Revisiting agricultural finance A special report from the Fin4Ag conference July 2014 In this issue: ■ Warehouse receipt financing ■ Tony Elumelu – interview ■ Commercial African banks ■ Funds in the value chain ■ Crop insurance ■ Agricultural regulation ■ Commodity traders Informed Analysis Expert Opinions http://agritrade.cta.int The latest information on ACP-EU agriculture and fisheries trade issues Contents 2 Foreword By Jonathan Bell, editor-in-chief, TXF. 3 African banks on the rise Local banks are financing a greater share of African agriculture, using their own money to reach further down the value chain. 10 Funds fill gaps in the value chain Jonathan Bell Development banks and private funds find new ways to plug the gaps in agricultural Editor-in-chief value chains that commercial banks can’t or won’t reach. jonathan.bell@txfmedia.com 14 Warehouse receipt finance comes of age Helen Castell Warehouse receipt finance is gaining a foothold in Africa with the roll-out of Special report writer commodity exchanges and the gradual introduction of electronic receipts. helen.castell@txfmedia.com 19 Ghana’s Cocobod sets the standard Dan Sheriff Managing director The annual Ghana Cocoa Board financing provides pointers for other African dan.sheriff@txfmedia.com producers to follow. Dominik Kloiber 22 Innovative thinking helps close credit-data gap Commercial director Access to finance and services for farmers is changing rapidly with the help of the dominik.kloiber@txfmedia.com mobile phone and the internet, as well as innovative assistance programmes. Max Carter 25 Tony Elumelu: Vision for Africa Product development director max.carter@txfmedia.com Entrepreneur Tony Elumelu shares his vision for African agriculture, including the growing role of local banks and the future of commodity exchanges. James Petras Chief technology officer 29 Traders – the strongest link james.petras@txfmedia.com Soft commodity traders help money get to where it’s most needed along Katy Rose agricultural value chains. Head of marketing katy.rose@txfmedia.com 32 Value-added improves prospects for Pacific Islands agri The agri sector in many Pacific Islands is changing, as more value-added takes Hesham Zakai place. We take a closer look at developments in Papua New Guinea (PNG). Content manager hesham.zakai@txfmedia.com 34 Agriculture gets its Act together Governments need to provide a legal framework for agriculture that supports Mailing address: TXF farmers and traders but also gives banks confidence to lend. Canterbury Court Kennington Park 37 Livestock – more than a commodity 1-3 Brixton Road Pioneering projects are helping livestock farmers and traders access finance and London gain a share of growing export markets. SW9 6DE. Tel: +44 (0) 20 3735 5180 40 Back to BASIX Registered office: Long-standing Indian microfinance institution, BASIX, is a model of learning through TXF Limited experience. 7-10 Chandos Street London 42 Protection for a price – crop insurance takes root W1G 9DQ. Pilot projects are developing innovative new insurance products for farmers that help make them more bankable. Registered in England & Wales. Registered No: 08421624 47 Syfaah system to be rolled out in LatAm and Africa © TXF Limited 2014 The System of Agriculture Financing and Insurance in Haiti, to help provide 1 Copying without permission of the publisher is prohibited. microfinance for smallholders, looks set to be rolled out in Latin America and Africa. www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Foreword By Jonathan Bell, As media partner with CTA, TXF is proud to tries are poised to follow suit with ex- editor-in-chief, TXF be involved in producing this special re- changes. In addition, sophisticated elec- port on agricultural financing for the land- tronic receipt systems are also making mark Fin4Ag conference in Nairobi. The inroads in several countries. We look at the report is entitled ‘Revisiting Agricultural Fi- efforts that individual countries are making nance’, because that is exactly what is re- to implement the system and how banks, quired to first ensure finance is available for producers and traders can overcome per- producers, traders and others involved in sistent challenges like fraud and crop theft. the agri-value chain, and second that the With microfinance still one of the most financial environment is conducive for pro- available sources of credit for small farmers, ducers’ interests, providing them with the we zoom in on Canada’s Syfaah initiative in financial services they need and at an af- Haiti, which uses a three-pronged approach fordable cost. to improve farmers’ yields: economic stabil- The report seeks to highlight some of ity and access to finance by offering credit, the challenges and opportunities that pro- insurance and technical assistance. Over in Jonathan Bell, editor-in- ducers, traders, banks and other financiers India, we learn lessons from BASIX, a long- chief at TXF face in a sector that is fast transforming it- standing provider of microfinance that is at- self. With mobile technology, commodity tracting more attention from local banks, exchanges and new financing tools revo- keen to funnel money through it to farmers. lutionising agriculture in African, Caribbean We also look back at the history of and Pacific countries, it is time for interna- Ghana Cocoa Board’s annual pre-export tional commercial banks, insurers and col- finance transaction. Over nearly 21 years, lateral managers to take a second look. Cocobod has managed to attract $15 bil- In the report, we explore the rise of lion worth of financing from international African commercial banks in trade and banks. Will neighbours like Ivory Coast ever agricultural finance. With international be able to replicate this model? banks edging back from the continent We hope you find the feature articles since the financial crisis, local players have and interviews interesting and informative, stepped forward to plug the gap. Local and that some of the topics and issues dis- banks have already proved they can go it cussed will provide further impetus to get alone with big syndications for energy. In the right sort of financing tools to the peo- agriculture they are using their local ple that need it most. The work being done branches and on-the-ground knowledge by CTA and others continues to play a to help finance agri inputs and resultant major part in transforming the playing field product flows further down the value for agricultural financing. The future for the chain. Keen to tap that expertise, some in- provision of agricultural finance in African, ternational banks are also looking to part- Caribbean and Pacific countries is cer- ner with or buy stakes in African banks. tainly looking brighter, but only with contin- Already big in Latin America and parts ued training, education, innovation, of Asia, warehouse receipt finance is now perseverance, and real hands-on attention making strides across Africa. Countries to detail will agriculture in Africa be able to 2 such as Ethiopia have led the way with realise its full potential and play a key role commodity exchanges, and other coun- in achieving prosperity across the region. ■ www.txfnews.com/special/Fin4Ag Focus on African banks African banks on the rise African banks are taking the lead in fi- tics Division. More local and regional banks Local banks are nancing the continent’s farmers, traders have invested in trade, partly filling a gap financing a greater and soft commodities. With more local left by the retreat of global banks since the share of African money in the system, they are also reach- financial crisis. agriculture, using ing further down the value chain, though However, financiers have become their own money to still find financing farmers directly a chal- more selective and remain focused on reach further down lenge. At the same time, international top-rated customers, leaving smaller banks are snapping up stakes in local traders with less finance than before, the the value chain. players, hoping to piggy-back on their group found. distribution network and on-the-ground “Africa can finance itself,” says Hiren expertise. Singharay, regional head of syndications, African banks have a huge role to play EMEA, for Standard Chartered. “Five years in agricultural finance and their growth in ago, not a single Nigerian bank had this space is “inevitable,” says Richard crossed the Congo to the east. Now all Wangwe, head of agriculture at Stanbic major Nigerian banks have done it. And Bank Uganda. five years ago, excepting Stanbic, no The growing role of African banks in South African bank had crossed the trade finance was acknowledged by the Limpopo River to the north. Now they’re WTO Expert Group on Trade Finance at everywhere.” their meeting in late April. After the financial crisis, a number of in- African banks have shown greater abil- ternational trade finance banks pulled ity to syndicate big trade finance deals, back from Africa, leaving a financing gap. mostly in the commodity space, without “They kept financing their best customers external support, the group concluded, – so the Cocobods and Sonangols still got according to Marc Auboin, a counsellor in their financing – but not the smaller and the WTO’s Economic Research and Statis- medium players,” says Edward George, Richard Wangwe, Stanbic Bank Uganda: “African banks have a huge role to play in agricultural finance and their growth in this space is inevitable.” 3 www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Local banks including government- owned landbanks, “have always had a dominant market share in South Africa when it comes to agriculture finance,” says John Hudson, agriculture manager at Nedbank. That said, Nedbank only got serious about agriculture five to six years ago as the financial crisis triggered a greater ap- preciation of the returns that it could gen- erate compared with other asset classes, he says. Agriculture, commodities and, more re- cently, fixed assets like land and infrastruc- ture, suddenly started attracting investment. “Agriculture became flavour of the month,” Hudson says. The bank now Richard Wangwe at Stanbic Bank Uganda has dedicated agricultural teams that en- gage with commercial farmers in South head of soft commodities research at Africa. the pan-African bank, Ecobank. “There’s At Barclays, although its Africa team sits ample liquidity in the world, but not for in Johannesburg, “we have a mandate to Africa.” operate across Africa” and go wherever our clients go, says head of structured Mandate to expand trade and commodity finance, Francois “Most South African banks have a strategy Visagie. to expand into Africa,” says Zhann Meyer, Africa head, global commodity finance at African cash Nedbank Capital. “It’s not about whether An estimated 85 million to 95 million house- we’re going to do it – we have to do it,” he holds in Africa now have a disposable in- says. “It’s something that’s expected by come of at least $5,000. “The money is our shareholders – to work in the African there, and that money is flowing into pen- space, and assist the continent in grow- sion funds, it’s flowing into banks, and into ing.” mutual funds,” says Singharay. “There’s a Nedbank’s mission for Africa is to follow lot of cash in the system, and that can fi- its existing clients as they too make inroads nance the agriculture sector.” in the continent, he says. “They’re going “African banks are taking the initiative into Africa and we’re following them in and putting more skin in the game,” says areas and footprints where they’re com- George. For example, in a $500 million deal fortable.” that Ecobank lead arranged last year for Banks on the continent need to in- Orion Oil, “all that money came from crease their on-farm exposure, making sure African banks.” they get into the supply chain at ground It might take time to achieve some- level, Meyer adds. The bank’s next step is thing similar in agriculture – mostly be- to identify countries with conducive gov- cause of the larger physical volumes ernment policies in place and then the involved in soft commodities and the 4 corporate players it could assist in growing longer value chains – but energy is a good the industry. first step, he says. “It’s really shown that www.txfnews.com/special/Fin4Ag Focus on African banks African banks are taking more initiative and that they can pool their own capital.” Partnerships and acquisitions International banks are also striking up more partnerships with African banks – and in some cases acquiring them – as a lower-risk way of extending their reach into the continent. Partnerships allow international banks to put their expertise and bigger balance sheet to work using a regional bank’s rela- tionships, distribution network and local knowledge, says George. “A lot of the multinational banks often don’t want to have operations on the ground [in Africa] because it’s expensive, Edward George at Ecobank but they want to do business there,” he says. “If you are a pan-regional bank, you holding, and then expand the stake to as can get the money that last mile, and you much as 20%. It also owns MBCA Bank in have the physical presence on the Mozambique and in June completed its ground.” acquisition of a 36.4% stake in Mozam- Ecobank has an alliance with Nedbank bique’s Banco Unico for $24.4 million. in South Africa as well as partnerships with Rabo Development (Rabo) has also Barclays Africa, ABN Amro and Citi. “We taken the acquisition path to expand its help them do business in markets they presence in Africa. Over the past nine have an appetite for but where they don’t years it has invested in five local banks. have a presence,” says George. These include National Microfinance Bank Nedbank has until the end of Novem- (NMB), Zambia Commercial National Bank, ber 2014 to convert a $285 million loan it Banco Terra in Mozambique, Banque Pop- made to Ecobank in 2011 into an equity ulaire du Rwanda (BPR) and, more re- Edward George, Ecobank: “A lot of the multinational banks often don’t want to have operations on the ground [in Africa] because it’s expensive, but they want to do business there. If you are a pan-regional bank, you can get the money that last mile, and you have the physical presence on the ground.” 