Transcript 5._Innovative_Financing_Dr.John_Wakiumu_AGRAx

PRACTICAL INNOVATIVE FINANCING
MODELS FOR EBA-DRIVEN AGRICULTURE
JOHN WAKIUMU
PROGRAM OFFICER, INNOVATIVE FINANCE
ALLIANCE FOR A GREEN REVOLUTION IN
AFRICA (AGRA)
AGRA CREDIT GUARANTEE SCHEMES
Between 2009 and 2014, AGRA’s Innovative Finance Unit together
with development partners have utilized US$17.1 million in credit
guarantees to leverage $160 million in credit to value chain actors
in Kenya, Uganda, Tanzania, Mozambique, and Ghana
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SUPPORT TO AGRA PROGRAMS
Country
Project
Facility
(USD $)
Amount
Leveraged
(USD $)
No. of
Farmers so
far reached
Loan
Duration
(Months)
Interest
rate
Ghana
SARI CARD
100,000
300,000
4,500
12
15%
Mali
Microdose
500,000
4,500,000
6,655
10
12%
Mali
Mission Sahel
160,000
1,120,000
278
12
15%
Mali
Maize
intensification
200,000
1,200,000
10,000
10
12%
Niger
Microdose
100,000
600,000
6,000
24
13%
Tanzania
Ari-Uyole
50,000
100,000
2,000
6
12%
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THE EQUITY BANK MODEL
 In 2008 AGRA partnered with the Government of
Kenya and IFAD to establish a credit guarantee
scheme with Equity Bank.
 The partners placed $5 million in the bank in order
to leverage $50 million in lending
 The results were outstanding: 70% of the lending
went to 50,000 smallholder farmers, 30% to 1,500
large scale farmers and 594 SMEs.
 The repayment rates were 94%.
 No claim was made by the bank.
 The Equity Bank model was the basis for the design
of PROFIT
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CHALLENGES
Challenges on the lender
side
 Small-scale agriculture too
costly and risky to serve
 Poor distribution networksmostly urban
 Capital, capacity and
operational constraints for
rural MFIs
 Lack of low-cost, innovative
service delivery mechanisms
 Bank staff not trained
adequately on agricultural
lending
 Lack of innovative products
Challenges on the
borrower side
 SHFs unable to obtain the
critical financial services
 Risky, disorganized, lowreturn nature of smallholder
farming.
 SMEs struggle to obtain
sufficient working and
investment capital
 Capacity building to de-risk
SHFs and VCAs lacking
 Limited capacity of FBOs to
negotiate better terms for
credit and reduce transaction
costs
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LESSONS LEARNED
Learning points on
the lender side
Learning points on
the borrower side
 Risk sharing can
leverage about 10
times.
 It is possible to lower
interest rates to
smallholder farmers.
 Enhancing bank
capacity is important
 Value chain approach
critical
 Smallholder farmers
need financial literacy.
 Farmers organized in
groups are more likely
to attract providers of
finance.
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LESSONS LEARNED
Learning points on the
lender side
 Lending to higher risk
farmers can be viable
business for the bank.
 Microfinance institutions
(MFI) can play an
important role in financing
farmers that commercial
banks consider too risky to
finance.
Learning points on the
borrower side
 Farmers need risk
management products to
cope with weather &
market condition
fluctuations.
 Risk sharing facilities have
enabled previously
unbanked farmers to
access credit – small-scale
farmers received about
60% of total borrowing.
 Risk sharing facilities can
have impact – increased
income through increased
productivity.
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SUCCESSFUL MODELS FOR FINANCING AGRICULTURE
 Successful financial models work best when both the
financial (supply side) and agricultural (demand side)
value chains are strengthened.
 Strengthening the financial and agricultural value chains
as well as the delivery mechanisms between them will
improve access to finance, leading to increased food
security and farm incomes.
 Capacity building, market linkage and branchless banking
interventions for value chain actors and financial
institutions and use of innovative ICT tools are key to
successful financing of agriculture.
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Country Windows of the Impact Investing
Fund
NIRSAL
• AGRA developed and provided technical support for the design of the Nigeria
Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL)
• Leveraged $500 million investment in NIRSAL by Central Bank of Nigeria (CBN)
• NIRSAL has five pillars:
• Risk Sharing Fund ($300 million to leverage $3 billion in lending)
• Technical Assistance Fund ($60 million)
• Insurance Facility ($30 million)
• Bank Incentive Mechanism ($100 million), and
• Bank Rating ($10 million).
• Naira 53.6 billion ($334 million) in loans have been extended as at February 2015
FINANCING EBA-DRIVEN AGRICULTURE
 EBA-driven agriculture could adopt the NIRSAL model to upscale
its financing across the continent. Given that this model
advocates for investment by African Governments, it could use
public and private financing mechanisms to support ecosystembased adaptation including:
 Pro-poor public-sector budgeting adjusted to incorporate climate
change risk and adaptation
 Design and application of climate change risk finance mechanisms,
and
 Social safety nets enhanced to support vulnerable groups, especially
women, impacted by climate change
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FINANCING EBA-DRIVEN AGRICULTURE
This approach can also be an investment gateway for EBA-driven
agriculture in Africa. This will be achieved through:
 Promotion of the NIRSAL model adapted to ecosystem-based
agriculture across Africa;
 There are currently on-going discussions with Governments of Ghana
and Kenya for the design of GIRSAL and KIRSAL
 Engagement development finance institutions/donors and other
organizations to provide risk sharing/credit and technical assistance
support to targeted beneficiaries using an EBA-driven approach
 Ensure that engagements are strategic and holistic to achieve
maximum impact
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FINANCING EBA-DRIVEN AGRICULTURE
African Governments have a role to play to ensure that this
innovative financing mechanism has the enabling space for every
country to benefit from as well as farmers and others to scale up
different approaches including EBA driven agriculture. This will
include the following:
 Implementation of incentive structures by Ministries of Finance and
national and subnational planning bodies designed to effect
behavioral adjustments by the public and private sectors such as:
 Regulatory and fiscal incentive structures adjusted/expanded in relevant
institutions, including key sectoral ministries and sub-national governing
bodies, to stimulate climate change risk reduction by the private sector
and households.
 Social safety nets to support vulnerable groups impacted by climate
change.
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