaries of experiences of French Microfinance Network members • Lack of reliable, complete and comparable data on ag finance (essentially financial data collected by networks, donors, etc.) • Agricultural interventions imply diverse contexts => Analysis of trends and opportunities rather than quantitative and definitive conclusions

3. Specificities of ag finance • Rural constraints: distance, low population density, weak infrastructure, etc. • Seasonality of production and income • Agro-climatic risks • Price and market risks • But...an increasingly favorable context in recent years (increase in ag prices)

4. Renewed interest for agriculture • Ag sector making a comeback (2008 WDR) after years of neglect; recognized as key sector for development; new perspectives • But, two-speed development: growing disparities in some regions (Sub-Saharian Africa)

5. Evolution of ag finance • 1960-70’s, government-led intervention with agricultural development banks • 1970’s, rural financial markets approach • Both approaches revealed limitations: government failure and market failure • Desire to development pragmatic approaches, synergies and complementarities with PPP, public policies

6. Two entry points for rural finance • Financial sector: MFIs, coops, banks Advantages: wide range of products and services, external resources, stable supply… • Limitations: poor knowledge of risks, lack of guarantees… • Value chain approach • Advantages: personalized, trust, information, integrated guarantees, TA, contracts, role of professional agricultural organizations (PAOs) • Limitations: reduced range of products and services, ST lending, focused on production, liquidity constraints, monopoloies and exclusion, distribution of added value?...

7. Insufficient supply Financial inclusion rate is lower in countries where no. of people working in agricultural is higher, and where agriculture contributes more to GDP (Servet, Morvant, 2007)

8. Latin American 2004-2005 data (Trivelli, Vénéro, 2007) Portion of ag credit is most often smaller than the participation of agriculture in GDP (10.1% en 2004 sur les 18 pays) Country differences, depending on size of financial sector (Chile vs. Paraguay) Ag credit is small proportion of overall credit

9. Financial sector actors • MFIs: solidarity group guarantees, coops, hybrid models => important role in ag finance but major constraints • State dvpt banks: making a comeback... Advantages and risks? • Commercial banks: involved in building inclusive financial systems, but what about ag sector?

10. Governance and rural finance models • Model not necessarily influencing factor for offering ag finance...what is important are linkages with other actors and sectors • Size/Decentralization: confronting systemic risks involved covering one region or production sector (pests, drought, price crash) => How to offer proximity while diversifing risks? Workshop 1 on models and forms of organization

11. Sustainability • Management: clear procedures, HR (rural constraints), MIS (decentralization), auditing => Profitabilty and cost control • Links with urban finance: a way to make ag finance viable, but governance must maintain rural orientation Workshop 5 on conditions for sustainability

12. Value chain finance • Long history of export chains (cotton in West Africa, Coffee in Latin America) • Renewed interest in commercialization linkages: Professional agricultural organizations, fair trade, outgrower schemes • Draw lessons and adapt existing solutions Workshop 4 on PAO/MF and Plenary 2 and the example of Grameen Food

13. Microfinance-PAOs • Structuring PAOs: defend interests of agriculture, offer support services to small farmers • How have financial access strategies evolved: internalized credit activities, external credit likages, PAO-FI partnerhips, enabling policy environment • Advantages of innovative sectors for PAOs Workshop 4

14. Needs • Needs of family farmers • Short term: plantation, livestock, inventory, processing…, • Medium & long term: equipment, machinary, sustainable crops, land • Family needs: personal, durable goods, housing • Savings, insurance • Non-financing services: monitoring demand, extension services, technical assistance • New needs • Prof Ag Organizations: prefinancing input stocks, working capital for commercialization and marketing, equipment needs, buildings...monitoring demand • Ag enterprises: considerable cash needs (acquiring and developing land, ag buildings, etc.), innovations

15. Products and innovations… • Challenges of term finance, equipment loans • Leasing / Hire-purchase • Inventory credit / “Warrantage” • New information technologies • Indexed ag insurance • Non-financial services Workshops 2 and 3 on product innovation and Workshop 6 on non-financial services

16. … that need wider dissemination • Poor communication policies and information sharing between institutions (but less and less true...) • No real donor agenda until now, but different initiatives (Niger, Madagascar, Bolivia…) • Ill-adapted resources...even though each product has specific needs • Still too costly for beneficiaries? => How can we reduce these constraints?

17. New partnerships • Linkages between different actors to secure ag loans: PAOs, processing, commercialization sectors… • Synergies to facilite access to resources: migrant remittances, guarantee funds, credit lines (new donor tools, guarantees, refinancing from commercial banks…) Workshops 4 & 6, Plenary 2 and 3

18. Public policies • Redistributive policies are emerging: subsidies for new intermediaries; reappearance of discounts for ag investment and management of such investments by MFIs • Regulation that enables ag finance and innovation • (Re)creation of government intermediation: what form of governance? What impact on private sector institutions? What kind of PPPs?