5 www.txfnews.com/special/Fin4Ag Revisiting agricultural finance cently, DFCU Bank in Uganda. By taking large minority stakes, typically around 40%, Rabo also gains the right to in- stall its own management – usually the CEO, head of risk management and head of retail – at banks it invests in. Through its Rabo’s advisory unit, RIAS, it also provides them with technical assistance and risk so- lutions. “The important thing is that we are not a silent or passive investor,” says Hans Bogaard, head of agribusiness. RIAS also advises other banks on how to implement their agrifinance strategy. Clients include Ethiopia’s Cooperative Bank of Oromea, the Development Bank of Ethiopia and Kenya’s Chase Bank. Rabobank also opened a Nairobi branch in June, serving commodities Francois Visagie at Barclays/ABSA clients. Stanbic is present in 17 countries across Distribution and risk assessment sub-Saharan Africa and is in the process of “Where local banks have an advantage is extending its branch network to Rwanda their actual presence on the ground, close and Congo, says Wangwe. to the primary farming community,” says On top of its South African branch net- Visagie. “The cash that has to be disbursed work and its partnership with Ecobank can be done via the normal banking net- across West and Central Africa, Nedbank work.” has an office in Kenya. “We have branches across the conti- “That is really the raison d’etre of a re- nent so we’re pretty much seen as a local gional bank in Africa,” says George. “It is bank in most markets,” he says. While its their presence on the ground and it is West Africa footprint is limited to Ghana being able to use the networks they have and a representative office in Nigeria, “in to service the trade and the business of in- East and South Africa we’re pretty much ternational companies and multinational everywhere we should be.” banks.” Francois Visagie, Barclays/ABSA: “The biggest thing we can do as local banks or international banks is to help provide training for subsistence farmers. If you can upskill these people to start thinking more commercially, Africa could well be the 6 food basket for the world.” www.txfnews.com/special/Fin4Ag Focus on African banks Local presence also helps with accu- rate risk assessment. THE ABSA connection “If you’re a local bank, you have a dif- Although Barclays plays a quasi-local ferent perception of country risk, because role in Africa, largely through its inher- you’ve been there many years,” says ited ABSA Bank network, it brings to George. “It may be that a country has a the table international advantages, bad reputation – but you know exactly says head of structured trade and how to do business there.” commodity finance, Francois Visagie. “You also have a much better percep- As well as being on the ground, it is tion of counterparty risk, because it may able to provide dollar financing to off- be you’ve been doing business with a takers and traders, and has a more so- counterparty for 20 years,” he adds. “You phisticated suite of financial tools with can immediately vouch for them. That is which to structure deals. It also lever- extremely useful for multinational banks.” ages off an international client base. “African banks have an advantage in Its partnership with Ghana Breweries, that they have relationships on the ground. for example, partly sprang out of This gives you a degree of comfort,” an existing relationship with its parent, agrees Meyer. Emailing a client or looking Diageo. at his website will never provide as much insight for a bank as going to his office or visiting his operations, he notes. Having people in-country also gives utes of him walking in the door, and has banks crucial intelligence that lets them been making profit on capital of up to 25% assess and manage specific risks as they over the last five years. “There’s a lot of unfold, he says. For example, “with Nigeria money to be made in this business. But it declaring war on terrorism, how will that im- requires local knowledge and being on pact on agricultural areas where small- the ground,” he says. scale farmers operate?” One way local banks can help money flow through the value chain while disprov- Funnelling cash to farmers ing the perception that agriculture is risky Local banks are also leading the way in is through financing the outgrower extending credit to smallholders, says Sing- schemes that are linked to established off- haray. Equity Bank Kenya, for example, can takers, says Wangwe, adding that this has disburse a loan to a farmer within 10 min- been quite successful in the sugarcane, Edward George, Ecobank: “If you’re a local bank, you have a different perception of country risk, because you’ve been there many years. It may be that a country has a bad reputation – but you know exactly how to do business there. You also have a much better perception of counterparty risk.” 7 www.txfnews.com/special/Fin4Ag Revisiting agricultural finance horticulture and coffee sectors. African banks need to work more though with non-governmental organisa- tions (NGOs) and microfinance institutions (MFIs) to help them develop products that can be extended into more rural regions, he says. They can also help subsistence farmers commercialise their operations. Nedbank focuses on financing export traders across Africa, supporting their ef- forts to “integrate backwards” and pro- vide technical support to the smallholders they buy from and to add value on the continent by investing in cotton gins, crush- ing mills and other processing facilities, says Meyer. “Smallholder farmers pose a chal- lenge,” even for banks with a local foot- print, he says. The lack of a land ownership Zhann Meyer at Nedbank Capital model in much of Africa means “you can’t take a vanilla approach and say you will as obligor. “If you as a small-scale farmer take a mortgage over the land as collat- decide to side-sell your crop, it puts at risk eral,” he says. Side selling too is a “massive” the access to finance of the cooperative. risk for us. So they check each other, which is the “So we wouldn’t directly loan to small- best policing you could ask for,” says scale farmers,” he adds. “We would use a Meyer. contract manager to sub-contract the Barclays Africa has partnered with the farmers and manage the portfolio on our private sector to facilitate the flow of value behalf.” chain finance to subsistence farmers in Rabo Development’s BPR finances the Kenya and Ghana. With one project, small- inputs for rice cooperatives in Rwanda scale farmers in Ghana supplied grain to based on offtake contracts with Australia’s Ghana Breweries, which also supported ICM, which has invested in a rice milling the farmers with inputs. Barclays then dis- joint venture in the country. counted the sales on the strength of the Another model that banks are gener- brewery’s balance sheet. ally comfortable financing is the commer- By financing intermediaries who pro- cial farming hub, says Meyer. Here, a vide farmers with the tools to start a sus- commercial farmer who leases land con- tainable farming practice, “you can tracts other farmers and supplies them with actually run the chain right through to the seeds, insecticides and, if mechanised, primary farmer,” says Visagie. diesel. If the commercial farmer has pro- With farming making up 64% of Africa’s cessing capacity too, another benefit for workforce, “the biggest thing we can do him is increased throughput. as local banks or international banks is to Kenya is a leader in terms of improving help provide training for subsistence farm- the bankability of cooperatives, especially ers,” he says. “If you can upskill these peo- in its moves to encourage collective pay- ple to start thinking more commercially, 8 ment obligation, says Meyer. This gives Africa could well be the food basket for banks a legal entity that they can define the world.” ■ www.txfnews.com/special/Fin4Ag Stay connected Search over 1,000 articles on the application of ICTs in agricultural to a world of and rural developments covering topics such as: innovation ICT4Ag E-agriculture ICT policy Crowdsourcing Women in ICTs Sign up for your free newsletter at http://ictupdate.cta.int www.facebook.com/ICTUpdate @ict_update Revisiting agricultural finance Funds fill gaps in the value chain Development banks Development finance institutions (DFIs) funds through supply chain managers like and private funds have of course always led the charge in traders, FMO can “go one step further find new ways to sweetening deals in emerging markets – along the value chain than we have up plug the gaps in using their own liquidity, quasi-sovereign until now”. rating or willingness to lend for longer And while traders already usually part- agricultural value tenors as a way to attract banks to the finance their suppliers by providing seeds chains that table. But now the DFIs are experimenting or fertiliser, it is “in most cases to a limited commercial banks with new strategies and structures to get extent,” says Landheer. “We would like to can’t or won’t reach. funding to the small farmers and traders come in to make their farmer finance pro- who need it most. grammes larger.” FMO and IDH have so far pooled $50 Channel through the traders million and will target a handful of specific The Netherlands’ development bank Ned- smallholder crops including coffee, cocoa, erlandse Financierings-Maatschappij voor cotton and palm oil. This will naturally lead Ontwikkelingslanden (FMO) is currently set- the programme to focus on West Africa, ting up a funding programme in coopera- Central America and Indonesia, says Land- tion with the Dutch Sustainable Trade heer. Initiative (IDH) to finance farmers via sup- They will use the money to pre-finance ply chain managers. It expects to con- farmer inputs and aim to also provide clude its first transaction with a major medium- to longer-term financial support trader very soon and is also in talks with by funding the replanting of trees. several other traders, according to Mar- FMO is also working to build relation- jolein Landheer, manager of agribusiness, ships with local banks in emerging markets. food and water. It has a strong relationship with National “We cannot provide small, single loans Microfinance Bank (NMB) in Tanzania, and for farmers,” she says. But by channelling last year arranged and part-financed a ITFC has already concluded a handful of import financings for African agriculture under Islamic Murabaha structures; in Ivory Coast, Burkina Faso, Mozambique, Gambia and Senegal. It also expects by Q4 of 2014 10 to have launched its first Islamic discounting in either the Gulf region or Indonesia. www.txfnews.com/special/Fin4Ag Focus on Funds $65 million loan to support the bank’s pri- year to launch a major international syndi- vate-sector lending, including to small- cation for a structured commodity trade and medium-sized enterprises (SMEs) in deal, according to Nazeem Noordali, gen- agribusiness. eral manager, corporate and structured fi- Giving local banks the comfort to lend nance. at longer tenors is another key benefit that It is in talks with several banks in the Eu- DFIs can bring, says Landheer. ropean maket who “need a reliable part- “Sometimes, if you as a DFI provide the ner” in emerging markets and are longer term, they’re also inclined to push attracted by ITFC’s preferred creditor sta- their limits a bit, and also provide funding,” tus, he says. The bank’s shareholders are she says. “Where they normally only pro- member governments and its structured vide three-year limits, now they can go to trade finance portfolio has an excellent five years because they know there is an- track record, he notes. other party involved giving an even longer As well as experimenting with ways that tranche.” traditional Islamic finance products can be applied to agriculture, ITFC is also de- Target the long-term veloping Sharia-compliant versions of A lack of long-term financing is indeed structures that are already widely used. one of the biggest challenges that agricul- It has already concluded a handful of ture faces, says Paola Bazan, senior invest- import financings for African agriculture ment officer at the Inter-American under Islamic Murabaha structures, in Ivory Development Bank (IADB). Coast, Burkina Faso, Mozambique, Gambia By its nature, agriculture needs long- and Senegal, says Noordali. It also expects term investment to pay for regular field by Q4 of 2014 to have launched its first Is- maintenance and support continued crop lamic discounting in either the Gulf region productivity, but this is still relatively scarce or Indonesia. in most Latin American and Caribbean countries, she says. Technical assistance “The bank’s response to this challenge As with most DFIs that include sustainability is to provide long-term financing to the pri- as part of their mission, FMO and IADB both vate sector,” she says. prioritise technical assistance for farmers in Key agribusiness projects supported by their agricultural finance programmes. the IADB include a $92 million facility for The UN’s Food and Agriculture Organisa- CAIASA for soya in Uruguay, $80 million of fi- tion (FAO) is also currently working with the nance for Adecoagro in Argentina for land UN Industrial Development Organisation transformation, rice mills, biogas and free (UNIDO) and the African Development Bank stalls in dairy, and $10 million of finance for (AfDB) to raise $25 million for a technical as- Nicaragua’s Agricorp in the rice and bean sistance facility targeting African agribusi- sectors. IADB’s agribusiness portfolio is big- ness and agro-industry development, ger than $600 million and growing. according to Calvin Miller, senior officer and group leader for agribusiness and finance. Islamic innovation “We’re trying to raise awareness about Development banks are also using more in- how important it is to look at the whole novative financing structures to fund agri- value chain,” he says. With this approach, culture, while leveraging their strong credit the organisations will look at ways to ratings to mobilise funds from other banks. strengthen the weakest links such as agri The Islamic Trade Finance Corporation marketing and storage, rather than simply 11 (ITFC) hopes in the fourth quarter of this focusing on production. ■ www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Private funds bring additional resources In addition to the work of governments or donors, in the form of development finance institutions, policy development, infrastructure or there is a growing army of private addressing capacity needs, to help funds dedicated to agriculture, soft attract private investors, he adds. commodities and trade finance. These One fund that has a large are tapping cash from investors who concentration in Latin American see the potential in agriculture, agriculture and says it is “very possibly have more knowledge of the comfortable” with the risk is IIG Trade sector and, by investing through a Finance. It is also not afraid to fund, don’t face the credit innovate. committees and regulatory capital In November 2013, IIG Trade requirements that can tie bankers’ Finance completed the first hands. securitisation of non-bank trade Private sector investment is finance loans related to Latin increasingly being targeted at American agriculture and soft agriculture, says the FAO’s Calvin commodities. The resulting company Miller, who is also founder of MicroVest, issued $220 million of collateralised a $250 million family of microfinance loan obligations (CLOs) that were and SME investment funds. structured and arranged by IIG The financial crisis boosted the and placed by Deutsche Bank attractiveness of investment funds Securities. among increasingly risk-averse Although banks will continue to be investors at the very time that reports by far the biggest players in trade of looming global food shortages finance, funds like IIG play an were hitting the press, he says. important role by financing small- and For an investor who recognises the medium-sized traders, according to opportunity in agriculture, funds offer a managing partner David Hu. relatively straightforward way to invest After its CLO, for example, a without over-exposure, Miller says. By number of multinational traders pooling investors and investments, contacted IIG. Although it was investment funds help spread risk. And ultimately too expensive for them, one the fact that they are overseen by a major European trader introduced it to fund management team also gives its own suppliers – exactly the point in investors confidence to take on the agri-value chain that IIG feels it specific country or sector exposure best adds value. without having on-the-ground So while funds like IIG are unlikely experience. to take over from banks in financing That said, private investors can be names like Glencore, the big traders more “skittish” about investing in remain important partners and smallholder organisations in times of sources of business leads. “As offtakers political turmoil. And while some in the business, the ABCDs are great investment funds are targeting harder- counterparts to have when financing to-reach parts of the agri-value chain, exporters in emerging markets,” 12 they do need more assistance from says Hu. www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Warehouse receipt finance comes of age Already thriving in Warehouse receipt finance is spreading Warehouse receipt finance is especially Latin America and fast, giving smaller traders and bigger helpful for smaller traders who might strug- parts of Asia, farmers or cooperatives the chance to tap gle to borrow otherwise, agrees Chris Scott, warehouse receipt finance immediately while they protect business development manager at Drum finance is gaining a their produce and hopefully negotiate Commodities, a collateral manager with 18 better prices for it. subsidiaries across Africa, covering every- foothold in Africa There remain huge challenges though. thing from cashew nuts, cocoa and coffee with the roll-out of If not properly managed, warehouses re- to frozen fish, tobacco and fertilisers. commodity main vulnerable to everything from theft or In a number of instances: “We’ve been exchanges and the fraud to insect infestation. And although told by the banks that certain people gradual introduction using a collateral manager provides more would only get access to finance with this of electronic comfort to banks extending the credit, type of structure in place and with the col- receipts. there still aren’t enough active in Africa. lateral management company giving greater weight and authority to ware- The positives house receipts.” “The key advantage of a warehouse re- “It reduces the risk for the bank if they ceipt is it resolves a whole series of prob- can have a third party there, essentially lems at once,” says Edward George, head saying ‘If it’s not there, we accept respon- of soft commodities research at Ecobank. sibility for that’,” he says. Firstly, it protects the crop – a big issue And even for bigger traders or ex- in Africa, where an estimated 20% to 40% porters that already have easy access to of harvests rot before reaching market. finance, the fact that banks can use the It is also “a great way of freeing up fi- stored produce as collateral means that nancing for the farmer,” says George. “It’s warehouse receipt finance does not eat a financial instrument that can be traded. into their existing unsecured borrowing lim- But also, you can lend against it.” its, says Makiko Toyoda, leader of the Inter- Without warehouse receipt finance, national Finance Corporation’s (IFC’s) many commercial traders would not have Global Warehouse Finance Programme. enough collateral to meet banks’ require- “The banks can shift their risk from the bor- ments, given the huge quantities of grain rower’s balance sheet to the commodity that they are dealing with, says Richard itself.” 14 Wangwe, head of agriculture at Stanbic And because banks’ risk is lower, they Bank Uganda. can lend at more attractive rates. www.txfnews.com/special/Fin4Ag Focus on Warehouse finance Warehouse receipt finance also hands “A warehouse receipt is only as good more negotiating power to farmers. If they as the collateral it is backing,” notes don’t like the price they’re offered at the George. “If you were to buy a warehouse farm gate, they can drive their crop to the receipt for 5,000 tonnes of maize, and then nearest warehouse, store it there until they when you went to pick it up it was rotting receive a better offer and still receive in- or it wasn’t all there, straight away word stant ‘payment’ in the form of a loan, would get out and no one would want to notes George. buy warehouse receipts anymore.” Commodity exchanges are helping “There are so many quality issues that here – providing transparent prices that you have inside warehouses – everything farmers can check on their phone, notes from the cleanliness of the warehouse to Toyoda. Previously, market prices were a the way they store things,” he says. “black hole” for smallholders. Fraud is also a huge issue. In India, for example, an estimated $1.5 billion of The challenges fraudulent warehouse receipts have been The warehouse receipt finance system issued over the past 10 years, says George. only works if warehouses are big enough “Ultimately, it comes down to the qual- and cost-efficient, says Hans Bogaard, ity of the collateral manager and ensuring head of agribusiness at Rabo Develop- that all the necessary checks and bal- ment. If the costs of storing a crop and fi- ances are in place,” he adds. “Because nancing it are higher than the increase in there are dozens of ways that you can de- price, the aggregator may be able to se- fraud a warehouse, and they’re [defraud- cure for his crop by waiting, he won’t use ers] constantly trying to think of new ways.” warehousing. It also relies on the warehouses man- Collateral managers provide comfort agers in charge of produce to take proper “The biggest challenge for the financing care of it. bank is validating those warehouse re- ceipts,” says Scott. “It’s one thing to get a How warehouse piece of paper saying that X amount of product is at this location. But for that to receipt finance works have any weight, and for anyone to lend With warehouse receipt finance, a with confidence against it, they need farmer or trader delivers his produce some assurances that the warehouse re- to a warehouse that has been ap- ceipt hasn’t been written on the back of proved by a bank or other lender. The a fag [cigarette] packet.” warehouse, or collateral manage- “There’s a variety of ways to do that. ment company in charge of it, then is- You make sure that you deal with a large, sues a receipt vouching for the reputable company that has a good quantity and quality of produce being background and history in that,” he says. stored. The bank then takes the re- “Or you employ a third party, such as Drum ceipt and provides financing to the Commodities, in a collateral management farmer or trader – typically up to 70% capacity, who will go into that warehouse, of its current market value – against it. verify that the product is there in the cor- The receipt acts as collateral for the rect quantity, being stored appropriately, bank, giving it the right to take owner- and that therefore they will issue the ware- ship of the stored produce if the loan house receipts on behalf of the trader for is not repaid. the banks to finance against.” 15 The IFC relies on collateral manage- www.txfnews.com/special/Fin4Ag Revisiting agricultural finance ment companies in countries that don’t receipt finance was launched in collabo- yet have an official warehouse receipt sys- ration with the Uganda Commodity Ex- tem. They are “essential”, for countries that change, cooperatives were put in charge are in transition, for example many in West of running a string of warehouses across Africa, says Toyoda. And in Tanzania, even the country. However, many did not under- though a warehouse receipt system is in stand the system and failed to market it place, banks still use collateral managers aggressively. Instead, “they followed the for certain deals. old system of just sitting back and waiting for farmers to come and deposit,” he says. Government intervention and price risk Two warehouses in Uganda are however There are risks, of course, that collateral operated commercially and have been “a managers can’t control. tremendous success,” Wangwe says. The borrower for a grain stock that Bo- Stanbic also discounts warehouse re- gaard once financed in Kazakhstan re- ceipts outside the Uganda Commodity Ex- fused to sell after the price crashed. “So change for businesses exporting grains to your borrower also has to meet its obliga- neighbouring countries or selling locally to tions. If he doesn’t sell, there’s no liquida- breweries and millers. “These are doing tion on grain and the cash is not coming,” tremendously well,” he says. The bank has he says. Banks need good contacts in such so far financed more than $12 million scenarios so they can find an agent to sell through this method. In comparison, the crop quickly. two private warehouses under the ex- Government interference is another change have facilitated $6 million of fi- risk. In Tanzania last year, for example, the nance. government set a minimum procurement For farmers to get the full benefit from price for the cashew crop, he says. This was warehouse receipt finance, forming coop- too high for buyers, so banks were left hold- eratives is crucial, says Toyoda. Even with a ing cashew crops that they could not sell. warehouse receipt it is difficult for individ- The success or not of a warehouse re- ual smallholders to get bank finance, she ceipt finance initiative can also depend says. on whether warehouses are put under the Local banks also need to upskill, says control of the public or private sector. Toyoda. As well as introducing transac- A lack of business acumen among tional or commodity finance capabilities, farmer cooperatives operating ware- they need to implement a risk-manage- 16 houses has been a challenge in Uganda, ment framework and train staff. IFC offers a according to Wangwe. When warehouse training programme in some African coun- www.txfnews.com/special/Fin4Ag Focus on Warehouse finance African countries seek to replicate. Its Crop receipts commodity futures exchange allows auto- matic clearance, notes Bogaard. “For a Crop receipts – or Cedula de Produto bank, that’s very nice because you know Rural (CPR) as they are known in fron- there is a guaranteed exit and you do not trunner Brazil – appear a natural pro- have to worry about the marketing of the gression from warehouse receipts. With goods.” a crop receipt, a farmer can access fi- Rabo Development also advised the nance for his future crop, allowing him IFC and the Ethiopia Commodities Ex- to re-invest immediately in inputs re- change on how to implement that coun- quired for this or the next harvest. try’s electronic warehouse receipts The IFC is currently working with the initiative. Food and Agricultural Organisation Under that system, commercial banks’ (FAO) to study the feasibility of launch- systems have been linked up with the ing crop receipts in Africa, says Makiko country’s commodity exchange, so that Toyoda, leader of the International Fi- when a warehouse receipt is issued at a nance Corporation’s (IFC’s) Global warehouse, banks can immediately see Warehouse Finance Programme. It will the receipt’s number in their system and pilot the product – a version of which determine how much they are able to is widely known in Brazil as Cedula de lend, says Toyoda. Producto Rural (CPR) – in three African IFC is in the process of implementing countries with a view to implementing similar systems in Malawi, Mozambique the first within 18 months. and Senegal. For countries that already have a com- tries but banks remain cautious about in- modities exchange but which don’t yet vesting in new methodologies. “We en- have a warehouse receipt system, “it’s courage them to make that investment,” better to introduce an electronic one from she says. “Their effort would be paid off the beginning,” Toyoda says. Although it after one or two years.” can be costly to set up, “it provides more efficient operations to the banks, and also Commodity exchanges and e-receipts price transparency”. To be most efficient, warehouse receipt fi- Despite a “huge amount of talk about nance usually requires a smoothly func- electronic warehouse receipts,” they tioning commodity exchange. This has “don’t’ really seem to have taken off as partly triggered a rapid roll-out of com- yet,” says Scott. With the entire industry modity exchanges across Africa, in being intrinsically about security, “people Ethiopia, Kenya and most recently in are naturally very distrustful of new ways of Ghana. It is a symbiotic relationship doing things” and “still seem to prefer the though, with each relying on the other. old piece of paper with two signatures”. Warehousing systems “form the back- That said, “paperwork is old-fashioned, bone to commodity exchanges,” says it’s time-consuming, and I don’t think it fun- George. This is well demonstrated in damentally is any more risk-proof than a Ethiopia, where government-run ware- secure electronic system”. houses dot the countryside. Nigeria’s lack Also, electronic warehouse receipts re- of a good warehousing system was how- duce costs and allow traders to get their ever a big factor in the collapse of the financing much faster, he says. Because of country’s cocoa exchange. this, “almost inevitably, there’s going to be 17 South Africa has a model that many a move towards” them. ■ www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Regulation is key There is a huge variation in how bottom up – from the market. But in the different countries have implemented case of Ethiopia, it was initiated by the warehouse receipt finance, and how government.” successful it has been. Although Tanzania is another good African opinions differ on how much example of how banks and the governments should intervene in the government can work together, she process, the support of regulators is key. says. It passed legislation to support Establishing warehouse receipt warehouse receipt finance in 2005 and finance successfully in a new country is now amending the law to make the requires a push from the government, market more efficient. plus the involvement of a major Latin America has some of the organisation such as a commodities world’s most advanced warehouse exchange to drive it forward, says receipt finance systems, with Paraguay Edward George, head of soft presenting a good example of how commodities research at Ecobank. even small countries like Malawi could “Just dropping a few warehouses here benefit. Its central bank has led the and there isn’t going to help matters – initiative and strictly regulates they have to be part of a network that warehouse operators, which boosts feeds into a value chain.” banks’ willingness to lend, says Toyoda. Regulatory direction is vital for a Kazakhstan provides another model well-functioning warehouse receipt that African, Caribbean and Pacific market, says Makiko Toyoda, leader of countries could seek to replicate when the International Finance Corporation’s implementing warehouse receipt (IFC’s) Global Warehouse Finance finance, says Nazeem Noordali, general Programme. “Without rules and manager, corporate and structured regulations, commercial banks will not finance, at the Islamic Trade Finance come to the market.” It is also Corporation (ITFC). The country has a important that central banks get on robust grain law, which has helped board early in the process and attract $2 billion of finance per year, recognise warehouse receipts as half of it from international banks. collateral. Government licensing and Warehouses are government-licensed inspection of warehouses is also and physically checked on a monthly essential so that banks trust basis, warehouse receipts are printed warehouses. by the ministry of agriculture, meaning Ethiopia is often cited as a model “it’s a recognised document – it’s for its rapid implementation of a enforceable,” and the country is now commodity exchange and electronic moving towards electronic receipts. warehouse receipts. “It’s a brilliant system,” Noordali The country is a “unique case” and says. “If we can develop something demonstrates how important similar in Africa and other countries in regulatory direction is, says Toyoda. Asia, that would give a lot of comfort to Because Ethiopia’s government made banks,” he says. “Banks will invest much warehouse receipt finance a top more in countries where they have 18 priority, it was pushed through quickly. these laws and, most importantly, the “In some countries, it comes from the law is enforceable.” www.txfnews.com/special/Fin4Ag Case study Pre-export finance Ghana’s Cocobod sets the standard Now in its 21st year, the annual pre-export them and stores it in government-owned The annual Ghana financing of Ghana’s cocoa harvest is an warehouses. Cocoa Board example of how African agriculture really By the time banks step in to finance the financing provides can attract big international banks – and purchase of the cocoa by big interna- pointers for other increasingly cheaply – given the right mix tional companies like Nestle, the risk of African producers to of government involvement, industry or- everything from crop disease to trans- follow. ganisation and deal structure. portation has already been stripped out of The annual Ghana Cocoa Board (Co- the equation. Instead, they are dealing cobod) transaction is a “historic legacy with quality-checked cocoa, a multina- structure” that was born out of Ghana’s re- tional corporate buyer and a quasi-sover- sistance to the wave of IMF-ordered pri- eign seller, says Singharay, who was vatisation reform that swept Africa in the involved in Cocobod’s first pre-export fi- 1980s and 1990s, says Julian Madgett, nancing and comments here in a personal head of commodity and structured fi- capacity. nance at ICBC Bank in London. This has proved a “lynchpin” to the syn- Unlike other countries, which followed dicated deal, which effectively draws to- the IMF’s commands to the letter, “Ghana gether thousands of three-acre farmers did a very slick thing,” says Hiren Singharay, into one bankable body that credit com- regional head of syndications, Europe, for mittees accept as Ghana risk, he says. As Standard Chartered in London. Although a result, the deal is nearly always oversub- cocoa production and distribution was pri- scribed and the cost of financing for Co- vatised, the government-owned Cocobod cobod continues to fall. was kept in place as a final link in the value It has enabled Cocobod to raise over chain – a crucial point of contact be- $15 billion since its first such transaction in tween the domestic industry and interna- 1993, notes Madgett. tional buyers and banks. In Ghana, a handful of private compa- Trickle-down effect provides nies with a government license are respon- smallholders with stability sible for inspecting and buying The Cocobod transaction has also pro- smallholders’ cocoa. They then deliver the vided a mechanism under which money 19 cocoa to Cocobod, which buys it from flows down the value chain to smallholders www.txfnews.com/special/Fin4Ag Revisiting agricultural finance in a stable, predictable way. Indeed, Cocobod pledged in June to Farmers know they will receive a spec- extend this assistance, promising free fer- ified percentage – typically around 70% – tiliser for farmers in a bid to overtake Ivory of the free-on-board (fob) cocoa price for Coast once again as the world’s biggest their produce, says Singharay. This gives cocoa producer. them confidence to replant, encourages Cocobod’s research and develop- future generations to remain in farming ment facility has also continued to be a and has helped Ghana’s cocoa produc- good source of innovation on husbandry tion to quadruple over the past decade. and agronomy, says Madgett. This has en- Because of the way its industry is organ- abled smallholders to replant with ised, “cocoa has meant prospects and acreage with more disease- and drought- stability and social harmony for Ghana,” resistant cocoa trees, improving their yield he says. “It has not done that in Ivory and the overall country’s cocoa produc- Coast,” where farmers remain exposed to tion growth. the whims of big, private cocoa buyers. Cocobod is also notably progressive in Political risk and smuggling remain its transparency, says Madgett. It makes sore spots public statements detailing what percent- Compared with the fragmented privatised age of its export earnings in local currency systems that you see in other surrounding go to farmers. This incentivises quality pro- countries, “Ghana has a relatively cen- duction and gives farmers a stable, pre- tralised, supply-primed and well-organised dictable and timely income. national system,” says Madgett. The existence of Cocobod also helps There are weak points though, bankers ensure that small family-run farms get ac- say. cess to high-quality beans and fertilisers, Cocobod’s state-owned status ex- according to another banker involved in poses lenders to an element of political this year’s transaction. “In that respect, risk. For example, its balance sheet has in [Cocobod] has a great impact,” says the past been used to service obligations Madgett. not connected with the cocoa industry, he says. A build-up in recent years of Bank of Ghana cocoa notes, which ultimately had Changes ahead? to be refinanced, is another concern. There is also a small side risk of smug- Ghana’s biggest licensed cocoa gling between Ghana and the Ivory Coast. buyer will break with tradition this year Because Ghana’s cocoa prices have his- by borrowing less from Cocobod. Pro- torically commanded a premium in the duce Buying Co will borrow 400 million market, this has raised the question of what cedis from the board this year, down proportion of Ghana’s total crop truly from 450 million last year, it said in comes from Ghana and what proportion March, citing rising inflation and do- has been smuggled from the Ivory Coast. mestic borrowing costs. It will seek to In recent months that trend has actually plug the gap with finance from gov- reversed, with Ghana’s weaker currency – ernment agencies and banks. The down 20% against the US dollar in the first cost of borrowing from Cocobod had six months of this year alone – making by March risen to around 18% from smuggling into the Ivory Coast more lucra- 16%, according to deputy finance tive. Cocobod’s regulator pledged in June 20 manager Osei Manu. however to raise its fixed cocoa price next season to a level that counteracts that. www.txfnews.com/special/Fin4Ag Case study Pre-export finance As the world’s biggest cocoa producer, African agriculture syndication, banks ap- the Ivory Coast would seem an obvious preciate the open tender process, which candidate for a Cocobod-scale struc- allows them to club together and pitch tured syndication. However, despite on their proposal, without much interference and off discussions, no deal has ever got from Cocobod. off-the-ground. And nor is it likely to with Also, Cocobod “acting as a fronting the industry organised as it is, bankers say. body” gives banks a degree of confi- Indeed, across African soft commodities in dence that has proved justified over time, general, only Mali’s cotton industry has he says. The transaction has an “excellent ever managed to pull off anything similar. track record” and Cocobod has never re- paid late. Changing of the guards At $1.6 billion, the one-year deal is big- Six relative newcomers were named in ger than 2013’s $1.2 billion transaction. May 2014 as bookrunners for this season’s Pricing is also believed to have fallen yet crop financing, which as usual should close again – to a rumoured 55 basis points (bp) in September 2014. over Libor, from 75bp last year. Unusually, German banks dominate as Even if pricing falls further, Cocobod will the mandated lead arrangers (MLAs), with probably continue to attract big banks, Commerzbank, Deutsche Bank, DZ Bank and especially those who don’t otherwise and KfW IPEX-Bank being joined by Bar- have a strong Africa presence but want to clays and Natixis. Most of the usual sus- ‘tick boxes,’ says Singharay. In this way, Co- pects for African agriculture lost out in the cobod is similar to Angolan oil company bidding. Sonangol, which historically has been the Some of the MLA banks in this year’s only other African commodity risk that deal have previously not participated in many banks will touch. the transaction and, if they have, not in a Meanwhile, banks with a deeper pres- leading position, acknowledges a banker ence in Africa, “are all either walking away at one of this year’s bookrunners. or reducing our exposure” to Cocobod, It is not hard to see the attraction Singharay says. “Our common view is let 21 though, he says. As well as this being the other people play in this field.” ■ www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Innovative thinking helps close credit- data gap Access to finance One of the biggest challenges small are increasingly prepared to lend against. and services for farmers face when they try to access fi- farmers is changing nance is that they are an unknown risk. Farmforce More farmers in African, Caribbean and “A big part of the problem of giving credit rapidly with the help Pacific countries have a mobile phone to smallholder farmers is that their of the mobile phone than a bank account, and even when economic life is informal,” notes Spencer and the internet, as they have tapped credit, it tends to be Morley, implementation manager at Farm- well as innovative in a non-traditional form that passes force. “There’s basically no formal record assistance through the net of mainstream credit data of what they’re doing.” And without programmes from a collection. the ability to make a credit assessment, number of new This is changing. Internet start-ups, banks and other financiers are reluctant companies. credit bureaus and even development to lend. projects are using new technology to help Where Farmforce steps in is by offering smallholders create their own ‘credit’ his- a mobile web system that helps more tory, or at least a clearer picture of who than 16 contract farming schemes in they are and how well they run their busi- Guatemala, the Philippines and sub-Saha- nesses. With the collection and sharing of ran Africa improve their management and everything from utility and mobile phone record keeping. bills to records of input purchases and crop Field agents employed by the schemes yields, farmers are finally gaining a finan- use an Android mobile app on their visits cial identity – and one that banks or MFIs to smallholder suppliers to record every- Spencer Morley at Farmforce: “As soon as [banks] have three seasons of verified, time-stamped, geo-tracked agricultural production data, they’re happy to lend the money.” 22 www.txfnews.com/special/Fin4Ag Focus on Credit-data thing from the quantity and frequency of pesticide application to how much crop a Agriculture’s mobile farmer ultimately produces from how revolution much seed. The creation of real-time records that Mobile technology is transforming the are geo-specific and are automatically re- lives of small farmers. With smartphone layed back to head office means schemes penetration sweeping across Africa, can ensure that their produce complies producers can already access every- with export market requirements and that thing from current commodity prices they are alerted immediately to potential to weather forecasts, book-keeping inefficiencies and other risks like fraud or services and technical advice from side-selling. their handset. Mobile banking services But that isn’t the only benefit. Records like M-Pesa allow farmers to carry out like this give lenders confidence, even in safe, cash-free banking and access the absence of traditional credit data. small loans from MFIs like Musoni. Ven- All the banks that Farmforce has spo- tura Associates, for example, aims to ken to since its launch in 2012 say that “as have two million farmers connected soon as they have three seasons of veri- by the end of this year to a banking fied, time-stamped, geo-tracked agricul- platform it is launching in Mali. Mobile tural production data, they’re happy to banking already means that claims lend the money,” says Morley. against some Syngenta Foundation For some produce such as French crop insurance products can be paid beans in Kenya, that three-crop history out within days. And from August 2014, could be available as early as next year. an e-Bay style digital trading house called Agrocentral will even put farm- Creditinfo ers in Jamaica in direct contact with “One of the biggest things holding back potential buyers, all via their mobile agriculture in many developing countries phone. is access to finance,” says Shane Molden- hauer at Creditinfo, a credit information tered Georgia, financial inclusion in the 15 and credit risk management solutions to 70 age range has grown from 800,000 provider. “They’re completely out of the fi- people to 1.7 million. nancial grid – they’re unbanked.” It aims to replicate this success in Ja- Creditinfo helps address this by gather- maica and Guyana, where it launched ing non-traditional data – ranging from last year. In Africa, it already has operations company invoices and bills to registrar in Tanzania and Cape Verde and – data – to build a bigger picture of individ- through a joint venture formed this Febru- ual farmers and the companies they sup- ary with biometrics company VoLo – in ply. It then sells that data to banks and Gambia and Senegal. microfinance institutions (MFIs) and also The company’s near-term target is to works to educate farmers on ways they double the number of countries it oper- can improve their ability to borrow. ates in, with many of those new markets “We’re trying to say to farmers that you likely to be in Africa and the Caribbean, actually have a financial identity that you Moldenhauer says. can create,” says Moldenhauer. “And if you have a financial identity you can get FarmDrive access to credit.” Formed this year by a group of students at 23 In the five years since Creditinfo en- Nairobi’s School of Computing and Infor- www.txfnews.com/special/Fin4Ag Revisiting agricultural finance matics, FarmDrive will use data it gathers Fifty farmers across Kenya are so on smallholder farmers to connect them far signed up, and are helping with investors via a new web and mobile FarmDrive fine tune what methods of data platform. collection work best. It aims to launch in To qualify for a traditional loan, a farmer September. needs to produce at least three months of records, detailing their input costs, output AKCP and earnings, says co-founder Peris Bosire. The Association of Kenya Credit Providers However, most don’t keep precise records (AKCP) also takes a non-traditional ap- and many are not even aware that doing proach in its efforts to create a sharable so could help them access finance. This pool of credit data that will give banks “locks out farmers,” she says. and other lenders more confidence to Under the system, smallholders log de- lend to farmers and other individuals. tails of everything they spend, produce, AKCP has already signed up banks, li- own and earn on a mobile app. FarmDrive censed MFIs, development finance institu- uses this data to create a profile of the tions and the M-Shwari mobile farmer, outlining where he is located, what phone-based loan product to its Credit In- he produces, how successful he is, how formation Sharing (CIS) project, which pro- much money he needs and what he plans vides a framework under which credit to do with it. This builds a picture that in- providers log both positive and negative vestors can use to determine the potential data about clients through credit refer- risk and return attached to a smallholder, ence bureaus, says CEO Jared Getenga. says Bosire. Essentially, “we recreate the Over the next 12 months AKCP will also creditworthiness of the farmer”. enable savings and credit cooperatives Potential investors can search farmers (SACCOs) to participate and will work to by location and sector and, when they enrol non-traditional lenders like utilities find one they like, can request from Farm- and solar light providers, which will be able Drive more detailed access to his or her fi- to provide data as simple as whether a nancial records. They can also invest in smallholder farmer pays his electricity bill. farmer groups who are prepared to guar- “Agricultural borrowers will be an antee each other’s loans. Investments can important beneficiary of this,” says start as small as 3,000 Kenyan shillings ($34). Getenga. ■ Shane Moldenhauer at Creditinfo: “We’re trying to say to farmers that you actually have a financial identity that you can create … If you have a financial identity you can get access to credit.” 24 www.txfnews.com/special/Fin4Ag Interview Tony Elumelu Tony Elumelu: Vision for Africa Entrepreneur and philanthropist Tony Elumelu* shares his vision for African agriculture, including the growing role of local banks and the future of commodity exchanges. TXF: Can the private sector take distorting markets with subsidies, ment capital’ forever. And to the lead in agriculture or are sub- and generally creating red tape some extent, even in developed sidies and development agency that prevents the private sector economies, governments are al- support essential? What should from managing supply and de- ways playing catch-up with the governments do to support agri- mand gaps. Such reforms in agri- private sector. Africa must em- culture? culture policy could go a long brace a new agenda, with busi- Tony Elumelu (TE): The private sec- way toward attracting investment, ness taking the lead on economic tor must take the lead, as we have and increasing the productivity of development regardless of the done with AFEX (Africa Exchange this critical economic sector. obstacles, particularly in agribusi- Holdings) and EAX (East Africa Ex- That said, business cannot just ness. As the private sector grows, change). The government has a stand idly by and wait for things to and creates both jobs and wealth role to play, no doubt, in establish- be perfect, or we will be waiting – and presses our respective gov- ing a supportive environment for forever. We must forge ahead re- ernments for progress on urgent is- business. There is much to be gardless and be catalysts for sues – we can become the done, for example, in streamlining change. The premise of Africapi- change we seek. the process of starting a business, talism is that the private sector reducing the burden of taxes, du- holds the power of economic TXF: How are the institutions you ties and fees, expediting permits, transformation, through its ability work with helping to increase the and rationalising trade rules. to create social wealth for the competitiveness and involvement African governments have a long-term. That entrepreneurial of African banks in agricultural history of interventions in the agri- power is only partially dependent trade finance, including for intra- culture sector that inhibit compe- upon government action and de- African and South-South trade tition and the efficient functioning velopment support. Both are ex- flows? of markets. Instead, they need to tremely helpful, but Africa must TE: Banks must absolutely increase make much faster progress toward move toward greater self-suffi- lending and finance for Africa’s open, competitive markets by re- ciency and fill the void with private agricultural sector, which offers the versing these policies (eg export investment and strategic partner- opportunity not just to earn a sig- bans and import restrictions). And, ships, as we have done at EAX nificant financial return, but also to as much as possible, governments with our partnership with NASDAQ. reduce unemployment and cre- 25 must refrain from fixing prices and We cannot rely on ‘develop- ate social wealth. Africa is blessed www.txfnews.com/special/Fin4Ag Revisiting agricultural finance with tremendous agricultural re- strengthening both of these drivers sources. African agribusiness offers of growth. They increase confi- some of the world’s best invest- dence in the agribusiness sector, ment opportunities. That is true and increase regional trade, by whether you are a large company building local markets, increasing looking for long-term revenue and farmers’ incomes, and increasing margin growth, a small socially the amount and diversity of avail- conscious investor looking to able product. We fully expect that make an impact, or anything in as confidence in the sector in- between. creases, and as it demonstrates an Opportunities exist up and ability for sustainable growth, down the entire value chain, from banks will step in and provide the production to processing, to distri- necessary financing. bution and sales. Currently, Africa In specific terms, stronger con- faces a deep supply-demand im- tract laws, as well as adequate balance: consumer demand is Tony Elumelu, chairman of guarantees and insurance covers, growing rapidly, but the agricul- Nigeria-based investment company have helped us secure financing ture sector suffers from low pro- Heirs Holdings and conglomerate for AFEX’s warehouse receipts Transcorp ductivity, as well as a near total from United Bank of Africa, which lack of domestic processing and Africa includes a higher propor- had operations in 19 countries distribution capacity. Filling these tion of manufactured and value- across Africa. We are also working gaps through domestic private added goods. More regional with Equity Bank and KCB for the sector investment presents an trade within Africa can help in- same purposes. In practice, such enormous opportunity for those crease employment and local banks rely on the balance sheet with a long-term outlook. purchasing power. And when we strength of the securing and guar- The other key ingredient to process our own resources here – anteeing company, as obligor risk faster, more inclusive economic rather than exporting raw materi- can be quite high when financing growth for Africa is greater intra- als and importing finished goods – farmers and traders. A strong African trade. Historically, most of it will help Africa retain wealth counterparty, such as AFEX, can our trade is focused on exporting rather than export it. provide peace of mind for finan- raw materials off the continent. By The institutions we are develop- cial institutions, that inventory in se- contrast, regional trade within ing can play a central role in cure warehouses can be Banks must absolutely increase lending and finance for Africa’s agricultural sector, which offers the opportunity not just to earn a significant financial return, but also to reduce unemployment and create social wealth. Africa is blessed with tremendous agricultural resources. African agribusiness offers some of the world’s best 26 investment opportunities. www.txfnews.com/special/Fin4Ag Interview Tony Elumelu ‘collateralised’ or ‘securitised’ by tablish an automated trading TXF: How important are warehous- banks, thereby giving them confi- platform and electronic ware- ing systems in efforts to boost agri- dence to release credit into the house receipt system, creating cultural finance and physical agribusiness sector. new trading opportunities in the trading? How much can be region and internationally. achieved without large-scale re- TXF: What is your vision for the ex- In Nigeria, for example, the form in warehouse receipt laws change initiatives in Africa? Do government is completing the and regulations? you foresee many national ex- construction of several silo com- TE: Warehousing and collateral changes, a few regional hubs or plexes across the country, with a management systems are critical even a pan-African structure, and goal to reach 1.4 million metric to the success of commodities ex- how long will it take to get there? tonnes of total storage capacity changes. The warehouse receipt TE: We envision the AFEX network this year. This will create food itself is the security instrument of exchanges to include both re- buffers in the country and combat traded on the exchange, repre- gional and local hubs. EAX unsustainable food imports. AFEX senting the underlying commodi- Rwanda was the first node of a re- has identified opportunities to cre- ties stored in gional commodity exchange. We ate value within the agricultural exchange-accredited ware- are currently operational in Kenya value chain by leveraging the houses. Receipts are issued by a and Uganda, and have businesses Ministry of Agriculture’s existing fa- collateral manager, who guaran- registered across all East African cilities, as well as additional facili- tees delivery of the quality and countries. Tanzania also promises a ties from the private sector. AFEX is quantity of product on the issued productive agricultural sector that also developing best practices for receipt, and provides value- accounts for 85% of Tanzanian ex- the storage and handling of com- added services such as cleaning, ports. We have already submitted modities, and will manage and fumigation, bagging, and ulti- an initial proposal to the govern- operate warehouses located in mately preparing the product for ment of Tanzania and are very major commodity markets and trade. keen on partnering with them. production sites across Nigeria. The basic function of an ex- In each market, AFEX ex- AFEX is implementing the elec- change is to ensure settlement by changes will leverage NASDAQ tronic warehouse receipt system in acting as a counterparty to buy- OMX's world-class technology and its warehouses as a building block ers and sellers. Without secure stor- invest in warehousing and collat- to creating a vibrant commodity age and warehouse receipts with eral management services to es- exchange in Nigeria. integrity, this will never happen. The other key ingredient to faster, more inclusive economic growth for Africa is greater intra-African trade. Regional trade within Africa includes a higher proportion of manufactured and value-added goods. More regional trade within Africa can help increase employment and local purchasing power. 27 www.txfnews.com/special/Fin4Ag Revisiting agricultural finance These capabilities are also central way for the introduction of na- higher volumes of product, a to financing because they not tional, and possibly even regional, higher number of market partici- only enable efficient transfer of legislation. pants, and greater scale in financ- the receipt but also use of that re- ing, given the larger scale of ceipt for collateral – to secure TXF: On the road to implementing regional operations. The broader lending from banks. Banks will only your exchanges’ vision, how do regional view will not only uplift the lend against that collateral if it you see the interplay between individual economies of each can be proven to be secure and national interests and regional country, but through inter-regional not vulnerable to side-selling, theft, strategies, cooperation and com- trade will also serve the food secu- forgery, etc. Thus, the entire ware- petition between private initia- rity objectives of the region by fa- housing and collateral manage- tives, government interests and cilitating the flow of agricultural ment system must be secure and donor-driven efforts? products from surplus areas to reliable if the exchange is to func- TE: We absolutely see an in- deficit areas. tion not just as a hub of physical creased need for all players across Governments in particular trading, but also as a platform for the value chain to work together need to create enabling environ- commodity finance. to get the exchanges running, ments for private capital and skill Current warehouse receipt and create an efficient market to set up or revamp exchanges legislation combines several ele- system that adds value to all its across Africa, and run them in the ments of contract and financial in- stakeholders, inclusive of farm- most equitable manner. And gov- strument laws into one piece of ers/producers. An efficient agricul- ernment has a regulatory function legislation, aiming to legitimise the ture sector – which produces to play to manage the interest of warehouse receipt as a docu- value-added goods for domestic the larger society and the parties ment acceptable by the court for consumption – is a critical compo- to transactions. But business must adjudication or dispute resolution. nent of African growth and serves be an equal partner in driving re- At AFEX, we tend to follow the the interests of the entire conti- form, leading the way by creating South African model – currently nent. It should not be seen as the opportunity, jobs, and wealth, the only model for a commercially sole responsibility of any group, which will demonstrate the poten- viable exchange in Africa – where whether that is businesses, govern- tial rewards of policy reform and there is a third-party providing ments, market participants, or de- pressure governments to act for quality and quantity guarantees, velopment partners. As I have said the benefit of all Africans. ■ as well as liability protection before: if Africa fails, we all fail. We should the stored product deteri- cannot afford to let the agriculture orate or be unavailable for settle- sector languish, given its potential ment. to create jobs and address high Business cannot wait for every- unemployment, fill the supply-de- *Tony Elumelu has been re- thing to be perfect before we act. mand gaps that exist across the sponsible for creating busi- It is not feasible to wait for ware- continent, and create social nesses across Africa, in sectors house legislation to be enacted wealth that can help us solve so critical to the continent’s eco- that would cover all warehouses in many persistent health and wel- nomic development. He is a given country – warehouses of fare challenges. chairman of Nigeria-based in- various sizes, types and ‘state of re- Economies of scale are partic- vestment company Heirs pair’. We recommend a pilot proj- ularly relevant in the exchange Holdings and conglomerate ect to demonstrate the environment, and we believe re- Transcorp. He is also founder of advantages of ‘secure’ and well- gional exchanges will benefit The Tony Elumelu Foundation, managed warehouses, and using each individual country far more a philanthropic organisation that experience as an incentive than a series of smaller, less liquid that supports entrepreneur- 28 for warehousing to be improved. national exchanges. Regional ex- ship across Africa. We believe that this will pave the changes can accommodate www.txfnews.com/special/Fin4Ag Focus on Traders Traders – the strongest link The love affair between banks and traders ter organised.” Soft commodity is sometimes resented by producers, who Like most international banks, ING does traders help money struggle to access bank finance directly. not have a wide presence on the ground get to where it’s most But traders are the arteries and veins of in Africa so is cautious about directly lend- needed along agricultural finance, helping money flow ing to individual farmers says Geert Bier- agricultural value right across the value chain, adding value man, director of commodity finance. chains. with processing plants, and supporting Traders however are one channel through smallholders with technical assistance. which international banks can help money flow to smallholder producers. Trickle-down effect ING is, for example, part of a club deal Bank financing “trickles down” to small- with two other banks in Africa, focused on holders through traders, who often tap sustainably grown coffee beans. ING and pre-export financing to pay their suppliers, its partners lend to the trader, which on- notes Hans Bogaard, head of agribusiness lends to producers. “By having a trader fi- at Rabo Development. nancing a wide portfolio of farmers, the risk Traders are also helping modernise is mitigated,” he says. small-hold farming and providing a link in And in markets such as Brazil, where the value chain. “I think that’s the best agricultural and commodity markets are guarantee for the future,” he says. “Be- sophisticated and well-regulated, ING cause these value chains need to be bet- sometimes finds itself competing head to Jacob Mwale, Grain Traders Association of Zambia: “Small and mid-sized commodity traders have long been overlooked by banks, which are only now starting to appreciate the vital role they play in agricultural value chains. It was considered we already had money – we didn’t need any help.” 29 www.txfnews.com/special/Fin4Ag Revisiting agricultural finance head with traders to provide finance. “That Agroindustrial Corporation. makes financing a lot cheaper in those “Roughly a quarter of our sales are now countries,” says Bierman. under one of the certification schemes, and we reach more than 250,000 farmers Hands-on help around the world with our agronomy serv- As well as providing financial assistance to ices,” he says. “With that as a basis and a farmers by buying their produce and track record, then we can provide access sometimes supplying them with inputs, to inputs and credit.” traders help small-scale farmers become “We do this not out of charity, but out more efficient in their farming methods. of shared interest,” he says. When farmers Some green coffee traders have more produce more and better produce, Ecom agronomists on their payroll than traders has more and better product to sell to its these days, says Bierman. “That is partly be- clients. cause it’s the right thing to do, and partly to secure good quality of coffee, cocoa or Added value cotton when the market is asking for more Traders also add value in emerging mar- traceable products.” kets by investing in processing and pack- “Our work with farmers starts with train- aging plants. ing in good agricultural practices that usu- Olam International announced in ally takes them to one of the May 2014 it would add to its existing string internationally recognised certification of processing facilities across the world schemes,” says David Rosenberg at Ecom with a $61 million cocoa processing plant Sustainability evolving concept. “What is considered ING officially integrated sustainability sustainable today may not be labelled into its commercial strategy around sustainable in five years’ time.” three years ago. Although the bank had Credit committees are also starting already implemented robust social and to take sustainability into account. “We environmental risk management poli- still need to get our money back, but if cies, this was “more directed at prevent- a decent deal is proposed that has the ing harm,” says head of sustainable additional benefit of helping people in lending Leonie Schreve. the developing world, it is a plus in the Now, ING actively looks for positives, decision process,” says Geert Bierman, trying to identify clients that have an director of commodity finance at ING. outstanding sustainability performance “Companies who work with a and that go the extra mile in terms of longer-term view of things tend to be meeting international certification less risky,” he explains. “And so a good, schemes or sourcing from smallholders. decently run company with an eye on The bank’s sustainable lending team the environment and the world around looks closely at all deals as they come in them should have a lower risk profile, and opens a dialogue with clients to see and lower pricing.” if there are any ways it can help make Meeting sustainable criteria also their transactions more sustainable. helps banks get organisations like the In- Clients have responded well and are ternational Finance Corporation (IFC) 30 keen to share the efforts they are making, on board with guarantees or co-financ- she says. Sustainability is of course an ing that also reduces risk. www.txfnews.com/special/Fin4Ag Focus on Traders in Indonesia. selves by specialising in niche crops or eth- The facility will produce cocoa butter, ically stamped produce, he says. cocoa cake and cocoa powders, sourc- Small and mid-sized commodity traders ing mostly from 32,000 farmers across In- have long been overlooked by banks, donesia as well as from a plantation on which are only now starting to appreciate Seram Island the company acquired last the vital role they play in agricultural value year. Beans will also be supplied from chains, according to Jacob Mwale, exec- Olam’s farm-gate networks in Africa. utive director of the Grain Traders Associa- Ecom also has coffee wet mills in tion of Zambia, which brings together 106 Uganda and dry mills in Kenya and Tanza- traders. “It was considered we already had nia, as well as cocoa processing in Ivory money – we didn’t need any help.” Coast, Ghana, Nigeria and Cameroon. Traders support small producers not only by sourcing from them but often by fi- An uneven playing field nancing their purchase of inputs like fertilis- Big traders tend to establish a presence on ers and seeds, he says. the edges of a continent first, for example They face challenges of their own setting up operations in Africa in Ghana though. Bank financing is too expensive – and Kenya to begin with. They are extend- a cost that smaller traders have no choice ing their reach though, sourcing coffee, for but to partly pass on to farmers. example, directly from one-acre farmers in Government intervention is another risk central Africa, says Bierman. that restricts their ability to do business. Un- Smaller traders however usually lack certainty over the Zambian government’s the logistics to follow this example, so tend participation in the market on the buying to source from ports at a lower margin. “It and selling of maize, for example, makes it is harder for smaller traders to get a piece difficult for Zambia to fulfil its potential as a 31 of the pie,” unless they differentiate them- major regional exporter, he says. ■ www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Value-added improves prospects for Pacific Islands agri sector The agri sector in Agriculture forms the backbone of many has a well-established coffee trading busi- many Pacific Islands economies in the Pacific Islands. Despite ness, Olam has trading operations in both is changing, as more their geographic remoteness, a handful of coffee and cocoa and Ecom Agroindus- value-added takes islands are quietly building burgeoning ex- trial is active as the sole offtaker of a local port industries in commodities such as coffee trader. place. We take a cocoa, coffee and sugar and, in the case closer look at of Papua New Guinea (PNG), a value- Fisheries industry adds value developments in added tuna canning industry. One industry where PNG shines is fish pro- Papua New Guinea Resource-rich PNG is the region’s star cessing, says Coleman. With a large exclu- (PNG). draw. Although some traders and multina- sive zone in the central western Pacific tionals have historically viewed its shaky region – source of 30% of the world’s tuna sovereign rating and high crime rates with catch – PNG has long viewed fishing as an trepidation, this is changing. important revenue source. “We’ve seen a number of companies But government ‘value-added’ initia- enter the market recently,” says Gareth tives have in the past five years supported Coleman, head of trade and supply chain, the development of a thriving tuna loining Papua New Guinea, at ANZ in Port and canning industry, bringing thousands Moresby. Traders and multinational com- of jobs to an island whose tuna catch panies are seeing in PNG a “tremendous would previously be shipped to Thailand or opportunity to grow quite quickly”. the Philippines for processing. Nestle and Coke already have opera- PNG now has a handful of large can- tions in PNG. Commodity trader ED&F Man neries, including one that opened last year Gareth Coleman at ANZ: “When we’re providing this sort of financing, we do so on the basis of the product having already been sold. And the company that we’re providing the financing to has a successful track record of executing these sales orders. What gives us comfort is that there 32 are orders in place.” www.txfnews.com/special/Fin4Ag Case study Papua New Guinea the company that we’re providing the fi- PNG concentrates on nancing to has a successful track record core agri products of executing these sales orders,” says Coleman. “What gives us comfort is that Coffee, cocoa, oil palm/kernels and there are orders in place.” coconuts make up more than 90% of ANZ earlier this year provided its first PNG’s agriculture exports by value. pre-export finance facility in the Solomon Arabica coffee is its most important Islands, to a small Asia-based cocoa trad- crop, with more than 250,000 house- ing company. As well as giving the trader hold farmers accounting for 70% of access to finance that might not otherwise production. Cocoa production is once be available, the facility allows it to borrow again increasing, having faced steady in US dollars at a lower interest rate than if decline since the mid-1970s, as estates it borrowed in local currency, says Cole- replant with higher-yielding hybrids. In man. only 20 years, oil palm has become The bank also provides pre-export fi- PNG’s third biggest agricultural export nance for coffee growers in Timor – again, by value and is viewed by some as a against confirmed orders – and for sugar in potential future rival for coffee. Fiji, where the nation’s entire production is exported via a single body, the Fiji Sugar Corporation. and employs 2,000. At least two more that will employ similar numbers are well under Smallholders still struggle development. Smallholders in Pacific Islands face similar Government stipulations that fishery challenges to those in Africa and the operators fishing in PNG waters also invest Caribbean. Ninety seven percent of PNG’s in local canneries have helped, as has the land, for example, is held on a ‘customary’ EU’s granting of customs-free status to PNG basis by clans or tribes and is therefore un- canned tuna, notes Coleman. titled. This ambiguity creates challenges for banks, which cannot use land as security Pre-export financing on the up to finance farmers directly, notes Coleman. PNG is also a significant producer of But while microfinance remains at an cocoa and coffee, which ANZ supports “early stage” in PNG, organisations like Na- through pre-export finance transactions. tional Development Bank “do have an ap- Funding against existing orders of sale is petite to go a little deeper in terms of considered a palatable risk by the bank, providing grower loans,” he notes. The which now aims to expand the limits it has central bank also launched early last year in place for companies already trading in a microfinance project that targets both this space, says Coleman. urban and agricultural customers. From initially focusing on the sub- The variable size of PNG’s coffee and sidiaries of multinationals, ANZ has over the cocoa production also introduces a risk to past 18 months also started extending pre- lenders, with many smallholders producing export finance to nationally-owned com- only as much as they need to cover panies that may not have big household expenses, rather than trying to parent-company balance sheets but optimise income. When the government have a proven history. introduced free education in the early “When we’re providing this sort of fi- 2000s, for example, production dipped nancing, we do so on the basis of the suddenly as smallholders needed to earn 33 product having already been sold. And less money. ■ www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Agriculture gets its Act together Governments need Governments in African, Caribbean and to support local farmers with anything from to provide a legal Pacific countries have a huge responsibility guaranteed crop prices to import bans, framework for to support agriculture, which in many others such as Ethiopia or Kenya are trying agriculture that cases employs more than half the popula- to attract banks with sophisticated com- supports farmers tion and is a foundation for the economy. modity exchanges underpinned by regu- The legislative and regulatory environ- lations that give substance to financing and traders but also ments in many emerging countries remain, tools like warehouse receipts. gives banks however, among the biggest concerns So which countries are leading the way confidence to lend. banks have about financing agriculture in both supporting farmers and winning fin- and soft commodities there. Even where anciers’ confidence, and what more rules are in place, enforcement is some- could they do? times a different issue. And with land own- ership in many countries either ambiguous The lawyer’s view or non-existent, the concept of taking col- There are a number of steps that govern- lateral becomes problematic. ments in emerging markets could take to Progress is certainly being made help support their agricultural industries though, with a careful balancing act un- and stimulate bank lending, according to derway in many countries. While some Nicholas Budd, retired partner and head countries such as Zambia or Nigeria seek of the trade finance group at White & Governments could also help provide more stability to farmers by setting up government-subsidised crop insurance programmes, underwritten by the private sector. These products would cover farmers against a range of risks such as drought, 34 flood and loss of irrigation sources. www.txfnews.com/special/Fin4Ag Focus on Regulation Case and consultant to the WTO. Laws should also be adopted govern- Many of these focus on supporting ing negotiable and non-negotiable ware- tools like warehouse receipt financing, house receipts. This would make it easier to which help banks find a way to finance pass on the title of goods and for the bank traders and farmers whose only collateral holding warehouse receipts as collateral are the crops they produce. to enforce its rights. Setting up a government-regulated “The country that is probably the most commodities exchange that allowed for famous in developing countries for their the trading of futures as well as spot con- adoption of legislation regarding com- tracts would inject transparency and liq- modity exchanges is Ethiopia,” he says. “It uidity into the market, as well as providing has its critics and its supporters. But it’s a hedging possibilities, he says. vigorous and very heavily government- Allowing members of the exchange to sponsored effort that has achieved some offer financing to customers would also level of activity almost overnight.” create more competition for banks that Governments should also look at currently provide secured working capital adopting a new law to allow the creation loans to traders and other players. of security rights over future and growing To help facilitate the development of crops. “The real pioneer of that is Brazil, with warehouse receipt finance, governments its CPRs,” he says. should establish a network of warehouses Elsewhere, creating a central bank loan that are regulated and licensed by either discounting mechanism would encourage the government or the commodity ex- international banks to lend to local banks, change, Budd advises. These would have to which could use that money to provide meet minimum standards in terms of regu- short-term, self-liquidating, secured loans to 35 lar inspections and financial management. finance agricultural commodities. www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Relaxing banks’ reserve and capital re- port or export of commodities. Inconsis- quirements for some structured assets in tency in terms of import tariffs between the short-term trade and agriculture sec- seasons also concerns us because it tors would also allow more money to flow, makes re-selling of the commodity in a he says. pre-identified market difficult.” Governments could also help provide In Kenya, “the government is doing its more stability to farmers by setting up gov- best to make sure the industry is stimu- ernment-subsidised crop insurance pro- lated,” Meyer says. “In terms of infrastruc- grammes, underwritten by the private ture and storage and the creation of sector. These products would cover farmers markets, Kenya’s quite possibly at the fore- against a range of risks such as drought, front of opening the next exchange for soft flood and loss of irrigation sources, Budd says. commodities in Nairobi. And that’s crucial for free trade.” The banker’s view Mozambique’s decision to offer free “The legal system in a country needs to be long-term land leases has attracted hun- predictable. People need to know what dreds of South African farmers to relocate their contract is worth,” says Geert Bierman, there, says Meyer. This is partly because of director of commodity finance at ING. uncertainty about South Africa’s land re- This limits, for example, ING’s participa- form programme, but also because tion in warehouse receipt finance to “very Mozambique offers excellent soil, weather well regulated” countries like Vietnam. “In and access to ports. a lot of countries, the legal system is not as Nigeria’s ministry of agriculture is also developed as you want,” he says. “There- making great strides at bringing agricul- fore, taking security is not always possible.” ture back after decades of the over-re- “If governments are committed to get- liance on crude oil. Import bans on rice, ting the agricultural industry to grow, it is im- plus investment in rice processing plants in perative that they supply a solid the country are encouraging it to become framework and policy to facilitate bank- more self-sufficient, says Meyer. able security to the private sector,” says And finally Ghana. The annual Ghana Zhann Meyer, Africa head, global com- Cocoa Board pre-export financing trans- modity finance at Nedbank Capital. action is oversubscribed by banks every “A lack of legislative framework and year. This is “because banks realise that it consistently applied agricultural policy shows governance, it shows control, it scare investors,” he says. “Banks also shy shows administrative capability,” says away if there’s no certainty in terms of bor- Meyer. “Those kind of things help towards ders being closed or opened for the im- building a reputation.” ■ Zhann Meyer, Nedbank Capital: “In terms of infrastructure and storage and the creation of markets, Kenya’s quite possibly at the forefront of opening the next exchange for soft commodities in Nairobi. 36 And that’s crucial for free trade.” www.txfnews.com/special/Fin4Ag Focus on Livestock Livestock – more than a commodity Value chains like livestock and dairy face is that, once butchered the product Pioneering projects a unique set of challenges, giving them a becomes very perishable, says Jo Cadil- are helping livestock reputation as being higher risk than those hon, senior agricultural economist at farmers and traders for soft commodities like grains. the International Livestock Research Insti- access finance and Innovative schemes are helping over- tute (ILRI). gain a share of come these challenges though – identify- Unlike crops like maize or rice, which growing export ing weak points in the value chain and can be kept for years if stored correctly, a markets. supporting them with cash, infrastructure piece of meat or a litre of milk needs to and education. This is already improving get to market very quickly. This also requires the livelihood of small farmers and traders investment in infrastructure like chilling as industries across Africa develop into plants. thriving export markets. Additionally, livestock is “not just a prod- uct you consume – it is part of a social, cul- A living bank tural and economic system,” he points out. The main challenge for livestock systems Animals have a value to rural commu- Animals have a value to rural communities beyond their market price. Animals produce dung for fertiliser, they play a key role in many religious or cultural celebrations, and they work as a live bank – something a smallholder can sell when he needs cash. 37 www.txfnews.com/special/Fin4Ag Revisiting agricultural finance nities beyond their market price, meaning smallholders are sometimes reluctant to Lower risk than crops sell, he says. Animals produce dung for fer- Livestock financing gets a poor rap but tiliser, they play a key role in many religious can actually be lower risk than soft or cultural celebrations, and they work as commodities, according to Francois a “live bank” – something a smallholder Visagie, head of structured trade and can sell when he needs cash for his child’s commodity finance at Barclays Africa. education or a family wedding. “There’s a huge move [among banks] “That’s why we call it livestock,” Cadil- towards not only looking at grains,” he hon says. “It’s actually capital – a live asset.” says. “What was groundbreaking ten years ago is now vanilla finance. The Traders in Swaziland tap finance ones that get their feet to work now will ILRI started work last year on an initiative to be the ones that have it easier going support the beef value chain in Swaziland. forward.” Funded by the International Fund for Agri- Although live animals are vulnera- cultural Development (IFAD), the three- ble to disease and theft, a calf has an year scheme will offer six-month loans to immediate value as an investment, rural traders, who will use the money to buy which grows as it matures and is pre- cattle and pay fatteners to prepare them pared for market, he says. In contrast, for slaughter. crops have no value at all until a num- “The problem in developing countries is ber of factors come into play. “You’re that traders, and often also farmers, don’t basically putting your money in the have collateral and often don’t own the ground and praying for rain.” land they are working on,” says Nadhem Banks can also insure against live- Mtimet, agricultural economist – policy, stock disease, as long as they are trade and value chains at ILRI. sourcing from a large enough farmer or The loans will be channelled through a trader rather than a smallholder. This is bank or microfinance institute and a num- because insurance is typically only ber have already expressed interest in par- available from a minimum value. ticipating. The idea is that once they have experience of lending to traders with the project money, they will gain confidence aged meat ready to be sold in European to lend with their own money when the supermarkets,” says Cadilhon. project ends. Seeking to leverage its strong trade ties The initiative aims to connect players in with the EU through the EU-Africa- the value chain and improve livelihoods for Caribbean-Pacific programme, the gov- traders as well as smallholders who either ernment decided to focus on its beef work in dry, remote locations or who do not industry. have capital. Together with the private sector, it set Partners in the project also include up a system under which smallholders Swaziland Ministry of Agriculture, the Swazi- bring cattle to government-approved land Water and Agricultural Development feeding and slaughter houses that guaran- Enterprise (SWADE) and Swaziland’s Micro- tee the health of the animal. finance Unit. Because of this, “they are health and safety compliant, they are animal-welfare Namibia targets the EU with beef compliant and they have infrastructure to 38 The Namibia Meat Board has “developed finish off their cattle,” he says. a very good export supply chain for pack- According to Meat Board figures, www.txfnews.com/special/Fin4Ag Focus on Livestock Cattle in Kenya (courtesy of ILRI) Namibia exported 9,500 tonnes of beef to sponded by setting up a quarantine the UK, Finland, Denmark and Norway last station that checks the health of animals year. before shipping them to the port of Jed- dah. The country is now exporting three Somalia re-exports live animals million to four million head of sheep and Somalia is another example of an African goats per year from Berbera port, and has country taking the initiative to develop a even become a re-export market, ship- thriving export market, this time for live an- ping animals that are brought in from land- imals rather than meat. locked Ethiopia as well as from northern Historically a big supplier of goats and Kenya. sheep to the Middle East, Somalia’s live- “It’s an interesting example of how the stock industry was struck in the late 1990s government is trying to help Somalian by an outbreak of the Rift Valley Fever dis- smallholders and livestock keepers im- ease, leading Saudi Arabia to ban imports prove the quality of animals so that they from the country. can get more income from livestock activ- 39 The government and private sector re- ities,” says Mtimet. ■ www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Back to BASIX Long-standing India’s microfinance industry has been “We try to understand what is the sub- Indian microfinance through the mill in recent years. One micro- sector, who are the players involved, how institution, BASIX, is a finance institution (MFI) that has also faced the different stakeholders contribute and its share of problems – but has weathered what are their problems,” says Dutta. model of learning them better than many – is BASIX. One initiative in which BASIX helped im- through experience. Since it was formed in 1996 as a for- prove local livelihoods and safeguard es- profit MFI, BASIX has provided credit to 1.05 sential infrastructure was in its support of million agricultural customers, disbursing the dairy sub-sector in Andhra Pradesh. $230 million with a repayment rate of 97%, BASIX helped prevent the closure of the according to managing director Arijit loss-making and under-used Wanaparthy Dutta. milk-chilling plant by extending loans worth Its relative success lies in its collabora- INR6.6 million ($75,000) for the purchase of tive and sub-sectoral approach, he says. buffaloes by 600 small dairy farmers, nearly BASIX focuses on strengthening value a third of which were women. By October chains for a handful of key crops and part- 2000, milk production at the plant had risen nering with organisations and companies from 500 litres per day to 6,000, a local milk that either introduce it to potential cus- pouch packaging machine was installed tomers or help provide them with techni- and milk was sold locally for the first time in cal assistance, business development nearly two decades. services, insurance or inputs like seeds. Since 2001, BASIX has also teamed up BASIX has so far focused its attentions with private insurers to co-develop and on rice, groundnuts, cotton, soya bean, market products like crop insurance. vegetables and dairy, conducting exten- This move was triggered by the release sive studies with each to identify areas of a research report that claimed 23% of where its intervention would benefit low-in- BASIX customers said their financial health come producers. had deteriorated since taking credit from Arijit Dutta at BASIX: “We try to understand what is the sub-sector, who are the players involved, how the different stakeholders contribute and what are their problems.” 40 www.txfnews.com/special/Fin4Ag Case study Microfinance it. The findings proved an important learn- of rural communities, says Dutta. ing experience though, and helped BASIX It also launched more comprehensive hone its mission of not simply extending technical assistance and business devel- credit but supporting the overall livelihoods opment services, helping customers through its so-called Comprehensive Pro- gramme of Livelihood Promotion, he says. Diversity of investment Still, not all its interventions have been sources successful. A partnership with PepsiCo re- lated to the multinational’s potato con- One area where BASIX stands out from tract farming scheme in the state of other microfinanciers is in its ability to Jharkland was abandoned in 2008, leav- attract a diverse and sustainable pool ing BASIX with large volumes of unrecov- of investments. The MFI has tapped ered loans. everything from Indian commercial Farmers became angry about a num- banks to multilateral investors like the ber of issues, claiming that contracts were International Finance Corporation biased in favour of PepsiCo, which was (IFC) and convertible loans. Indian sourcing from them to produce potato central bank requirements that agricul- chips. tural lending account for 18% of com- The US company had a destabilising ef- mercial banks’ portfolios has also in fect on local farmers by seeming to vary its recent years seen more Indian banks procurement standards depending on the seeking to funnel money through BASIX availability of potatoes. It would, for exam- to help them meet those targets, Dutta ple, sometimes accept lower-quality pota- says. Unlike many MFIs, BASIX is regu- toes and then sell them back to the lated by the Reserve Bank of India as a market for a higher price when supply was non-bank financial institute. 41 scarce, Dutta says. ■ www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Protection for a price – crop insurance takes root Pilot projects are Despite having nearly 20% of the world’s under solutions pioneered by the Syngenta developing cultivated land, Africa’s share of the global Foundation for Sustainable Agriculture, ac- innovative new agricultural market measured by insur- cording to Marco Ferroni, its executive direc- insurance products ance premiums paid is smaller than 1%, ac- tor. Agricultural microfinance provider One cording to Jean-Christophe Debar, Acre Fund has also been able to extend for farmers that help director of the Foundation for World Agri- more credit because of using Syngenta them improve their culture and Rurality (FARM). Latin America Foundations rain-indexed crop insurance. own economic is better “but still under-developed”. “This is the next frontier,” Ferroni says. stability and Morocco, Nigeria and Senegal have Farmers feel more comfortable taking ultimately make public insurance schemes that are pro- credit from One Acre Fund and leveraging them more vided as part of national agricultural pol- their farm business if their most uncon- bankable. icy, but very few other countries offer the trolled variable – rainfall – is no longer such same. And while private players like insur- a risk, according to a spokeswoman for the ers, brokers, input suppliers and mobile fund, which serves over 180,000 farmers phone companies have launched 10 to 15 across East Africa. Also, “insuring our farm- pilot projects across Africa, this still repre- ers en masse reduces the risk of our port- sents a very small part of the total agricul- folio, allowing us to push our expansion tural population, he says. and explore new products”. By providing income stability and a Using insurance has also made it easier safety net if the weather fails, insurance for farmers in Mali’s Coprocuma coopera- can give farmers the confidence to invest tive to access credit from banks and MFIs more in their farms, says Debar. Paradoxi- such as Soroyiriwaso and Sotobajo, ac- cally, it can also encourage them to take cording to its president, Ismaila Diakite. a little more risk – for example experiment- ing with a new crop or agricultural tech- Covering every angle nique – which can ultimately boost their There are a number of different types of in- yields. With so many risk factors already surance available for farmers. The kind facing them, farmers can understandably used depends on what the farmer wants err on the side of caution, he notes. insured, what risk he wants to insure it against, and how that risk – and its poten- Insured farmers get more credit tial impact on him – are calculated. Insurance also makes farmers a better risk Agricultural insurance tends to either for financiers and this is starting to help protect a farmer’s costs for buying inputs them access credit. like seed, fertiliser or insecticide, or his final Not just microfinance institutions (MFIs) crop yield. 42 but also banks are beginning to offer credit In an innovative example of farmer to farmers in east Kenya that are insured input insurance, the Syngenta Foundation www.txfnews.com/special/Fin4Ag Focus on Insurance products has teamed up with a seed supplier from The Syngenta Foundation offers Zimbabwe called SeedCo. When a farmer weather-index insurance products in buys a bag of maize seeds from SeedCo, Kenya and Rwanda and intends to soon the price includes a premium. This insures roll them out in Tanzania and other coun- the cost of the seeds if there is insufficient tries. Because of the lower cost – and rainfall during a 21-day window from the therefore lower premiums – index-based date of planting. Inside each bag is a card insurance is far more feasible than conven- with a special code that the farmer sends tional insurance for smallholder farmers, by SMS to a given number on the day he says Ferroni. “The need for loss adjustment opens the bag and plants the seeds. The in the field would make it impossible to insurance runs from that day. spread insurance on a massive scale to Because the insurance product is of- farmers because it is too expensive,” he fered through a mobile payment system, says. claims are paid within days. In many cases, One weakness of index-based prod- the farmer then has a second chance to ucts is basis risk. This is the risk that an index buy new inputs and plant again within the does not accurately reflect the actual ex- same harvest. periences of farmers, either because of Agricultural insurance can also be technical problems or because some based on the actual yields of a specific farmers faced highly localised weather farm – as with the public scheme in place conditions that were not reflected in the in Senegal – or based on an index. index. “Suppose you have an insurance Most pilot projects in Africa favour the index which does not trigger when farmers index approach, as not having to visit indi- do have a loss,” says Debar. “The second vidual farms in the event of a claim is year, you will not have a lot of farmers pur- much cheaper in terms of administration. chasing the insurance product again.” It is also less open to fraud. Within index-based insurance, products With an index scheme, data from satel- tend to rely on satellite data, on weather lites or on-the-ground weather stations are stations or a mix of both. The industry is used in algorithms to predict whether generally moving more towards satellites, farmers in a given region will likely have lost which are able to provide more location- some or all of their crop. These predictions specific data. The weather data gathered are based on historic average yields under can be anything from rainfall or evapora- a variety of weather conditions. tion rates to wind or even hail. Jean-Christophe Debar, Foundation for World Agriculture and Rurality: “By providing income stability and a safety net if the weather fails, insurance can give farmers the confidence to invest more in their farms. Paradoxically, it can also encourage them to take a little more risk – for example experimenting with a new crop or agricultural technique – which can 43 ultimately boost their yields.” www.txfnews.com/special/Fin4Ag Revisiting agricultural finance Finally, insurance schemes can be indi- fore to be a careful balancing act between vidual or collective. The latter type is often “having a price low enough for the farmers offered to cooperatives who all farm in the but big enough for the insurer,” he says. same region. The more farmers signed up The average premium for Syngenta’s to a scheme, the cheaper it tends to be. products is 8% to 12% of the insured value, The Canadian-sponsored System of although with its seed input tie-up, the pre- Agriculture Financing and Insurance in Haiti mium is part-paid by the input company. (Syfaah) is this year piloting a collective “This is a way to accelerate their gain in index-based crop insurance programme market share, so it’s a fair deal,” says Ferroni. for rice producers in Haiti’s Artibonite valley. Insurance is very expensive for the pro- The insurance – which will be offered ini- ducers who need it most, says Hans Bo- tially to 300 to 500 farmers – insures against gaard, head of agribusiness at Rabo natural and climatic risks such as hurri- Development. If, for example, they have a canes, flooding and plant disease, accord- drought once every five years, the pre- ing to coordinator Jean-Yves Drolet. mium starts at 20%. This is, of course, rela- tive. Because most agriculture insurance Pricing is still too high products are based on the value of inputs, Insurance is no panacea though. Farming which are often roughly 20% of the crop relies on multiple factors, all of which need value, “the insurance premium is 20% of to be in place. As Ferroni says: “If you have 20% of your crop output.” weather insurance but the wrong seeds for After extensive research into weather the altitude or ecology, the best of insur- and yield data, Syfaah is piloting its rice in- ance will not help you.” surance in Haiti with a preliminary premium Although insurers are trying to devise of just 3.8% of the crop value, says Drolet. systems to bring agricultural insurance This will cost farmers the equivalent of costs down, premiums remain too high for around $45 per hectare. Although Haiti many farmers, according to Debar. may be perceived as a country prone to Crop insurance premiums in Africa can climatic risk like hurricanes, the lower part be as high as 10% – a heavy burden for of the Artibonite valley is partially sheltered farmers who are among the world’s poor- and the 3.8% premium reflects this. est, he says. This compares with around 5%- The current premium does not however 6% for combined price and yield insurance take into account additional costs, such as in the US, after deduction of government for re-insurance or administration, which subsidies. Syfaah is temporarily shouldering itself. Developing an insurance system is cer- Once the programme is handed over to a tainly expensive, including the costs of set- Haitian public-private consortium, the pre- ting up and distributing a scheme and mium could be raised to a more viable accessing quality data. There needs there- level that reflects all costs. Syfaah is how- Obligatory insurance schemes, where farmers are not allowed to borrow from public institutions without also taking 44 insurance – as found in India and Brazil – could be one solution. www.txfnews.com/special/Fin4Ag Focus on Insurance products ever in talks over whether Haiti’s govern- premium from XAF32,500 per hectare ($67) ment and other international partners to XAF16,000 ($33) per hectare if Co- could part-subsidise the product. procuma was able to sign up at least 15,000 producers, according to Diakite, the Critical mass cooperative’s president. Reaching critical mass would help insur- The cooperative was alerted to the ance providers lower their distribution costs benefits of insurance after a disastrously and therefore their premiums. dry planting season in 2011-2012, causing Although the number of farmers ac- the loss of over 13,000 hectares of sesame cessing insurance through pilot projects in and 3,251 hectares of corn. “We were left Africa is growing, it is still tiny compared with nothing,” says Diakite. “It caused all with the continent’s huge farmer popula- our own capital and investment to dry up. tion, says Debar. That’s when we realised the impact of cli- Obligatory insurance schemes, where mate risk.” farmers are not allowed to borrow from Syngenta Foundation products insured public institutions without also taking insur- 200,000 farmers in two African countries ance – as found in India and Brazil – could last year and there are plans for a much be one solution, he says. wider roll-out “country by country at a Coprocuma, a cooperative in Mali with growing rate, working with banks and MFIs more than 500,000 members, has made in a more systematic way,” says Ferroni. compulsory the use of rainfall index-based insurance to cover farmers’ corn crop. Bro- Education is crucial 45 ker Planet Guarantee was able to cut the Given the myriad of small farms in sub-Sa- www.txfnews.com/special/Fin4Ag Revisiting agricultural finance haran Africa, it will however take time to Syfaah’s initiative. For the pilot to work, “it’s reach individual farmers and explain to crucial to give proper information to farm- them the benefits of insurance. ers,” says Drolet, noting that Syfaah needs A lot of well-established small- to in particular to make clear that the prod- medium-sized (SME) farmers and proces- uct is based on an index rather than indi- sors have never used crop, weather or po- vidual yields. litical insurance, “usually because they just are not aware that it’s available,” says Ed- Government support is needed ward George, head of soft commodities The development of mobile technology research at Ecobank. “It’s a question of plus satellites and automated weather sta- education” – letting them know that it’s tions is accelerating and will help spread available and why it’s used. the use of agricultural insurance, says Farmers may be reluctant to pay for Debar. “I’m optimistic when I see all the something they have never used before, progress being made.” especially in countries where corruption However, one big factor holding back and lack of trust are big issues. The idea of the spread of agricultural insurance is a paying money which – assuming all goes lack of government support. To help agri- well – you will never get back, can also cultural insurance reach critical mass and seem counter-intuitive to producers who become more affordable for farmers, may be new to the whole concept of in- countries in Africa and Latin America surance. need more subsidised public insurance Coprocuma however, says it was schemes, possibly supported by interna- “easy” to persuade farmers of the benefit tional organisations like the World Bank or of taking insurance, especially given their IFAD, he says. bitter experience of wide-scale crop fail- Of course, they should only back well- ure in 2011-2012. “Although illiterate, farm- designed, viable products, “but I’m a bit ers are not fools,” says Diakite. sceptical about the possibility of reaching Syfaah has taken a novel approach to a large scale without some type of public education, producing a comic strip in Cre- support,” he says. “There are still cases to ole that explains how its insurance product be made to some governments in West works. Field agents will deliver 500 copies Africa.” to farmers and, because of low adult liter- Pilot projects are already working hard acy levels, sometimes to their children so to experiment with new insurance prod- that they can read it to their parents. ucts and get farmers on board. Technol- Comic strips were widely used in Haiti ogy is helping bring costs down and make after the 2010 earthquake to spread infor- insurance easier to deliver. To move agri- mation about cholera risks, for example, cultural insurance to the next stage, gov- and farmers have responded well to ernments now need to lend their weight. ■ Because the insurance product is offered through a mobile payment system, claims are paid within days. In many cases, the farmer 46 then has a second chance to buy new inputs and plant again within the same harvest. www.txfnews.com/special/Fin4Ag Case study Insurance systems Syfaah system to be rolled out in LatAm and Africa Haiti has found itself at the forefront of agri- just 7%, compared with a typical rate of at The System of cultural microfinance with an initiative that least 10% for other sectors in Haiti and of Agriculture is shaking up misconceptions about the 14% for agricultural loans offered by credit Financing and bankability of smallholder famers and will unions outside Syfaah. Insurance in Haiti soon also be launched in Latin America This data proves that agriculture can (Syfaah), to help (LAtAm) and Africa. actually represent a lower-than-average microfinance for The System of Agriculture Financing risk to lenders, as long as credit is pack- smallholders, looks and Insurance in Haiti (Syfaah) is a three- aged properly with the right support, ac- pronged initiative that helps smallholders cording to Sylvain Dufour, credit counsellor set to be rolled out in improve their yields and manage their risks at Développement International Des- Latin America and through a combination of small loans, in- jardins (DID). Africa. surance products and technical assis- It shows that “producers repay better tance, all of which are tailored to meet than all other customers,” he says. “I think farmers’ needs. this system is able to work everywhere.” By the end of March this year, it had Sponsored by Canada, where a similar provided 490 million gourdes of credit to system helped transform Quebec’s agri- more than 6,300 producers across Western cultural sector fifty years ago, Syfaah brings Haiti and its Artibonite region, smashing its together three institutions to offer the three own target to extend 150 million gourdes components that Dufour says are key to its of loans to 3,000 producers. success. Loans extended under the system were The Inter-American Institute for Cooper- subject to a 30-day delinquency rate of ation on Agriculture (IICA) is responsible for Sylvain Dufour at Syfaah: “Employing agro- economists as credit officers means that lenders don’t make the same mistakes as in the past. They understand the producers. They are able to adapt the product for what they need.” 47 www.txfnews.com/special/Fin4Ag Revisiting agricultural finance helping smallholders improve their farming with farmers encourages them to follow methods, offering agricultural experts who best practice, meaning that their yields im- advise smallholders and work alongside prove and that lenders are more likely to them at their farms. be repaid. DID is responsible for helping farmers “Employing agro-economists as credit access small loans. Since late 2012, it has officers means that lenders don’t make the worked with the local branch of Sogesol same mistakes as in the past – insisting, for bank, credit union Federation des Caisses example, that a farmer make monthly re- le Levier and microfinance institution payments rather than repayments that are ACME to develop five credit products that timed to coincide with the sale of his pro- stretch across the value chain to finance duce. They understand the producers,” everything from inputs to storage and pro- says Dufour. “They are able to adapt the cessing. product for what they need.” Credit officers have a background in Insurance meanwhile provides protec- agro-economics, ensuring they under- tion for farmers against the uncertainties of stand the needs of farmers and manage weather, which in turn reduces repayment financial products that are tailored around risks for lenders. The second layer of protec- the agricultural calendar. tion for lenders also gives them the comfort Financière Agricole du Québec to lend to a sector they were not comfort- Développement International (FADQDI) is able with in the past. responsible for developing and offering Syfaah is now moving on to its second two layers of insurance products. The phase, which runs until 2018. It aims to ex- Fonds d’Assurance Prêt en Haïti (FAPAH) tend the system nationwide, expand its provides a partial guarantee to financial workforce of technical and credit officers, institutions lending to farmers under the and promote some credit officers to senior scheme, and is also piloting an index- positions with higher loan disbursement based crop insurance programme to targets. cover farmers. It will also create an institution – ideally The interplay of these three associa- comprising both government and private- tions is crucial to Syfaah’s success in Haiti, sector partners – that will implement 48 says Dufour. the system once Canada’s sponsorship Having agricultural experts working ends. ■ www.txfnews.com/special/Fin4Ag The magazine for agricultural and rural development in ACP countries http://spore.cta.int Get the ‘Fin4Ag Special Report’ in Spore October 2014 http://spore.cta.int Transformation Food Prosperity Resilience Competitiveness Discover how www.cta.int/knowledge-is